By investing gross salary ('salary reduction') less tax and social security contribution will be withheld. This can generate an advantage if the reduction of salary is used to finance higher travel allowance, a bycicle or study, for example. The reduction of salary will be processed in the month the AVOM-option commences. In case you want to use your salary for a bicycle or study expenses then this can only be processed after the expenses of these resources are known.
The employee makes an AVOM agreement concerning the purchase of a bicycle costing € 750.00. Based upon this agreement we will pay € 750.00 from his gross salary net. How does this work?
The gross salary will be reduced (for a certain amount of time) with the total of € 750.00. This means that less will be taxed and less social security contributions will be withheld, for example € 199.421) . The net salary will thus be reduced with € 750.00 - € 199.42 = € 550.58. The € 450.00 bicycle will cost the employee € 550.58.
You can reduce your salary during various periods, depending on your chosen objects:
- Object extra travel allowance: your salary will always be reduced with a fixed amount every month.
- Object bicycle for commuting or reducing your study expenses: you may opt to spread the reduction over two or three years or to have the reduction of salary in the month of May (month in which holiday allowance is paid out) or December (month in which end-of-year bonus is paid out) in two or three consecutive years.
- Other objects: you can chose between one or 12 months.
Please make note of the following when making your choice
- The period of reduction of your salary cannot extend beyond the lenght of your employment contract.
- The reduction is limited by the legal requirement that at least the minimum wages should remain every month.
- The agreement about reduction of the gross salary may lead to a lower holiday allowance but this should never be lower than the minimum amount holiday allowance.
- The reduction of salary in the year previous to the termination of employment will influence the height of a possible unemployment benefit (WW/WOI).
- AVOM has no influence on the height of the allowances mentioned in art. 3.8 of the Cao-OI. It also has no influence on the payment of overtime or holiday hours.
- Reduction of gross salary does effect the social security premiums and claims to these social insurances.
- Reduction of gross salary does not lead to changes in pension entitlements (ABP Surviving Dependants Pension; ABP Occupational Disability Pension and ABP Multi-option Pension and ABP Retirement Pension) and their payable premiums. Your pension accrual is reduced if you should chose for the reduction of your salary for a period longer than 12 months. We therefore advise you to limit your salary reduction to a maximum of 12 months.
- Your income in the last 12 months of your employment are decisive in the height of your possible WW/WOI benefit. Employees that know the termination date of their employment may avoid a lower WW/WOI benefit by ending their participation to this AVOM in the last 12 months of their employment.
- During the first 12 months of disability the employee receives hundred percent of his salary. Agreements on the reduction of salary remain unchanged in this period. From 13 months of disability, the salary of the employee is reduced to 70 percent in certain cases. If this reduction should lead to an evidently unreasonable situation according to the employer, than a customised agreement can be made according to the hardship clause (Cao-OI art.1.11). If disability leads to the termination of employment, the agreement on the reduction of salary will be settled. If this reduction should lead to an evidently unreasonable situation according to the employer, than a customised settlement agreement can also be made according to the hardship clause (Cao-OI art.1.11). After termination of employment there is a right to several benefits according to: the height of salary, level of disability, if there are any indications of (partial) replacement possibilities and the manner in which the employee has extra insured himself against disability.
It is difficult to give a general indication what the effect will be of reduction of salary on these benefits. Should you have further questions concerning these issues you may turn to your personnel officer.
When it becomes clear that employment will be terminated during the period agreed upon, then a customised agreement will be made regarding incorporating the changed circumstances. On the termination of employment the Tax Authority states that remaining obligations will be settled with the net salary.
The costs for purchasing a bicycle of € 750.00 from the previous example are 'redeemed' by reduction of the gross salary during 36 months with € 20.83. Halfway the duration the employment is terminated. Unlike the previous example, € 94.50 is withheld from tax and premiums instead of € 199.42. The employee has had a net reduction of his salary of € 750.00 : 2 - € 94.50 = € 280.50 over a period of 18 months. Only half of the purchase price is redeemed. The remaining part (€ 375.00) has to be settled with the net salary. A bicycle costing € 450.00 will cost € 94.50 + € 375.00 = € 469.50 for the employee.
1) Calculation based on the salary of a PhD student (second year)