The new profit premium gives companies the opportunity to allocate part of their profits as a bonus to their employees in a simple and flexible way. The employees receive a premium, which amounts to either a fixed sum or a percentage of their wages without the employee being allocated a voting right in the company.
Definition of profit premium and conditions
The profit premium is a premium paid in cash if the company decides to allocate all or part of the profits of a financial year to its employees (managers are excluded).
The provisions on the profit premium were introduced by the Program Law of 25 December 2017 implemented in the Employees’ Participation in the Capital and Profit of Companies Act of 22 May 2001. The name of this law was changed as a result of the introduction of the profit premium to the "Law on employee participation in the capital of companies and the creation of a profit bonus for employees".
The possibility of awarding a profit premium is an initiative of the employer, there is no obligation to grant it. The allocation of a profit premium furthermore does not lead to this premium also being paid out the following year. The employee cannot claim any profit premium in the future.
The law states expressly that the profit premium may under no circumstances be allocated to replace remuneration, premiums, benefits in kind or any other type of benefit. It is, on the contrary, an extra premium that is unilaterally paid by the employer and that benefits from its own fiscally and socially-favourable regime. The legislator aims to avoid part of the ordinary remuneration being paid out in the form of this premium.
Identical and categorised profit premium
There are two types of profit premiums, in particular, the "identical" profit premium and the "categorised" profit premium.
The categorised profit premium is a premium that is different for each category of employees but it can only be implemented by means of a company collective labour agreement or (if there is no trade union delegation in the company) by means of an act of accession (comparable to the procedure for introducing a non-recurring result-related bonus in the context of SLA 90).
On the other hand, the identical profit premium is indeed a premium of which the amount or the percentage of the wage is the same for each employee and can easily be granted by decision of the General Assembly of Shareholders.
The decision on the identical profit premium is taken by the ordinary or extraordinary meeting of the General Assembly of Shareholders by a majority of votes.
The minutes of this meeting will include at least the following:
- The identical amount of the profit premium or the identical percentage of the wage allocated to the employees
- The method of calculating the wage on which the percentage is set if opted for this
- The award rules that must be taken into account if a seniority condition is provided for. A maximum seniority of only one year may be stipulated.
- The calculation method pro rata temporis of the amount of the profit premium in the event of voluntary suspension or termination of the employment contract except on urgent grounds at the expense of the employee.
The employer should inform his employees in writing as to the allocation and modalities of the identical profit premium.
Amount of the profit premium
The total amount of the profit premium granted to the employees amounts to a maximum of 30% of the total gross salary at the end of the relevant financial year.
Treatment regarding social security
The profit premium is not regarded as wages for the application of social security contributions, as a result of which no ordinary social security contributions are due. The employer therefore pays no social security contributions on the profit premium.
The employee however pays a solidarity contribution of 13.07% on the profit premium (new art. 38, para. 3f of the 1981 Act on the general principles of social security for employees).
With respect to the employee, this premium is subject to a tax of 7% (tax equated with income tax). Its deduction by the employer will have a discharging effect. The profit premium will (only) be stated in the calculation note for the tax assessment notice in the personal income tax of the employee concerned. For the employer, this profit premium is not deductible and must be included as a rejected expense for corporation tax.
Entry into force of the profit premium
The provisions of the profit premium took effect on 1 January 2018 with the proviso that profit premiums can be awarded based on the profit for the financial year with the closing date no later than 30 September 2017.
The introduced profit premium enables the employer to allocate a bonus to the employees of the company in a fiscal and parafiscal friendly way. Although the non-recurring result-related bonus remains advantageous for both employer and employee, the identical profit premium may be preferable in certain cases since it can be implemented in a very simple and administrative manner. The non-recurring result-related bonus must always be implemented by means of the Act of Accession.