Bonuses and rewards

What it means

Bonuses and incentive pay are variable components of wages paid in addition to the basic wage. An incentive bonus is usually tied to meeting targets set in advance, while a one-off bonus may reward exceptional performance, a work anniversary or the completion of a task.

What matters is whether the component is contractual or discretionary. If the conditions of a bonus are set in the employment contract, a pay policy or a collective agreement and the employee meets them, they are legally entitled to payment. A discretionary bonus depends on the employer’s decision.

Bonuses are part of gross pay, so contributions and tax are paid on them just as on basic pay, in the month they are paid. They differ from wage supplements, which the law ties to work at particular times or in particular conditions.

How it works in practice

When introducing a bonus scheme we help set measurable criteria, such as turnover or quality KPIs, and word them so that it is clear when the entitlement arises and when it does not. Vague wording is the most common source of disputes when an employee leaves.

Annual bonuses are often paid after the year ends. If they relate to the past period, we recognise them in the financial statements as a provision or accrual so that the expense belongs to the year the bonus is for. We do the same with the 13th salary and with profit shares for directors.

For larger one-off bonuses we point out the maximum assessment base. No social insurance contributions are paid on the part above the cap, so paying a bonus in one month may mean lower contributions than spreading it. For health insurance this is evened out in the annual reconciliation.

What to watch out for

A contractual bonus cannot be withheld unilaterally just because the company is doing badly if the employee met the conditions. An employer who wants flexibility must expressly call the bonus discretionary and treat everyone the same when reducing it.

The principle of equal treatment applies to bonuses. Different bonuses for employees in the same role must have an objective reason, such as performance, otherwise an employee can allege discrimination and claim the difference.