A bonus is the perfect way to reward employees for going the extra mile. But one bonus is not like another. The employee traditionally sees more than half of his cash bonus go up in smoke. And that does not escape a thoughtful employer either. Fortunately, the law provides tax-friendly alternatives to the cash bonus. One of these is the wage bonus.
What is the wage bonus?
The wage bonus, or the 'non-recurring result-related benefit', is a bonus linked to collective targets of either your entire company or of a well-defined group of employees based on objective criteria.
Why the wage bonus?
The wage bonus up to € 3,413 is the most interesting bonus option for an employee from a tax perspective. After all, an employee does not have to pay taxes as long as the gross salary bonus is less than € 3,413. The employee does have to pay 13,07% social security contributions of this amount. A nice € 2,968 net remains.
The employer has to pay a special social security contribution of 33%. The total employer's cost is therefore €4,539 for a net bonus of €2,968. This is a net bonus/employer cost ratio of no less than 65%. By way of comparison: for the traditional cash bonus this is only 38%.
It is therefore no surprise that the wage bonus is extremely popular in Belgium. In 2018, for example, almost 800,000 employees benefited from this bonus, worth a total of more than 710 million euros.
Is the wage bonus suitable for my company?
Of course, there are some conditions for implementing the wage bonus in your company:
- Collective. As mentioned above, the achievement of the bonus may not be linked to the individual performance of an employee.
- Objective. The objective to which the bonus is linked must be measurable and verifiable. Traditionally, the tax authorities accept that a turnover objective is an objective that fits perfectly within this picture. However, an objective does not have to be strictly financial (e.g. higher customer satisfaction).
- Duration. The target should be measured over a period of at least 3 months (e.g. turnover of the last quarter).
- Uncertainty. The achievement of targets must still be 'uncertain'. So you cannot link the bonus to targets that have already been achieved.
How can I define 'a group of employees'?
The wage bonus is the ideal way to reward the whole company or specific groups of employees for their excellent work. But what exactly are specific groups?
Groups of employees in a company can only be distinguished on the basis of objective criteria. Examples are: job category, seniority, education level or department.
Should the amount be the same for all employees?
No. Again, it is important that you make the distinction based on objective criteria.
You are free to choose a reference period for achieving the targets. The reference period must be at least three months, but in practice it usually coincides with the financial year of 12 months.
Important: If you use a calendar year as the reference period, the wage bonus plan must be filed before April 30th of the year to which the bonus relates.
What exactly is the difference with the profit premium?
There are a number of differences with the profit bonus:
- The profit bonus can only be introduced for all employees.
- The profit bonus can only be linked to a company's profits. In other words, a company must make a profit in order to be able to introduce a profit bonus.
- The profit bonus is maximised at 30% of the total personnel costs. The wage bonus amounts to a maximum of € 3,413 per employee.
- The employee pays a withholding tax of 7% on the amount of the profit bonus.
- The profit bonus is not deductible as a professional expense for the employer, but the wage bonus is.
- The profit bonus is not subject to an employer contribution, but the wage bonus is (33%).
- The profit bonus scores slightly less well on the ratio employer cost/net bonus (64 %) than the wage bonus (65 %).
As long as the maximum gross bonus for an employee is € 3,413 or you do not want to pay out a bonus to the entire company, the wage bonus will often be the most interesting option. If you want to pay out higher bonuses, then the profit bonus can be a very good alternative, whether or not in combination with the wage bonus.
How do you implement the wage bonus?
To implement the wage bonus, you must (as long as you do not have union representatives) submit a deed of accession to the registry. You can do this through the government's e-portal: https://bonusplannen.be/.
Via a step-by-step plan, you can provide all the necessary data to the government.
After drawing up the provisional act of accession, you must wait 15 days before signing the act of accession. During these 15 days you have to give employees the opportunity to formulate remarks in a register in the company. If these remarks are not resolved, the certificate of accession cannot be sent.
After the final signature (which can also be done via the e-portal), the application is checked by the joint committee. You can then expect an answer (approval/rejection) within 3 to 4 months.
Impact of the corona crisis on the deadline?
If you choose a calendar year as the reference period, the deadline for submitting the deed of accession also remains April 30th in 2020. No postponement will be allowed in times of corona crisis.
However, the FPS WASO does provide some more flexibility in the notice procedure for employees. The register posted in the company will be replaced by an online procedure:
- The employer sends the bonus plan (accession deed) to the employees via e-mail with a request for comments.
- The employer forwards all comments by e-mail to the Social Law Inspectorate (email@example.com).
Need help implementing your favourite bonus policy? Payflip is happy to help! Book a meeting with our in-house expert Maura via this link.