In Portugal, it is frequent to pay productivity premiums by companies to their workers. It is often argued whether these productivity premiums are part of the workers’ monthly remuneration.

What are productivity bonuses?

Labor productivity premiums that are regular can be considered an integral part of the employee’s remuneration. The concept of regularity must be verified in each specific case, taking into account its own circumstances.

In general terms, the labor productivity premium is regular when it has the same nature and is repeated over a period of time, continuous or periodic, these amounts being constant or variable. This means that labor productivity premiums may have different amounts, and yet they still have a regular character. This regular nature of the law for labor productivity premiums does not refer to the amounts but to the period of payments (eg monthly, quarterly, annual).

If the labor productivity premiums are paid regularly in an equal amount, we can say that the labor productivity premiums are part of the wage. If the productivity premiums are paid periodically with different values, we can say that the productivity premiums are part of the variable salary.

Is it necessary to pay Social Security contributions?

The annual variable annual salary, including productivity premiums, even if paid in advance over several months of the year, require payment of social security contributions.

On the other hand, if labor productivity premiums are only paid by the employer to the worker on an exceptional basis and with certain objectives to be attained, they will not be considered as a regular salary and, therefore, it will not be compulsory to pay social security contributions on these amounts.

Should compensation paid to Employees include amounts paid through productivity premiums?

If the labor productivity premiums paid by the employer are not considered variable regular salary, those amounts shall never be included in the calculation of the compensation payable by the employer to the worker, regardless of the dismissal.

If the labor productivity premiums are paid regularly and periodically, they must be considered as the employee’s salary and thus will count towards the compensation to be paid by the employer in cases of dismissals without just cause.

In cases of accidents at work, the labor productivity premiums paid regularly by the employer to the worker should be included in the compensation payable to the worker by the insurance companies. Often this increase can make all the difference in the financial life of the injured worker.

In cases of dismissal based on the end of place at work, collective dismissal or at the end of the term of the contract, the amounts paid for labor productivity premiums are not taken into account for the compensation to be paid by the employer to the worker. In these cases, Portuguese law only considers the values of basic remuneration.

In all the cases referred to above, the worker must prove that the productivity premiums paid by the employer are regular and periodic in order to benefit from the average calculation of these amounts in the compensation he will receive.

Experienced legal support is advisable in clarifying and following these matters.