Production bonuses , also known as performance bonuses or productivity bonuses, represent a topic of growing interest in the workplace, but in reality they have their roots already before the Second World War.
In fact, they appear for the first time, with the name "production bonuses" , already in the Civil Code of 1942, through an indirect citation in article 2121.
However, it will only be after the Second World War, starting from the 1960s, that the prizes will officially become part of the political-economic history of our country.
But today who is entitled to receive productivity bonuses? What has changed?
Do performance bonuses represent an economic advantage only for the employee or also for the company?
In this article, we will try to clarify the fundamental points regarding production bonuses: how they are taxed today, who is entitled to receive them, the amount of these bonuses, how they are included in the pay slip and why they represent an advantage for both parties.
What are production bonuses or performance bonuses?
Production bonuses are a form of financial incentive that companies offer to their employees in recognition of exceptional performance or achievement of specific goals.
The productivity bonus therefore represents an additional portion, compared to the ordinary remuneration, which is paid to employees in the case of increases in productivity, profitability, quality, efficiency and innovation.
The worker can choose whether to receive the bonus in the pay slip or in various forms , including bonuses, commissions, profit sharing or other financial compensation methods.
In essence, production bonuses are a means of rewarding employees who contribute significantly to company success and profit.
The assignment of production bonuses is obviously not mandatory and is freely established by individual company policies and employment contracts.
Often, they are linked to productivity, sales, quality of work or other specific parameters, defined in advance.
How are production bonuses taxed in 2023?
The taxation of production bonuses may vary depending on the tax legislation of the country in which you work .
In fact, tax rates can vary considerably from one country to another and from one jurisdiction to another. Some countries may provide tax breaks or specific deductions for production bonuses, while others may tax them at the maximum.
It is therefore essential to consult a tax advisor or refer to local tax legislation to understand how production bonuses are taxed in your context.
To date in Italy:
● if the worker chooses to receive the productivity bonus on his paycheck he can opt for preferential taxation.
In 2023 the tax exemption is 5% (until 2022 it was 10%) as long as the premium does not exceed €3,000 gross per year and the income from employment in the previous year does not exceed €80,000. A 2nd level union agreement is also required.
● If the performance bonus is converted into welfare, the tax exemption is total, without prejudice to the limit of the bonus to €3,000 gross per year and the aforementioned limit of employee income.
In this case we talk about " reward welfare  " as a replacement for the performance bonus.
● In the case of rewards through pure welfare  , the tax exemption is total and without any limit; an internal company agreement is sufficient.
● In the event that the amount of the premium exceeds the maximum limit for taking advantage of the tax benefit , the difference will be subject to ordinary taxation.
It is already clear how welfarecan help the employer, but let's go step by step: let's start by understanding who really has the right to receive a performance bonus.
Who is entitled to the productivity bonus?
The question of who is or is not entitled to production bonuses depends mainly on company policies and employment contracts.
private sector employees who have earned income (from employment) in amounts not exceeding €80,000 in the tax year are entitled to the production bonus . The amount of the productivity bonus, subject to preferential taxation, remains in any case a maximum of €3,000.
All employees, who achieve specific production, sales or performance targets, according to the rules established by the company, would then be eligible to receive a performance bonus, if their income allows it.
However, the criteria for assigning the productivity bonus can vary considerably from one company to another.
Typically, production bonuses are awarded to experienced and loyal employees who stand out for their dedication and significant contribution to company success.
Generally the company defines the criteria for receiving performance bonuses in advance , also including key performance indicators, such as the achievement of sales quotas, the quality of work or meeting deadlines, also to incentivize the worker's commitment.
How much is the production premium?
Again, the size of production bonuses can vary greatly depending on company policies and employment contracts.
As we have already said, the productivity bonus, which is subject to preferential taxation, cannot exceed €3,000 , but this does not mean that below this figure there are various possibilities to choose from.
In some cases, rewards may represent a percentage of sales or profits generated by employees, while in other cases they may be a fixed amount or based on a specific calculation.
Typically, production premiums are calculated to provide a significant incentive for employees to achieve pre-established goals and can constitute a substantial part of an employee's overall income, especially if they contribute significantly to the success of the company.
As we were saying, however, the employer can choose whether to switch the bonus into company welfare services or fringe benefits or whether to pay the productivity bonus in the pay slip.
The production bonus on the pay slip
The methods for including production bonuses in the pay slip can obviously vary based on company policies, but in most cases, production bonuses are added to the employee's base salary and can be subject to the same deductions and social security contributions provided for the ordinary salary (if they exceed the limit established by law) .
This means that taxation, social security contributions and deductions will be applied to the total amount, which includes any excess production premium.
However, often when the production bonus is placed on the pay slip you happen to see the acronym PDR: why?
What is the PDR in the pay slip?
PDR is the acronym for "Results Bonus" , which represents the additional monetary component of the paycheck and which reflects the amount of production bonuses received.
This detail is important for both employees and the company , as it allows for clear identification and recording of rewards.
In fact, the PDR is included in the payroll documentation and provides the necessary transparency for tax reporting and accounting.
Why are production bonuses also beneficial to the company?
Production bonuses are not only beneficial for employees, but also represent an investment for companies.
● encourage employees to achieve company objectives,
● improve overall productivity,
● promote a high performance culture,
● can improve employee satisfaction, thus reducing turnover,
● can reduce recruitment and training costs,
● they help maintain know-how within the organization.
Motivated and rewarded employees tend to work with greater commitment and dedication, which contributes to business success.
Furthermore, a contribution relief is recognized for companies if the second level collective agreements provide tools and methods for the equal involvement of workers in the organization of work.
In this case we are talking about decontribution of the productivity bonus: that is, if companies involve workers in the organization of work, they are granted a contribution benefit.
Therefore, based on the decontribution of the productivity bonus, performance bonuses and all expenses paid as a form of participation in the company's profits (with a maximum limit of €800) do not require the payment of contributions by the worker and are subject to a 20 percentage point reduction on the IVS contribution rate paid by the employer.
Another option is the conversion of performance bonuses into welfare.
Instead of the productivity bonus on the pay slip, workers can opt for the use of fringe benefits and, in this case, the substitute tax is not applied to them, since they do not contribute to the formation of employee income, and therefore the the company is even more advantaged.
In conclusion , production bonuses represent a common practice, which benefits both employees and companies.
Who is or is not entitled to these bonuses essentially depends on individual company policies and employment contracts - as the provision of bonuses is not mandatory - but they are often intended for those who stand out for exceptional performance.
Their taxation varies according to local tax legislation and may vary from year to year.
The business advantages deriving from production bonuses are decidedly notable from a productivity point of view, but they can also be significant from a fiscal level, depending on the method of use chosen.