The Premium Explained

Premiums are additional compensations, either financial or non-monetary, granted on top of regular salary. As a component of variable compensation, they are often used to reward special achievements or successes.

Who is entitled to a premium?

Entitlement to a premium depends on various factors defined within the company. These may be regulated by employment contracts, collective agreements, or individual target agreements.

Are premiums subject to tax and social security?

Generally, premiums are subject to tax and social security contributions, provided they are granted within an existing employment relationship. Exceptions may apply if the premium is not paid as compensation for work performed (e.g., inflation compensation premium).

One-Time Premium or Premium Wage?

A distinction can be made between one-time premiums and premium wages. One-time premiums are singular payments tied to specific conditions and usually announced in advance—such as a project completion premium. Premium wage, on the other hand, is a wage or salary form linked to the achievement of certain goals or performances (e.g., quality premium or volume premium). In addition to base salary, the premium wage is paid according to the attained goals or performance.

Premium or Bonus? A Delimitation Attempt.

Often used synonymously with bonus payments, there are still differences depending on the industry and literature. The key distinctions between a premium and a bonus lie in context and payout structure:

1. Premiums

• Purpose: Premiums are often awarded for achieving specific goals or as recognition for exceptional performance. They may also be granted for reaching specific milestones or promoting desired behaviors.
• Examples: Sales premiums, premiums for improvement suggestions, long-service awards.
• Payout Structure: Typically one-time payments tied to specific conditions and announced in advance.

2. Bonus Payments

• Purpose: Bonus payments are additional compensations often based on the overall performance of the company, department, or employee. They serve as additional motivation and recognition for work done.
• Examples: Year-end bonus, performance bonus, profit-sharing bonus.
• Payout Structure: Bonus payments can be one-time or recurring and are often paid at year-end. They are commonly tied to the company’s financial success.

In summary, premiums are specific rewards for achieving well-defined goals or performances. In contrast, bonus payments are more general additional compensations that often depend on overall employee or company performance.

Calculating Premiums and Premium Wages

Calculating premiums and premium wages requires accurate performance-based compensation to ensure fair and motivating compensation. With maXzie, you can manage this process efficiently and transparently.

Our software lets you define flexible premium models, digitally record individual and team performance, and calculate values automatically. All relevant criteria are considered, and results are always traceable. This saves time and ensures compensation that motivates your employees and supports business success.

Interested? Contact us – we’re happy to help!

Further Interesting Articles and Definitions

• Bonus Payment
• Commission
• Performance Allowance
• Performance-Based Compensation
• Qualitative Goals
• Quantitative Goals
• Individual Goals
• Team Goals
• Corporate Goals
• Project Goals
• Action and Activity Goals