The Programme Act of 25 December 2017 introduces the profit premium and amends the Act of 22 May 2001 concerning the participation of employees in companies' capital and profits. From now on, employers can distribute (part of) their profit amongst their employees. The profit premium enjoys an advantageous tax and social security regime.
Context
The Act of 22 May 2001 concerning the participation of employees in companies' capital and profits introduced employee participation schemes. On the basis of this Act, employers could introduce participation plans, allowing employees to participate in either the capital or the profit of the company under an advantageous tax and social security regime. Employee participation schemes were not very successful in practice, however, most probably due to the strict formalities which had to be observed and the condition of equal participation in the company's profit for every employee (without any possibility of differentiation).
The Programme Act of 25 December 2017 amends the Act of 22 May 2001. The regime of schemes allowing employees to participate in the company's capital remains virtually the same. However, schemes for employee participation in the company's profits are replaced by the profit premium, with simplified ways of introducing such schemes, the possibility to differentiate between categories of employees and a further reduction of the applicable tax rate.
Conditions
The profit premium allows employers to distribute (part of) their profits amongst their employees under a specific and advantageous tax and social security regime. In contrast to participation in the capital, the awarding of the profit premium does not grant employees any voting rights in the company.
In principle, the profit-sharing premium has to be awarded to all employees. There is, however, one exception to this rule: the employer may introduce a seniority condition of a maximum of one year.
Furthermore, employers may choose between an identical or a categorised profit premium:
- Identical profit premium: each employee is entitled to an equal amount or to an equal percentage of his/her remuneration.
- Categorised profit premium: differentiation between different categories of employees, whereby the amount of the profit premium is dependent on an allocation key based on objective criteria, such as function, seniority, etc. Individual differentiation, however, remains impossible.
The introduction of the profit premium is subject to the following conditions:
- The total amount of the profit premiums granted per tax year may not exceed 30% of the total gross wage sum.
- The profit premium must be an additional benefit. In other words: the premium may not be introduced to replace or convert another element of the employee's remuneration (wage, premiums, benefits in kind or any other benefit or complement thereto) to which the employee is entitled on the basis of the individual or collective labour agreement, regardless of whether or not the element is subject to social security contributions. The employer can, however, decide not to extend or renew an existing bonus plan and to introduce a profit premium.
Introduction
The rules on the profit premium entered into force on 1 January 2018. Profit premiums can only be awarded on the basis of the profit of tax years ending at the earliest on 30 September 2017.
The employer unilaterally takes the initiative to introduce a profit premium. The grant of a profit premium does not constitute an acquired right for the employees. Thus, the employer has to decide on the grant of a profit premium on a yearly basis.
The manner in which profit premiums can be introduced depends on whether an identical or a categorised premium is involved:
- An identical profit premium is introduced by a decision of the general shareholders' meeting. The minutes of the meeting must include a number of mandatory points. Subsequently, the employees are informed of the decision to introduce a profit-sharing premium in writing.
- A categorised profit premium is introduced by a collective labour agreement. In the event that there is no union representation in place within the company, the categorised profit premium may also be introduced by an accession act. The specific rules (including the obligations to inform and consult) contained in Chapter II of the Act of 22 May 2001 must be respected.
Small companies (these are companies which do not exceed more than one of the following thresholds on a yearly basis: 50 employees on average, a yearly turnover (excluding VAT) of EUR 9,000,000 and a balance sheet total of EUR 4,500,000) may grant a profit-sharing premium in the framework of an investment plan. In that case, the employees make the premiums available to the company as a non-subordinated loan, with a duration of at least 2 years and a maximum of 5 years.
Advantageous tax and social security regime
The employer must perform a final tax withholding on the profit premium at the expense of the employee. The tax rate amounts to 15% in the case of profit premiums in the framework of an investment plan and 7% for all other profit premiums. For the employer, the profit premium constitutes a rejected expense.
If the above-mentioned conditions are met, the National Social Security Office does not treat the profit premium as remuneration (therefore, the regular social security contributions, i.e. employer's contribution (25%) and employee's contribution (13.07%), are not due). The profit premium is, however, subject to a solidarity contribution of 13.07% from the employee (which must be withheld by the employer). No employer's contribution is due.
Example comparing a normal bonus to a profit premium:
| Normal bonus | Profit premium |
Profit premium |
|
|---|---|---|---|
| Gross bonus | EUR 1,000.00 | EUR 1,000.00 | EUR 1,000.00 |
|
Employee's social security contribution |
EUR 130.70 | EUR 130.70 | EUR 130.70 |
| Taxes | EUR 391.19 * | EUR 60.85 | EUR 130.40 |
| Net bonus | EUR 478.11 | EUR 808.45 | EUR 738.90 |
|
Employer's social security contribution |
EUR 250.00 ** | EUR 0 | EUR 0 |
| Rejected expense *** | EUR 0 | EUR 295.80 | EUR 295.80 |
| Employer's total cost | EUR 1,250.00 | EUR 1,295.80 | EUR 1,295.80 |
| Cost/net bonus ratio | 2.61 | 1.60 | 1.75 |
* Taking into account an average tax rate of 45%
** Taking into account the basic rate of 25%
*** Taking into account the standard corporate income tax rate of 29.58%
Advantageous regime: employment law
The profit premium is not taken into account for the calculation of holiday pay and the severance payment.
Furthermore, the profit premium is not taken into account for wage moderation (i.e. the maximum margin for the development of labour costs in a given year).
The profit premium may be cumulated with a non-recurrent result-based benefit on the basis of Collective Labour Agreement no. 90.
Conclusion
The profit premium allows employers to grant their employees an extra benefit under an advantageous tax and social security regime. The decision to award a profit premium must be taken on a yearly basis and does not constitute an acquired right for the employees. The profit premium does not have to be identical for all employees, and it may be categorised. It is expected that the profit premium will be more successful than the former schemes for employee participation in the company's profit, and more successful than even the non-recurrent result-based benefit on the basis of Collective Labour Agreement no. 90.