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Are employers obligated to award compensation for intellectual property?

15 December 2020 Karolien Van Herpe Employers

More and more people are now being awarded compensation for intellectual property: in the past couple of years, there has been a dramatic rise in the number of employers compensating employees in return for transferring intellectual property. This is a win-win situation for all parties, as your employees are rewarded for their creativity in the form of a tax incentive.

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In which sectors and companies is intellectual property prevalent?

Intellectual property rights protect the works of a creator or author. When we hear about ‘intellectual property’, we often associate it with writers and other creatively-minded people. However, the term actually encompasses far more than artistic professions alone. Although many writers, translators and interpreters, advertising, PR and communication agencies, graphic designers, fashion designers, film producers and artists often take advantage of copyright law, intellectual property is of relevance to other sectors, too.

Examples include software and video game developers: around 80% of all requests that we receive at Acerta relating to copyright and intellectual property are from the IT sector. In total, just under a quarter of employees working at computer consultancy firms receive compensation for intellectual property (NACE code 62020). That’s not all: some services and activities carried out by consulting firms, insurance companies and even coffee producers are sometimes eligible for intellectual property protection, provided that they meet certain conditions.

What are the conditions that have to be met in order to refer to something as ‘intellectual property’?

The conditions are not clear cut. There is no catch-all list of eligible activities. That said, there are some elements that are required to be able to determine whether your employees’ work can be deemed intellectual property.

First and foremost, the work must contain sufficient creativity reflecting the personal stamp of the creator. In other words, you have to be able to show that your employee is responsible for creating protected works. A journalist who writes a legal article can request intellectual property protection. By contrast, a lawyer who makes a case is not entitled to this protection. Although the pleas being written may be original, they would not be interpreted as intellectual property by the law.

Why should you, as an employer, award compensation for intellectual rights?

If you have an employee who you believe is creating intellectual property protected by copyright, you may want to use this property. The employee can make you the owner of this work by transferring their rights to you in exchange for compensation.

This compensation is worth considering, especially when dealing with coveted talent (in the IT sector, for example). Offering attractive remuneration enables both smaller and larger companies to gain an edge over their competition. It also boosts their employer brand.

Compensation for intellectual property is a way to optimise employee salaries, encourage creative and increase employee satisfaction. It is also worth the effort for you as an employer, as it enables you to find and retain top talent. Compensation for intellectual property also comes with tax incentives.

Put it down on paper

Awarding compensation for intellectual property is a complex matter, legally speaking, which is why it is recommended to put everything down in writing. Will the work be transferred in full or in part and will it be temporary or permanent? Are you awarding compensation separately? If so, how much? Set out the agreements clearly and make them definitive in a contract.

The compensation is usually a percentage of the employee’s gross wage, but this doesn’t mean you should simply choose one. If you want to be sure everything is correct and there are no risks, be sure to seek guidance.

Cross-border employment and salary split

When a person is employed in two countries for two different employers, he or she will automatically be taxed in those two countries. The administrative and legal implications of cross-border employment are not to be underestimated. Acerta can support you to examine and organize the salary split.

Salary split

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Written by Karolien Van Herpe

Senior Legal Consultant Legal & Reward

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