Three Secrets to Properly Calculate Your Payslip Performance Bonuses

Italian Tax Legislation on Work Prizes

The Italian tax legislation, represented by Law no.
208 of December 28, 2015 (Budget Law 2016), establishes in article 1, paragraph 182 and following that, unless the worker expressly waives, work prizes related to productivity, profitability, quality, efficiency, and innovation increments are subject to a substitute tax of 10%, within the overall limit of gross 3,000.00 euros, substituting the personal income tax (IRPEF) and related regional and municipal additional taxes.
Similarly, the system operates for sums paid as profit-sharing.
Regarding prizes and sums paid in 2024, the substitute tax rate is reduced to 5%.
Considering the significant advantage for the employee in economic terms, represented by the application of a lower tax deduction, thanks to the legal exception compared to the standard tax brackets at 23%, 35%, and 43%, let’s analyze in detail three secrets to correctly process the payslip.

Three Secrets for Correct Payslip Processing

Verify if the Substitute Tax is Enabled for All Employees

Payroll software typically includes, in the employee master data, a specific box to be checked to enable the application of the 5-10% substitute tax.
The employer who does not verify if all prize recipients have the correct settings in the employee master data runs the risk of paying out sums that, instead of being subject to the favorable tax regime, are accumulated with other income for the calculation of standard IRPEF, through the application of normal tax brackets at:
– 23% for incomes up to 28,000 euros;
– 35% for incomes over 28,000 up to 50,000 euros;
– 43% for incomes over 50,000 euros.

Verify if the Software Checks the Previous Year’s Income

To avoid applying tax benefits to ineligible individuals, the employer must ensure whether the payroll software verifies the previous year’s income of the worker receiving the work prize.
If not, alternative control methods must be identified to ensure that beneficiaries do not exceed the 80,000 euro income limit.

Verify if Standard Taxation Applies after Exceeding 3,000 euros

Work prizes are subject to the substitute tax within the overall amount limit of 3,000.00 / 4,000.00 euros, beyond which standard taxation applies at 23%, 35%, and 43%.
It is advised that employees inform the employer if they have received prizes or profits subject to the substitute tax from other employers during the payout year.
The 3,000.00 / 4,000.00 euro limit includes all prizes received by the employee during the year, regardless of the contract they are based on.