The social regime applicable to the allowance paid as part of an individual mutual termination agreement (MTA) currently differs depending on whether or not the employee is legally entitled to a full pension.
The official social security’s website (“BOSS”) summarizes the applicable rules as follows:
- the MTA allowance paid to an employee who is entitled to a full pension scheme does not benefit from any tax and social security exemptions;
- the MTA allowance paid to an employee who is not entitled to a full pension benefits from tax and social security exemptions up to certains limits (currently €87,984 gross for most of the social charges). For the part which benefits from the faborable social regime, the MTA allowance is subject to a 20% social security flat-tax paid by the employer.
The Bill amending the social security budget for 2023 (including the pension reform), adopted on March 20, 2023 (and currently under the Constitutional Court’s review), purports to modify these provisions by providing in its article 4 that:
- the MTA allowance will be exempt from social security charges within the limits provided for by law, including if the employee is entitled to a full pension;
- the employer will have to pay a flat-tax of 30% on the part of the MTA allowance which benefits from the social security’s favorable regime.
The text specifies that these provisions are intended to be applicable to MTA allowances paid for employment contratcts terminated as from September 1st, 2023.
Subject to the entry into force of the Bill, as of September 1st, 2023:
- the preferential social regime will apply all employees which no distinction based on pension entitlement;
- the cost supported by the employer as part of MTAs will increase from 20% to 30% of the amount of the amount benefiting from a favorable social security regime.
Employers should therefore anticipate and/or accelerate the planned procedures for mutual termination of employment so that they are completed before September 1st, 2023.