Regulatory framework and general terms of performance bonuses

Promoting employees' productive performance is one of the employer's main challenges. To this purpose, awarding workers a performance bonus may be a very effective tool, considering the favourable fiscal regime they can benefit from.

The 2016 Budget Law (Law No. 208, dated December 28, 2015) introduced in the Italian tax and labour landscape a new regulation regarding the sums recognised by the employer as 'bonuses', defined by variable amounts and whose payment is subject to reaching measurable and verifiable increases in productivity, income, quality, efficiency, and innovation. Similar provisions were approved before, but only temporarily and with a limited budget. 

These bonuses represent a reward for specific categories of employees who have reached the results clearly and transparently set by their employer, involving an increase in company productivity, defined through objective criteria in special agreements executed with the unions.

In this regard, the bonus payment must be executed according to the dedicated provisions of company or territorial agreements concluded by the most representative trade union associations at a national level or in compliance with company collective agreements concluded by their reference works council established within the company.

Furthermore, to benefit from the more favourable tax rate on the performance bonus payment, it is necessary that in the year preceding the one during which these sums are received, the involved employee has earned an income not exceeding EUR 80,000.

The maximum amount payable for said bonus with a reduced tax rate of 10% is EUR 3,000 gross. As an exception, during the current year 2023, such a rate has been lowered to 5%, which is a considerable gain for both employers and employees, who will benefit from such an increase in the net amount received as a bonus for achieving productivity targets.

Anyways, a performance bonus may be paid through corporate welfare – meaning a wide range of goods and services that companies can decide to grant to their employees, as specified in the Consolidated Income Tax Act (TUIR), that are tax-free. Upon these conditions – and within the above EUR 3,000 threshold – the performance bonus will not be treated as taxable income for the employee.