Choosing the right variable compensation model can lead to tax savings, greater employee engagement, and reduced labor risks.
To this end, companies need to understand the existing compensation models and their respective economic impacts.
We have listed 3 forms of variable compensation:
1. Profit-Sharing: This should be paid only to employees with formal employment contracts. For this program to be valid, the rules, targets, and payment criteria must be formally established in advance, preferably through negotiation with the union or joint committee. When structured correctly, it is exempt from labor and social security contributions and provides employees with special tax treatment.
2. Bonuses: This is the most flexible option, as it is not subject to specific regulations and can be awarded to different employees of the company based on internally defined criteria. On the other hand, as a general rule, amounts paid as bonuses are included in the calculation basis for labor and social security contributions, which can significantly increase the total cost of compensation.
3. Award: This is intended to recognize performance that exceeds what is ordinarily expected. Unlike a bonus, it requires documentary evidence that targets were actually exceeded or that exceptional results were achieved. When legal requirements are met, the award is not included in total compensation for the purposes of labor and social security contributions, making it an attractive alternative for companies that wish to recognize extraordinary results.
What to Consider When Choosing: The decision regarding which compensation model to choose should not be limited to immediate financial considerations. It is essential to evaluate the company’s objectives, the employees’ profiles, the frequency of payments, the ability to measure goals, and the tax and labor law implications of each option. A poorly structured policy can lead to the misclassification of the payment and its inclusion in the salary, affecting vacation pay, the 13th-month salary, FGTS, and social security contributions.
Companies that adopt clear variable compensation policies are able to incentivize results without compromising financial predictability.
Properly formalizing the rules, targets, and payment criteria is the key factor in reducing risks and ensuring the efficiency of the chosen model.
Experience shows that well-designed variable compensation programs not only increase employee engagement but also strengthen corporate governance and legal certainty within organizations.
