Granting a bonus (= variable salary) is a common method to reward an employee for achieving certain targets, to improve his individual performance and to boost his commitment to the company. However, when considering granting such a bonus, an employer must be aware of the implications such a bonus may have on the calculation of other salary elements the employee receives.
Secondly, such bonuses are not interesting from cost-net ratio as they are subject to high taxes as well as employer and employee social security contributions. We will discuss the implications of such a bonus and possibilities for optimization in this blogpost.
Kindly note that commissions will not be discussed in this blogpost as they are subject to their own set of regulations.
Possible implications of variable salary on other salary elements
Vacation allowance
A vacation allowance should not only be paid on the fixed salary of an employee, but also on the variable salary (“variable vacation allowance”). The variable vacation allowance is calculated on the average amount of variable salary the employee received over the 12 months preceding the month in which he takes his main vacation, or if applicable, over the part of those 12 months during which he was employed.
It amounts to 15.67 % of the gross variable salary and one cannot agree with the employee that the holiday allowance is included in the variable salary. The vacation allowance should therefore always be paid on top of the variable salary.
Year-end premium
The year-end premium is regulated at sector level. Consequently, the applicable sectoral collective labour agreement (“CLA”) should be consulted to know whether the year-end premium should include the variable salary in that sector.
Severance pay
The Law of 3 July 1978 on employment contracts stipulates that the severance pay of an employee whose salary is fully or partially variable, must include the average variable salary received “over the 12 preceding months or, if applicable, the part of those 12 months during which the employee was employed”.
According to well-established case law, when calculating the average variable salary of employees whose salary is partially or fully variable and who have been long-term absent in the months preceding the termination of their contract, “the 12 preceding months” should be understood as the 12 months prior to the suspension of the employment contract due to the long-term absence.
However, in a case dated 9 November 2023, the Constitutional Court used another calculation method. In this case, which concerned an employee who had been unemployed for 5,5 months due to force majeure as a result of Covid-19 during the 12 months before his dismissal, the court stated that the variable part of the salary corresponds to the average variable salary the employee received over the 12 months preceding the termination of the employment contract, reduced by the period of suspension of the employment contract. In other words, the average variable salary must be calculated over the period during which there was effective performance by the employee during the 12 months preceding the dismissal.
As the Constitutional Court does not make a statement about the existing case law, the impact of this ruling is yet to be determined.
How to optimize the variable salary?
Besides the fact that variable salary may have an impact on the calculation of various salary elements as set out above, it is subject to social security contributions (an employee contribution of 13.07% and an employer contribution of 25%) and withholding taxes at the maximum rate of 53.50%.
A more favourable alternative is the non-recurring, result-related benefit based on the act of 21 December 2007 and the CLA n° 90, also called a collective bonus plan. This bonus is linked to the achievement of objectively defined, collective goals by the company or a group of employees within the company. A specific procedure involving the approval of the government applies. For collective bonus plans for 2024, the deadline to finalize the procedure is 30 April 2024.
If the bonus does not exceed certain social and fiscal thresholds and if certain conditions are fulfilled, the collective bonus is not subject to withholding taxes and is tax deductible as a business expense. Furthermore, it is not taken into account for the calculation of a.o. the severance pay and the vacation allowance.
Other options such as the granting of a profit participation bonus or warrants, may also be worth investigating.
For more information on this topic, do not hesitate to reach out to Pro-Pay via the contact form.
