How to set up a bonus plan? - AG Employee Benefits

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A bonus plan ensures satisfied employees

Published on 17/09/2020

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How to set up a bonus plan that's right for your company?

Not only is a bonus plan a tax-efficient solution for you and your staff members, it also gives you a high degree of flexibility. And with this flexibility, you can tailor your reward system to meet the specific needs of all of your staff members. But how to set up a bonus plan that's right for your company?

Quick recap: why opt for a bonus plan solution? Setting up your bonus plan in three steps

  • A bonus​ plan is one of the most fiscally attractive reward solutions, for you as well as for your staff members.
  • Under certain conditions, with a bonus plan, your staff members start reaping the benefits immediately. It gives them the option to take out a cash advance on the reserves they accrue through this type of group insurance plan and apply it towards financing real estate. 
  • With the flexibility of a bonus plan solution, you can tailor your reward system to meet your needs as well as your staff members' needs. 

Setting up your bonus plan in three steps

As a bonus plan can be a group insurance solution or an individual pension commitment, you will need to make sure you comply with certain requirements when setting it up. Below you will find the issues you will need to take into account when introducing a bonus plan at your company.

1.  Determine a target group for your bonus plan 

Before you introduce a bonus plan at your company, you will first need to determine the specific employment category you wish to reward with this benefit. 

  • This employment category must be legitimate and based on objective criteria.
  • It cannot give rise to any form of discrimination between staff members.
  • A bonus plan can be set up for different types of employment categories such as managerial staff, top executives, staff members hired from a certain date, etc.

2.  Determine the objectives that need to be reached in order to benefit from the bonus plan 

As an employer, you will need to establish an internal bonus policy that takes the following considerations into account. In this internal policy, we recommend that you also include rules for specific circumstances such as part-time employment, occupational incapacity lave, the start date and departure of a staff member during the current year, etc.

  • Set measurable objectives 
 You will need to set objective and measurable performance standards. These may be quantitative and/or qualitative criteria.

  • Set up a regular premium 
The premium must paid on regular basis. Note that the decision to award the bonus will obviously depend on whether or not the objectives set out in the internal regulations have been achieved.

  • Define your apportionment rules
You can also define your apportionment rules. For example, you can allocate a share of the earned bonus into a bonus pension plan and pay out another share as cash, and you can decide to increase the share allocated to the bonus plan according to objective criteria such as​ seniority.
 

3.  Make sure you comply with the requirements when setting up your bonus plan

If you intend to introduce a bonus plan at your company or convert a bonus or other cash benefit into a bonus plan, you must comply with certain requirements. In any event, you must comply with the rules outlined in the Law on Complementary Pensions (LCP)  and check that the premium in your bonus plan complies with the 80% rule. 

  • Check that the premium in your bonus plan complies with the 80% rule 
The premiums in your bonus plan may be eligible for favourable tax treatment if the 80% rule is respected. Under this rule, the combined total of the statutory and supplementary pension benefits (2nd pillar) cannot exceed 80% of the last gross salary at the time of the beneficiary's retirement. 

  • Keep in mind that your staff members have the right of refusal
Staff members in the employment category in question who joined the company before the bonus plan was introduced may refuse to participate in the plan. In contrast, new hires who join the company after the bonus plan was introduced will be required to participate. 


Want to convert a bonus or other cash benefit into a bonus plan?

  • Modify the employment conditions for the staff members in question 
In this case, as you will be altering the employment contract for the staff members in question, they must first consent to this change. The change in employment conditions must be added to the source document describing the terms of the existing bonus policy. 

  • Make the formal conversion before the start of the performance year
For tax and social reasons, the formal conversion must be finalised before the start of the performance year. 


In a nutshell:​ how to set up a bonus plan that's right for your company?

  • Determine the target group for your bonus plan based on objective criteria that do not discriminate between staff members.

  • Determine the objectives that need to be reached in order to benefit from the bonus plan by defining objective and measurable criteria. All of the rules incorporated in your bonus plan must be clearly stated in your internal policy.

  • Make sure you comply with certain requirements: the procedures established in the LCP, the tax provisions on the 80% rule and the rules imposed by labour law.​




Want to find out more about AG's bonus plan solutions?

Check the product page "Bonus plan: your asset for appraisal” or contact one of our sales representatives. They’ll be happy to give you all the details.