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Wages: variable income elements

Wages variable compensation elements

The variable elements of the pay contribute to an individualization of the remuneration and make it possible to proceed to the motivation of the salaried personnel. They allow the employer to concretize the reality at the level of the payslip.

On the other hand, when the employer chooses to implement this individualization of remuneration, he must be able to justify it with targets and precise elements.

I – The main elements of variable income and their characteristics

1. Bonuses

A bonus is a sum of money that comes in addition to the remuneration of an employee. It is always granted by the employer on the occasion of the work carried out according to criteria provided in advance.

The Labor Code does not provide for bonuses, but when they appear in the employment contract or are provided for in a collective agreement or by a branch agreement, their payment by the employer becomes mandatory.

The employer can freely decide to pay an exceptional bonus to reward and motivate its employees, here are some examples:

  • Vacation bonus => amount paid before the employee leaves on vacation;
  • 13th month bonus => sum generally paid at the end of the year which constitutes a 13th month of salary;
  • Performance bonus => amount paid to reward employee performance;
  • Seniority bonus => sum paid to reward the loyalty of the employee to the company;
  • Diligence, punctuality, arduous work, dangerous and unhealthy work, on-call duty, etc.

All these premiums, whatever their name, are included in the base for social security contributions and are subject to income tax.

Warning! A bonus, even qualified as exceptional, becomes compulsory for the employer when it forms part of the practices of the company, that is to say when it is a practice in the company which is generalized, constant and fixed.

In addition, the criteria for awarding the exceptional employee bonus must not be discriminatory and must not infringe the rights and freedoms of employees.

2. Salary variations according to a target clause to be achieved

The employer has the possibility of inserting in an employment contract a clause setting targets or quotas to be achieved. This clause is in principle coupled with a salary variation clause.

Employees who are given annual targets to achieve must be made aware of them each year at the start of the financial year.

Case law specifies that the targets clause must set reasonable targets that are compatible with the market. The targets must be realistic and achievable, taking into account the economic situation of the professional sector in which the employee operates.

3. Tips

Tips are a gratuity paid by the customer. They are very common in the hotel, cafe and restaurant sector. The principle is that tips are added to the fixed salary, except in the case where a minimum salary has been guaranteed by the employer.

They constitute an element of salary in the same way as benefits in kind, gratuities and bonuses.

On the other hand, the few euros or euro cents given to employees by customers in addition to the service paid on the note do not have the nature of salary. These sums constitute donations.

All staff in contact with customers must receive tips collected or centralized by the employer. All categories of staff are concerned, however case law excludes from any distribution employees who are not in contact with the public.

The employer must pay back all the sums received as tips. These sums may be collected as a percentage added to customer ratings and voluntarily surrendered by customers for service. The employer cannot dispense with paying tips on the grounds that the employees have a fixed salary.

4. Salary linked to the quantity produced

The performance wage allows a worker not to be paid at the hourly rate but at a bonus that has been previously decided between the employee and the employer. This method of salary is mainly used in industrial environments, construction or in fruit picking.

However, the employment contract must guarantee a minimum wage (SMIC, conventional minimum or any other) which will be linked in principle to the number of hours worked. The first contractual step is therefore to define the base salary between the employer and the employee.

5. Other miscellaneous elements of income

There are still several other methods to motivate or reward employees, we will name a few without providing details.

  • Overtime: These are working hours carried out beyond the legal working time (35 hours per week for full-time work), they are exempt from employer contributions for companies with 20 to 249 employees.
    The employee is paid at an increased rate and benefits from tax exemption within the limit of €7,500 per year.
  • Benefits in kind: They are constituted by the supply by the employer to his employees of a good or service. The provision may be free or subject to employee participation less than their real value. They allow employees to save costs that they would normally have to bear. They are therefore subject to contributions.
    The benefit in kind can be provided in food, accommodation, vehicle, IT and communication, price reduction on products made or sold by the company or relating to the practice of sport in the company.
  • Restaurant vouchers: Restaurant vouchers are paid for by both the employer and the employee. The share paid by each can vary between 40 and 60%. The amount of the meal voucher is not fixed but the maximum amount of the exempt employer contribution has been €5.92 since September 1st
  • Maintenance of the pension contribution base for part-time employees: This system allows the employee to avoid a reduction in the amount of his future pension.

II – Implementation of variable remuneration in the employment contract

1. The procedure

The variable remuneration clause meets the legal conditions, it can be inserted in the employment contract before it is signed. If an employment contract has already been concluded between an employer and his employee, it is possible to make an amendment to the employment contract. It is a document that acts as a modification of the employment contract and has the same legal force.

To be valid, the clause must meet three conditions:

  • Objective elements not depending on the sole will of the employer;
  • The absence of transfer of risks from the company to the employee. It is not legal to provide for the reimbursement of commissions received in the event of non-performance of the contract by the client. The law also prohibits the provision of a disproportionate target clause (the target must be realistic and not illusory);
  • The absence of a reduction in remuneration below the legal and contractual minima.

2. Sanctions

In the event of irregular setting of the variable remuneration, the employee may seek legal payment of the variable part of his remuneration. The judges determine the amount of this variable part in respect of the amount paid in previous years, or in relation to the maximum amount provided for with regard to variable income.

On the other hand, the employee victim of an irregular fixing can also request a termination of the employment contract and the employer risks paying heavy compensation to his employee as a result.

The mere fact of not setting the targets justifying the determination of variable remuneration is sufficient to obtain the termination of the employment contract at the fault of the employer.

All the team of French Business Advice is at your disposal to help you, so do not hesitate to contact us!

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