Employee bonuses in Spain

Introduction

Bonuses are often used by employers as part of employees’ remuneration packages, particularly for sales staff in many sectors.

Structuring bonuses

As a general rule there are no specific restrictions on how a bonus scheme can be set up or structured, however some collective bargaining agreements (CBA) may establish something on the matter.

Customarily schemes can be (i) discretionary, (ii) based on the level of achievement of well-defined factors, or (iii) guaranteed. Bonuses can be expressed as a specific amount, a specific percentage of turnovers or any other formulation. Regardless of how they are structured income derived from them will be regarded as salary for employment (and tax) purposes.

The only restrictions applicable to bonus regulations are essentially those of the general law: a bonus scheme must be both structured and operated in such a way as to ensure that it does not discriminate any of the prohibited grounds (eg does not imply gender or race discrimination).

Discretionary bonuses

It is not uncommon for bonus schemes to be expressed to be entirely at the employer’s discretion. If factors are set out it should be clear whether the list is a complete list of factors that the employer can take into account or only indicative of some of the factors that may be taken into account.

Operating a bonus scheme

Whilst a bonus scheme may state that an individual is only entitled to such bonus as the employer may in its absolute discretion decide, that discretion should not be exercised in manner which is perverse, irrational or otherwise unreasonable.

Any category of employee can bring a claim challenging the level of their bonus. Employers are under a duty to act in good faith in relation to all entitled employees in determining discretionary bonuses. Managers making recommendations must be aware that they may in the future have to justify their recommendation in court, thus it should be based on solid grounds.

With a guaranteed bonus, the employer’s duties will depend upon the exact wording of the bonus. For example, if the bonus guarantees that an individual is entitled to a set amount if he/she starts employment by a particular date and are still in employment on the bonus payment date, the employer need only check that those requirements have been fulfilled.

Requirement that individual be in employment

It is common for a bonus scheme to state that in order to be eligible to receive a bonus award an employee must still be actively employed by the employer on the payment date and the employee must not have, at the payment date, either given or received notice of termination of employment for any reason whatsoever.

Such clauses are, however, very controversial. As a general rule, Employment Courts tend to conclude that, if the termination was due to an unfair dismissal, these clauses are unenforceable, and thus the employee shall receive bonus pay.

Case law is not that clear when it is the employee who decides to exit before the established “payment date” arrives.

Poor performers

In discretionary bonus schemes, performance is a criterion that is very relevant to the assessment of the bonus award and the weighting attached to this criterion is likely to be significant. However, even in such a case the employer must still exercise its discretion fairly and if other employees in the same division are receiving bonus awards based on factors other than their performance these other factors should not be automatically eliminated from consideration for the poor performer’s bonus award.

Maternity leave

It is illegal to treat a woman less favourably on account of her sex and, in particular, on account of pregnancy. Thus, even when discretionary bonus schemes are in place, employers are under a legal duty to exercise discretion in good faith and without incurring in gender discrimination.

As a general comment, to avoid “indirect discrimination” when a performance related bonus scheme is in place, it should be noted that the employer cannot penalize the woman for having been absent during the period of maternity leave. Targets should be reduced accordingly to the actual rendering of services of the employee

Part time employees

Should bonus criteria be related to time spent working, part time workers would receive a pro-rated bonus.

Termination

Employers are required to make statutory payments when terminating employees without cause or when effecting redundancies. The amount of severance compensation is calculated based on the employee’s daily salary. Such daily salary must include any bonus payments received within the last 12 months prior to the termination date.

Claims

Claims in relation to bonus schemes are becoming increasingly common, particularly in relation to termination events (eg requesting payment of the bonus of the year in which the dismissal takes place and/or discussing the amount of bonus that should be taken into account in order to determine the daily salary taken into account to calculate the severance compensation).

Further information on bonuses in Spain is available from our International Employment Issues microsite