Employee bonuses in France

Bonuses are often used by employers as part of employees’ remuneration packages. They are particularly important in the financial services industry.

Structuring bonuses

The main issue is to ensure that bonuses do not become a contractual right or a customary practice, obliging the employer to pay a bonus over the years or a specific amount of bonus.

Compulsory elements of remuneration

Bonus and premiums can be included in the employment contract. In that case, any change or removal of the contractual remuneration affecting the amount or the way it is calculated represents a modification of the employment contract and therefore requires the employee’s prior express consent.

Bonus and premium can also be considered as a customary practice and therefore mandatory, even if it is not included in the employment contract. A customary practice can occur when the bonus is considered fixed, regular and constant ie if the employer pays it every year on a regular basis, according to fixed calculation and granted to a specific category of employees. In such cases, the employer can only stop paying the bonus after having followed a specific procedure (informing the Works council, notifying each employee concerned by the changes or the fact that it is being removed altogether and allowing a “sufficient” period of time to elapse before implementing the modification).

Bonus and premium allocated on a discretionary basis

Voluntary bonuses are those granted by an employer on an entirely discretionary basis so that the employer can change the amount awarded or remove the bonus. However, the choice of the beneficiaries of this bonus cannot be discretionary and must be justified by objective and relevant criteria. In practice, in order to avoid that the bonus is a compulsory part of remuneration, it is advisable for employers to make sure the bonus allocated relies on a unilateral and sole discretionary basis, the variable remuneration should not be included in the employment contract and should be notified to the employee in a side unilateral information letter.

Operating a bonus scheme

When implementing a bonus scheme, the rating of eligible employees must be made on objective and non discriminatory criteria. The criteria must be known by the employees and the purpose of the criteria must not be to deprive specific individuals of the benefit. In addition, an employer cannot deprive an employee of their bonus or reduce the amount because they have been guilty of misconduct since it would be considered as a prohibited pecuniary sanction.

Providing information to employees

Employees must be able to check that the calculation of their variable remuneration has been made in accordance with the methodology set out in the employment contract or the employer’s unilateral undertaking. As a result, the employer must inform the employees about the targets to be met at the beginning of the reference period. Failure to do so, employees can claim for the payment of the total amount of the bonus.

Requirement that individual be in employment

The bonus allocation can be subject to the condition of the employee still being on the company’s payroll at the date of payment, under certain conditions.

However, employees on notice period are considered in employment and cannot be deprived from the benefit of a bonus.

Prorated payments are only due if expressly provided (in the bonus scheme, employment contract, etc).

Specific cases

Poor performers

It is possible to allow a poor performer a zero bonus provided that the employer’s decision relies on objective reasons. In practice, it is advisable to pay a nominal bonus rather than a nil bonus to reduce the risk of claim.

Maternity leave

Women should not be deprived from their bonuses on the sole basis of their absence for maternity. However, it is possible to operate a bonus adjustment above a certain number of day’s absence provided that the adjustment is applicable to any kind of absence (sickness, arrival or departure, etc).

Part time employees

Part time workers should receive a pro-rated bonus, which amount should be determined according to the level of bonus that the worker would have received had he been working full time and then reduced to reflect the hours that he actually worked.

Termination

Termination payments and damages are based on the remuneration received by the employee over the last three or 12 months before the notification of dismissal, which include bonuses.

In addition, the amount of the notice period indemnity must match with the remuneration the employee would have been entitled to had he continued to work during his notice (which includes bonuses).

Claims

Claims in relation to bonus schemes are common and often discussed in the context of unfair dismissal cases.

Employees can also claim that their employment contract has been terminated due to the employer’s failure to pay their bonus. In this case, the employer has to justify from objective reasons and criteria implemented why he has not paid the bonus, in comparison with the other employees in the same situation.

Further information on bonuses in France is available from our International Employment Issues microsite here.