Measures against unemployment fraud: state reason for dismissal in payroll declaration

With all the focus on the Labor Market Balancing Act that went into effect January 1, 2020, other important changes within labor law may have gotten a little snowed under. These include the fact that since Jan. 1, 2020, employers must report the reason for termination of employment in the payroll tax return.

That change is part of a package of measures that the Ministry of Social Affairs and Employment has drawn up with the UWV to prevent unemployment benefit fraud.

Culpably unemployed?

If an employer has summarily dismissed an employee, then strictly speaking he cannot claim unemployment benefits. In such a situation, however, it often happens that the parties later agree on a settlement by mutual consent in order to avoid all kinds of legal proceedings. With the settlement agreement that is then concluded, the employee can still apply to the UWV for WW benefits. Until now, the UWV had very limited control over whether the employee was guilty of culpable unemployment. Therefore, the employee usually succeeded in claiming WW benefits despite the presence of an urgent reason.

That may change. In fact, since Jan. 1, 2020, the employer must also declare something about how the employment contract was terminated, and it must do so in the payroll tax return.

Using correct codes

Effective Jan. 1, 2020, the codes in the payroll tax return have changed. Thus, employers must now choose between (among others):

'04: Termination of employment contract by mutual agreement at employer's initiative.'

21: Termination by employer for urgent reason (summary dismissal).'

Thus, if the actual reason for termination is an urgent reason, code 21 should strictly speaking be used. Incidentally, the UWV then receives the information from the wage tax return only after the WW benefit has been awarded but it does offer the authorities an additional verification option.

If it turns out that the employee wrongfully received unemployment benefits, he must repay the entire amount subject to the possible addition of a penalty. If it turns out that the employer used an incorrect code in the payroll tax return, he too risks a fine from the Inland Revenue.

There is also a risk that the Internal Revenue Service will conduct more extensive investigations within the organization.

Beware

When cooperating in a termination by mutual agreement, it is always important to point out to the employee that the employer cannot guarantee him an entitlement to WW benefits. After all, the UWV applies its own test.

This seems even more important after January 1, 2020. After all, the employer itself must now also actively declare something about the method of termination, which could result in any unemployment benefits awarded to the employee being reversed after the fact.

On top of that, the minister has also announced that from Jan. 1, 2020, UWV employees will be further investigating applications with an increased risk of culpable unemployment. They will do so by requesting additional information from the employee about the reason for unemployment. That too is one of the measures in the context of preventing WW fraud.

Thus, to avoid making the employer complicit in benefit fraud, it seems advisable in any case to use the appropriate code for the appropriate circumstance in dismissal. In the case of an actual urgent reason, 'code 04' should then be used in that context. In the case of a so-called 'strategic instant dismissal', it may be different as far as I am concerned. There, the question is whether the employer would have kept the summary dismissal dry in court and whether the employee is actually culpably unemployed. That situation may be more likely to be a "code 21. So a gray area arises here.

Be that as it may: from now on it will be (even more) necessary to be careful when concluding settlement agreements after instant dismissal! We will, of course, be happy to assist you.