What is meant by "salary supplements"?

In addition to a base salary, employers sometimes pay other amounts to their employees, such as gratuities, bonuses a 13^th month of pay, etc. The law does not make it compulsory to pay these supplements, which can be called a number of things.

Another category of salary supplements are benefits in kind, such as company cars, company housing, etc.

What is a bonus?

Luxembourg labour law does not contain any text obliging the employer to pay a bonus to his employees.

It is therefore assumed that the bonus is a favour that the employer is free to grant or not to grant to his staff.

Under what conditions can a bonus constitute an acquired right?

The employee may, however, overcome this presumption by proving that the bonus constitutes:

• Either a supplement to the salary stipulated in the employment contract, the payment of which is obligatory in the same way as the salary and that any idea of liberality is lacking (contractual bonus).

Bonuses are deemed contractual when they are provided for in the individual employment contract or collective labour agreements. As such, employees may consider them to be a compulsory part of their remuneration.

It follows that in principle they cannot be unilaterally lowered or eliminated by the employer.

However, if an employee has agreed from the beginning of the employment relationship that the bonuses are to be treated as an extra and not as a compulsory part of the salary, a bonus, even if it is contractual and meets all the criteria for being an acquired right, cannot to be considered as such.

• A custom practised by the company or the profession (customary bonus).

These bonuses are to be considered as an acquired right of the employee as long as they result from a constant, fixed and general practice.

Constant attribution of bonuses

The bonus must be constant in its attribution, i.e. it must have been paid a certain number of times in order to be considered a genuine custom.

This does not mean that a large number of years is required. As an example, a bonus paid over 3 consecutive years has already acquired a consistent character.

Note: 

The fact that payment of a bonus is interrupted for one year does not entail a lapse in this practice.

Set practice

The bonus must always be calculated in the same way, which does not mean that the amount must always be the same.

However, if the bonus is subject to significant variations from year to year, it is not fixed.

Widespread practice of giving bonuses

It is not necessary that all employees in a company receive a bonus. It is sufficient if the general nature of the bonus is established in relation to a category of employees in the same situation.

The courts have also decided that the general nature of a bonus is only fulfilled if the payment of the bonus is not subject to any reservation. Thus, a bonus whose payment is subject to the absence of any professional misconduct or to an employee’s efficiency or behaviour, does not have the general character required to make its payment compulsory.

Is an employer free to cancel a bonus?

While if in principle a bonus cannot be eliminated or lowered as long as it is a compulsory element of salary, it should be recognised that an employer may revise the terms of an employment contract.

If an employer decides to eliminate or reduce a bonus, he must inform his employee by registered letter. Such reduction or cancellation can only take effect after the expiry of a period of notice which depends on an employee’s years of service.

This procedure must be followed because the bonus, which is regarded as part of the salary, is an essential condition of the employment relationship.

What is meant by benefits in kind?

Examples of benefits in kind include meal vouchers, company cars or housing provided by the employer. These benefits in kind must be valued in cash in order to calculate the deductions to be made for tax purposes. The valuation methods to be applied are laid down in the Tax Code.

It should be noted that the allocation of a benefit in kind in addition to the basic salary is not an obligation for the employer. It is therefore done voluntarily based on a decision by the employer.