Business Performance and Work Performance

In accordance with the Employment Relationships Act – ZDR-1, the salary is composed of the basic salary, the salary for work performance, and supplements. According to the second paragraph of Article 126 of ZDR-1, an integral part of the salary is also payment for business performance if agreed upon by a collective agreement or employment contract. When assessing the definition of specific payments, it is appropriate to consider the purpose of regulating individual salary components, as determined by the second paragraph of Article 126 of ZDR-1. It is especially important to note that payment for business performance depends on the success of the economic entity (employer), as already implied by the linguistic interpretation of the concept. Therefore, business performance is a reward that the employer allocates to employees based on the overall good performance of the company.

In contrast, work performance is linked to the individual work results of each employee or a group of employees. Criteria must be predetermined so that employees know what results are expected of them and what work results will be rewarded. The formulation of criteria is left to the discretion of the employer, as different activities have different work processes that require different criteria suitable for measuring work performance. Payment for work performance is always part of the salary and must be paid in cash, included in the employee’s annual taxable income.

Taxation of Business Performance Payment

According to ZDR-1, all payments, both rewards for work performance and rewards for business performance, must be made in cash. However, this does not apply to tax-favored payment of business performance according to ZDoh-2.

In accordance with the 12th point of the first paragraph of Article 44 of the Income Tax Act – ZDoh-2, payment for business performance is not included in the taxable income if:

  • it is paid in connection with employment in cash or in kind to all eligible employees at most twice in a calendar year, and
  • the right to payment for business performance is specified in the employer’s general act or collective agreement,

up to 100% of the average monthly salary of employees in Slovenia (effective from January 1, 2023).
If the reward for work performance is paid in an amount exceeding the average salary in Slovenia, the difference is included in the employee’s taxable income and income tax is calculated and paid on the amount exceeding the average salary. Payment of business performance that does not meet these conditions is treated as another income from employment and is entirely included in the employee’s taxable income.

However, mandatory social security contributions are always calculated on business performance.

Determination of Criteria for Payment of Business Performance

If the right to payment of part of the salary for business performance is specified in the employer’s general act, the criteria for obtaining the right and the amount of payment must be uniform for all employees. Therefore, all employees must have the opportunity to meet the specified criteria, including managerial employees. Since ZDoh-2 does not define the concept of an employee, the definition of this term must be turned to the primary legislation, i.e., ZDR-1. According to Article 5 of ZDR-1, an employee is a natural person who is in employment based on a concluded employment contract. If a managerial person also meets the conditions under which they are considered an employee in accordance with ZDR-1, the condition in accordance with the first subparagraph of the 12th point of the first paragraph of Article 44 of ZDoh-2 is met only if the right and criteria for payment of part of the salary are also specified for managerial employees in the employer’s general act.

If the right to part of the salary for business performance, criteria, and criteria are specified in a collective agreement, which is by its nature a contract concluded on the basis of an agreement between the parties (employers and employees or representative trade unions), there is no need for the conditions for obtaining this right, criteria, and criteria to be specified uniformly for all employees, as they play an active role in concluding collective agreements.

Urška Jerič
Payroll and HR Services
Promotiv d.o.o.

Source: ZDoh-2, ZDR-1

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