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It is quite common for employee compensation to comprise a basic salary plus a variable component (usually referred to as a “bonus”). As the Swiss legal system does not know the term ‘bonus’ as such, deciding how variable compensation should be categorised legally and whether it qualifies as a gratuity or as part of an employee’s salary, is problematic. Making the distinction involves taking a closer look at both the underlying contractual basis and the company’s practice. What at first seems to be a fairly trivial question of definition turns out to have significant legal implications.
- LEGAL CATEGORISATION
Whether a bonus is to be considered a gratuity, performance pay, profit-sharing or a hybrid depends primarily on how the contract is drafted. But it also depends on the company’s practice when it comes to paying the bonus, and how it relates to the employee’s salary (its accessory nature).
a) Contractual formulation
The key here is whether the bonus can be viewed as a voluntary gratuity, or whether it’s been formulated in such a way that the amount has been determined, or is at least determinable, and is thus no longer at the employer’s discretion. In the first scenario, a bonus can be considered a gratuity. If the amount of the bonus has been determined or is determinable, it’s generally assumed to be a component of salary. For example, a bonus linked solely to operating profit or other specific financials would be determinable. But if a bonus is linked to personal performance targets that have not been measurably formulated respectively the achievement of these targets involves a subjective appraisal, or if its payment (despite the bonus being determinable) is at the employer’s discretion, the bonus should be treated as a gratuity. This also applies if the bonus is paid out by the employer as a completely voluntary special payment.
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