The Act of 22 May 2001 regarding the participation of employees to the capital of the companies and on the establishment of a profit premium for the workers, has been amended last year, whereby a new chapter was added allowing companies to grant a profit premium to their employees in function of the profit made by the company.
However, the wording in this new chapter of the Act of 22 May 2001 was not always very clear which resulted in several practical questions. Given the above the legal provisions regarding the profit premium have been amended. These new modifications are meant to clarify some points to avoid or limit eventual interpretation issues.
In this article we will repeat in a nutshell the nature of this premium, make you aware of the conditions under which it can be awarded and the advantages linked to this profit premium.
As the term indicates, the possibility to grant employees a profit premium is only possible for companies that were profitable during the last financial year. If the company decides to grant such profit premium, all the employees must in principle be entitled. The identical profit premium can take the form of a fixed amount or a fixed percentage of the salary. The amount of the categorized profit premium can vary based on objective criteria.
The attribution of an identical profit premium must be based on a decision of the general assembly.
The introduction of a categorized profit premium needs to be introduced with a participation plan or an act of adhesion depending on whether or not the company has employee representative bodies. This procedure is also subject to specific modalities.
The attribution of a profit premium is subject to certain specific conditions and exclusion(s). Also, the company that would like to grant an identical profit premium will have to inform its employees on this matter. Prior to implementing such profit premium in the company, it is important to seek proper advice from a subject matter specialist to ensure compliance. Non-compliance could lead to administrative or criminal sanctions, as well as to claims from the National Social Security Office (“NSSO”).
Suspension and termination of the employment contract
The law provides for the possibility to prorate the amount of the profit premium.
Both the identical and categorized profit premium can be prorated taken into account the actual working time performed by the employee during the last closed financial year. In case of suspension of the employment contract, the legislator has decided to assimilate certain periods of suspension to effective working time (although the employee was not actually working). This means that the employer may not prorate the profit premium based on the periods of suspensions which are assimilated.
The company can also exclude certain employees from the entitlement to a profit premium. The right for the company to exclude employees that were employed during the last closed financial year only applies in case of termination. This will be the case for employees that have been dismissed for serious cause during the last closed financial year or employees who terminated their own employment contract during the last closed financial year.
What’s in it for you
Next to the fact that the attribution of a profit premium can be a positive incentive for employees, the profit premium is also subject (if it meets the legal conditions) to a friendly social security and tax treatment.
The profit premium will not be regarded as remuneration by the NSSO and will consequently not be subject to the standard social security contributions. Only a solidarity contribution of 13.07% which is paid by the employee will have to be paid.
Furthermore, the profit premium will not be considered when controlling if the salaries paid are in line with the wage moderation obligation.
Finally, the profit premium falls outside the scope of the “remuneration” as defined by the Act of 3 July 1978 on employment contracts, which means that it will not be taken into account for the calculation of amongst others the indemnity in lieu of notice or the holiday pay.
EY Law would be please to provide you with more information in this respect should your company consider the introduction of such profit premium!