Year-end bonuses and benefits: tax implications

What is a year-end bonus? 

A year-end bonus is a bonus you grant to your employees at the end of the year. This bonus, also known as a 13th month, is usually a fixed amount, i.e. a full month of salary or a proportion of it. However, for workers who are paid by the hour, particularly manual workers, the bonus is often calculated by multiplying their hourly wage by a specific coefficient.

The same rules apply to all employees in the company: either everyone receives a year-end bonus, or no one does.

Not all employers are legally obliged to pay a bonus, although you may be required to pay one if it’s stipulated in:

• A collective labour agreement in the sector or company
• A clause in an individual employment contract
• A provision in the company’s work regulations

Who’s entitled to a year-end bonus?

Most employees and workers are entitled to a year-end bonus. For example, companies affiliated with the CP200 (Belgium’s largest joint committee for employees) must pay a year-end bonus to all employees whose length of service is at least three months.

Your employees are also entitled to a year-end bonus:

• If they work part-time
• If they’re temporary workers
• If they have a fixed-term contract

What if they leave your company to join a new employer later in the year? In that case, they’re entitled to a proportion of their year-end bonus, based on the number of months they worked for you.

The same applies if they’re made redundant from your company during the year. However, if they resign, they won’t be entitled to a year-end bonus.

Specific conditions apply in certain sectors. For example:

• Payment of the bonus may depend on a length-of-service condition.
• Student workers may be excluded from the year-end bonus.

Payment of the year-end bonus: how does it work?

The year-end bonus involves a financial payment, which is regarded as salary and is therefore subject to professional withholding tax and social security contributions (ONSS).

For professional withholding tax purposes, the bonus is regarded as an exceptional allowance, so it’s taxed at a higher rate than the standard monthly salary. This means that for the same gross amount, the net amount paid in respect of the year-end bonus will be lower than for the monthly salary.

In Belgium, there is no standard method for calculating the payment of year-end bonuses.

An employee’s bonus amount depends on:

• The number of years they have been working for you
• The number of dependent children they have
• Their gross monthly salary (fixed and variable remuneration)

To calculate a 13th month bonus, you must consider any agreements applicable in your industry. In some cases, there’s a minimum or maximum amount. In others, the bonus will be a specific percentage based on all fixed and/or variable remuneration paid to the employee.

The year-end bonus is usually paid before 31 December, often at the same time as the employee’s monthly salary payment for December or just before.

Year-end benefits

In addition to the year-end bonus, you can grant year-end benefits. This is a great way to reward your people for their hard work throughout the year and to retain them.

The general rule is that benefits offered to employees are regarded as salary, whether in the form of gifts, vouchers, cash or rewards in kind.They are subject to taxes and social security contributions.

However, in certain cases, you as an employer may enjoy favourable treatment in terms of tax and social security, provided certain conditions are met:

• All employees must receive the same benefits, regardless of their contract (fixed-term or permanent) or working pattern (full-time or part-time).
• The award must take place at the time of one or more annual festivals or events, such as St. Nicholas, Christmas and New Year.
• The total amount of benefits is limited to €40 per employee and per year, although the amount may be increased by €40 per dependent child. If the maximum authorised amount of €40 is exceeded, the cost of the entire benefit is no longer tax-deductible for the employer.
• Gift vouchers can only be exchanged with companies that have an agreement with the issuers of the vouchers. The maximum validity period of vouchers is one year and employees cannot redeem them in cash (even partially).
  
  

Keep your budget under control

Paying year-end bonuses is often a significant financial investment for you, and one that affects your working capital. By taking out an instalment loan for tax and employee-related payments, you can preserve your cash position.

This also allows you to spread the cost of year-end bonuses over 12 months, at an advantageous interest rate and with 100% of the loan interest being tax-deductible.

You can also automatically renew the loan free of charge every year.

Have you discussed the matter with your accountant and social security advisor, and do you have a clearer view of how much year-end bonuses for your employees will cost?

Simulate your instalment loan for tax and employee-related payments quickly and easily

Here’s how the simulation works:

• State the desired loan amount.
• Find out the fixed interest rate and monthly instalments immediately.
• Request your loan online for free if you agree with the proposal.

Learn more about instalment loans for tax and employee-related payments.