One of the most interesting employment-related measures proposed by the Executive in the fourth package of measures submitted to Congress to revive the economy consists of giving private companies the possibility of granting an annual non-remunerative performance-based bonus to their employees, for an amount equivalent to up to 20% of their annual salary.
That’s what other countries call “non-salary band” benefits; that is, benefits which, given their nature, are remunerative but, because of a legislative option, aren’t. Performance-based or productivity bonuses are of a remunerative character because nothing is said to the contrary in any legal rule. They are paid on an annual basis and are subject to the payment of contributions to the pension fund system (either the Private Pension System (SPP) or the Public Pension System (SNP)), ESSALUD, Income Tax and, eventually, other social contributions (SENATI, Hazardous Work Supplemental Insurance (SCTR)). They are used as a basis to calculate both the severance pay in the semester it is to be paid and profit sharing (if any). The labor cost involved in this bonus does not encourage employers to grant this bonus and, if it is granted, the employer must consider the labor cost at the time of calculating the amount of the bonus.
For this reason, it isn’t granted too often. In fact, it is mainly granted to high-ranking company officers, and is even subject to the prior signing of an agreement with the employee, which is sometimes compensated with profit sharing which, symptomatically, is only subject to the 5th-category Income Tax withholding.
The legislative proposal under analysis intends to have the productivity bonus subject only to Income Tax, if any, and to a reasonable quantitative limit (20% of the annual salary). The benefit is already being adjusted by Congress to prevent, for instance, the employer from reducing the salary of an employee to pay the difference with the bonus. In this way, the bonus would only improve the current income level of the employee. Moreover, the non-remunerative character could also apply to the bonus currently paid annually to employees because, bearing in mind the current economic slowdown, it’s difficult to increase this bonus because it depends on the company’s profit and loss.
The government has realized that it’s difficult to increase salaries and, therefore, boost domestic consumption, with the current labor costs (50% of the remuneration). It’s necessary to reduce labor costs, at least bring them down to the average percentage applicable in other Latin American countries (33%).