What are bonuses for employees and how do they work?

bonuses for employees

In many companies, some workers are rewarded with a bonus or commission in addition to their salary. This type of remuneration is linked with the situation and results of the company and depends on its productivity, profits or the fulfilment of certain previously established targets.

Its purpose, then, is to financially reward the actions of workers for their commitment, performance or achievements.

Types of bonuses

1. Discretionary

It is the company or the entrepreneur who decides to offer a bonus. They also decide how much the bonus will be. Bonuses can be established by the contract or collective agreement, where it is stipulated that a percentage of the salary may vary according to certain targets. The company must establish the targets, periods of time and conditions for the bonuses to come into effect in the contract or in the internal remuneration policy.

2. Ex-gratia remuneration

Not all workers have the opportunity to receive a bonus. It is the company that unilaterally decides to offer this possibility. However, once the conditions of its accrual have been established and accepted by the workers, the bonus is included as a source of the employment relationship through Article 3.1 of the Workers’ Statute (ET) and it acquires the status of a salary supplement.

3. Indefinite or temporary

The employer establishes whether the bonus can be indefinite or temporary. However, although it is the entrepreneur who sets the terms of the bonus, once they have been established, what is known as an expectation of a right is created. Thus, if the targets set are achieved, the expectation disappears and the worker acquires a right.

Benefits of bonus pay

The aim of offering bonus pay is to foster healthy competition, increase productivity and motivate workers. For this to work, it is also important to listen to the workers’ demands and analyse their viability.

When are bonuses paid?

There is not a specific date for the legal receipt of a bonus. Normally, an agreement is reached between company and worker, and the bonus is paid, for example, at the end of the first quarter of the year following the full fiscal year in which it has accrued. Bonuses may also be paid on a quarterly or half-yearly basis. However, there are companies that spread their bonuses throughout the year, since they are accrued in shorter periods.

In order to receive the bonus, there can be two types of conditioning factors:

  • Background conditioning factors: factors such as workers satisfactorily completing their tasks, the fulfilment of personal or group targets, and factors linked with the results of the company. If the bonus is tied to the targets of a team, sometimes problems may arise when it comes to sharing out the sum involved.
  • Temporal conditioning factors: for example, when the company insists that the employee has worked at least a full year or a minimum period according to the accrual of the bonus before the bonus can be paid.

3 considerations about bonuses we advise you to be aware of

Legal ramifications

On occasions, legal problems may arise, especially if the targets are not clearly and concisely defined. It should be borne in mind that, in most instances, judicial cases are resolved in favour of the employee. Something else to be taken into account is the lack of checks when establishing whether or not the targets have been reached.

Therefore, in order for the bonus pay to be effective, Clàuda Segura, an employment lawyer at Rosclar, explains that “With respect to the supplement, three main issues must be taken into account:

  1. The targets must be set at the beginning of the year or at the beginning of each accrual period. That is to say, workers must be aware of these targets sufficient time in advance, so they can organise themselves to meet them.
  2. These targets must be reachable.
  3. In the event that the contract is terminated due to an unfair dismissal, the worker may be entitled to the proportional part of the bonus. It should be noted that if the contract is terminated due to a lawful dismissal, the worker is not entitled to receive the bonus.

Ramifications with respect to Social Security contributions

The accrual of the bonus has a direct impact on the worker’s contributions, since the proportional part of the contribution basis must be applied to the entire period corresponding to the bonus through payment of arrears.

It is vital that those responsible for calculating payroll are informed of this, in order to avoid possible irregularities in the contributions, which could result in a labour inspection and even a fine for the company.

Tax ramifications

The bonus will be taxed at the moment it is paid, neither before, nor after; depending on how much it is, it will have a direct impact on the retention percentage to be applied to the employee’s payroll.

This is why, here at Rosclar, we recommend that if the planned bonus payment is known at the beginning of the year, this information should be shared, so that as accurate a forecast as possible may be made, and the worker’s retention does not show substantial changes that will therefore affect the net amount received.

If you need any advice related with employment, at Rosclar we have a team that will always be available to clarify any doubts.

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