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Profit Premium Plan
How does the new Profit Premium Plan fit into your variable pay agenda? Which bonus plan fits best your company?
The new Profit Premium Plan is easier, more attractive and more tax efficient
Updated March 2019
The Profit Premium Plan in 2019
Further to the law of 14 December 2018, some changes were introduced to profit premium plans applicable since 1 January 2019.
Profit Premium based on “identical amount” - Pro rata temporis calculation
Before the law’s amendment, it was unclear when the profit premium could be distributed pro rata temporis (i.e. proportionate to the length of time involved). The Program law only provided a pro rata temporis grant in cases of “voluntary suspension” or “if the employment agreement is terminated”. It was unclear how these two terms should be interpreted (e.g. for part-time work, time credit, thematic leaves?).
The new law answers these questions by clarifying that the profit premium can now be calculated in relation to the employee’s effective performances during the closed accounting year. In practice, the profit premium can be distributed pro rata temporis for part-time work or if an employee left the company during the closed accounting year.
However, some periods of interruption in the employment agreement’s execution (such as annual leave, holidays, maternity leave, periods of guaranteed salary in cases of work incapacity, etc.) must be considered equal to effective performances.
Profit Premium based on “identical percentage” - Pro rata temporis calculation
To avoid a dual application of the pro rata temporis principle, the law clarifies that the pro rata temporis calculation is only applicable for identical profit premiums based on a fixed amount (“identical amount”) and not for those based on an “identical percentage”. The latter types are determined by a percentage of the employee’s gross salary, effectively earned during the last closed accounting year, and are therefore already pro rata.
Legislation established which employees can be excluded from the distribution of profit premiums. These are employees who were dismissed for serious cause during the last closed accounting year and/or employees who resigned during said period (excluding those who resigned for serious cause on the part of the employer).
Profit premium not considered as salary
It has been confirmed that profit premium distribution is not considered as salary. Consequently, the profit premium is not part of the calculation basis for severance pay and vacation pay and must not be included in determining whether or not the wage norm is respected. This amendment to the law entered into force retroactively from 1 January 2018.
Last closed accounting year as reference period
The reference period of a profit premium has been limited to the last closed accounting year. This is relevant for determining beneficiaries, the total amount of participations to the profit and the salary as calculation basis for the profit premium.
Companies aiming to implement a profit premium in 2019 should imperatively take into account these new provisions.
Sofie Van Breedam, Global Employer Services Partner at Deloitte, in collaboration with Stijn Demeestere, Head Partner of the Employment, Pensions and Benefits practice at law firm Laga, are readily available to assist.
The Program Law published in the State Journal of 25 December 2017 (Dutch | French) introduces an almost entirely new tax regime for Profit Premium Plans (Winstpremie | Prime bénéficiaire) replacing the existing regulation for Profit Participation Plans. The objective of the new regime is to improve employee purchasing power by introducing a simplified and even more attractive scheme.
Sofie Van Breedam, Global Employer Services Partner at Deloitte, in collaboration with Stijn Demeestere, Head Partner of the Employment, Pensions and Benefits practice at law firm Laga, looked into the new Profit Premium Plan.
Although this is certainly a very attractive scheme, each organisation will need to assess and define whether and how this new plan fits within its variable pay agenda.
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