The rate of the social security contributions payable by employers depends on the sector in which they operate. Higher contributions are payable in sectors with higher risks. The sector-specific contribution rates for 2018 can be found here. The employer is fully responsible for paying the contributions for employees’ social insurance.
Sector classification
A company’s sector classification is assessed at the start of its operations. Thereafter, the classification is only reviewed when there is a specific reason to do so. As the nature of a company’s activities can sometimes shift over time, it makes sense to review the sector classification (or have it reviewed) every few years. In particular, if you can move to a lower-cost sector, this can yield a substantial benefit each year.
Composite undertaking
How should the sector classification be determined for a company operating in different sectors? That was the subject of a case in which the Supreme Court has recently ruled on this matter. The case concerns a private limited company that operates a building contractor’s business. However, its activities also include landscaping work. The latter activities fall within sector 1 (agriculture), whilst the building contractor’s business belongs to sector 3 (construction).
The Tax and Customs Administration classifies the company as operating in the construction sector. It bases this classification on the turnover generated by the private limited company through its activities.
The private limited company disputes this sector classification. Its argument is that the work for which it pays wages consists primarily of gardening work. This is because the gardening work is mainly carried out by the company’s own employees, whilst the contracting work mainly involves the use of subcontractors and agency workers.
The Supreme Court has ruled that, for the purposes of sector classification, the sector in which the employer generally pays the highest amount of wages subject to social security contributions must be used. The sole determining factor for this is the wages paid by the employer itself. The wage component of the amounts paid to subcontractors and agency workers is not taken into account. The private limited company must be classified in sector 1.
No more sectoral classification from 2020?
In the draft bill submitted for public consultation online Balanced Labour Market Act (WAB) It is proposed that the sector-based classification be abolished. The proposal is to apply a single high rate and a single low rate across all sectors. This bill is due to come into force on 1 January 2020. It has yet to be tabled in Parliament.