Employee bonuses in Italy

Introduction

Two types of bonus scheme:

• the National Collective Agreements for each sector - provide for a relatively small bonus award which is generally linked to employee attendance at work, and
• employment agreements - may include or refer to a bonus scheme as an optional element of the remuneration package.

Structuring bonuses

There are no specific restrictions on how a bonus scheme can be set up or structured. For example, schemes can be discretionary or guaranteed.

Discretionary bonuses

It is common for bonus schemes to be expressed to be entirely at the employer’s discretion. The scheme may (or may not) then set out some of the factors that may be taken into account by the employer when deciding if to award a bonus and, if so, how much to award.

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 a manner which is perverse, irrational or otherwise unreasonable. Employers are under a duty to act in good faith in relation to all eligible employees in determining discretionary bonuses.

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, at the payment date, have either given or received notice of termination of employment for any reason whatsoever.

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. 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

Although bonuses are stated to be discretionary, employers are under a legal duty to exercise that discretion in good faith.

It is important to bear in mind, when considering bonus schemes relating to women who are currently or who have been during the bonus year on maternity leave, that it is illegal to treat a woman less favourably on account of her sex and, in particular, on account of pregnancy.

Please note that if the bonus is entirely related to personal achievements, absence from work is a crucial factor (ie the bonus will clearly be lower). If the bonus is linked only to team performance/loyalty, then in principle there should be no reduction (otherwise this may be viewed as discriminatory for those on maternity or sickness leave or with part-time status).

Part time and fixed term employees

In principle fixed term and part time workers have the same entitlement to receive a bonus award as those who work full time and who are not on a fixed term contract. Nonetheless, there is a certain margin of flexibility.

Termination

An employer has to take bonus awards into account when calculating any severance due on termination (eg payment in lieu of notice and any settlement amount).

Other common clauses

Clauses that are commonly found in bonus schemes include:

• the requirement that in order to be entitled to a bonus an employee must be in active employment on the payment date and not be under notice of termination (whether the employee have given or received it)
• if the bonus scheme is discretionary it may set out the criteria that will be taken into account in determining the level of payment (as above)
• if the bonus scheme is formulaic, the bonus triggers (eg individual revenue, company revenue, other performance measures), how the amount of bonus will be calculated (eg percentage of salary, a set amount, a percentage of revenue) whether there is any cap etc
• the treatment of the bonus in the years of joining/leaving
• whether the bonus forms part of any pay in lieu of notice, and
• the effect of redundancy, sickness, misconduct, ill health, poor performance.

Claims

Claims in relation to bonus schemes (particularly discretionary schemes) are becoming increasingly common.

Other

See Termination above in relation to the reference to the average of the last three years' bonus awards in the calculation of severance pay.