Switzerland: Checklist for employee bonus entitlement

Each year, employers and employees are confronted with the same question: Who is entitled to a bonus? This article will show you how to easily check bonus entitlements in your company under Swiss employment contract law. No previous legal knowledge is required and you may use our free Flow Chart to assess your firm’s situation.

Explicit bonus agreement

If the parties have explicitly agreed a bonus payment and the amount of the bonus is determinable objectively and without any discretion on the part of the employer (e.g. a percentage of the operating result), the bonus qualifies as a salary component to which the employee is entitled.

If a bonus has been agreed upon in principle, but it’s amount is undetermined or objectively not determinable (so-called non-genuine gratuity), the employer has a certain freedom in determining the bonus amount. However, it must first be examined whether a tacit agreement is in place and thus the employee has a claim to a bonus payment in a certain amount.

If there is no bonus agreement or if the bonus was reserved both in principle or in its amount (so-called genuine gratuity), the employee generally has no claim to a bonus payment. Also, the existence of a tacit agreement has to be analysed.

Tacit bonus agreement

In order for a tacit bonus agreement to be assumed, it must be evident from the employer’s conduct that it feels obligated to pay a bonus. The most frequent case of such conduct is the regular and unconditional payment of a corresponding amount. This is the case if the employer unconditionally pays a bonus (fixed or variable) for three consecutive years. Some discretion is, however, left to the employer in cases where the bonus is variable.

Even an explicit reservation of the voluntary nature of the bonus does not protect the employer in every case. For instance, if the employer pays the bonus conditionally (in principle and amount) for decades without making use of the reservation. The same applies if the reservation otherwise turns out to be a hollow phrase. In this scenario, the employee is entitled to the bonus payment.

If the bonus was only expressly agreed in principle and if there is no tacit bonus agreement with regard to its amount, a bonus can only be claimed in principle but not in a certain amount.

If neither an explicit nor a tacit agreement results in a bonus claim, it remains to be examined whether such a claim is to be affirmed due to lack of accessoriness.

Accessoriness

In the case of low, medium, and high incomes (less than five times the Swiss median wage, i.e. less than CHF 399’900 for the year 2020), the voluntary bonus may not exceed a certain proportion of the basic wage, otherwise it converts into a wage component to which the employee is entitled. This requires a case-by-case assessment, but accessoriness is regularly lacking if the bonus is equal to or higher than the fixed salary. However, accessoriness may also be questioned with significantly lower bonus payments (e.g., a bonus of 40% of the basic salary for a rather low fixed salary of CHF 100’000). In the case of very high incomes (five times the Swiss median salary or higher) the criterion of accessoriness does not apply and the bonus always represents a voluntary gratuity.

Entitlement

According to the above, an obligation to pay a bonus can thus arise from either (i) an express agreement, (ii) a tacit agreement, or (iii) lack of accessoriness, whereby a case-by-case examination is always advisable.

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CELIA Alliance member Loyens & Loeff originally posted this article on their website, you can view the original article here. For more information or if you have any questions related to the content of this article please get in touch.