Variable compensation and salary continuation during illness

The question arises regarding the payment of variable components of the salary, such as commission, bonuses, or overtime pay during sickness. Is an employer obligated to continue paying these components during an employee’s illness?

Salary: Fixed and Variable Compensation

The obligation to continue paying salary during illness has a broad interpretation. This means that the requirement to continue payment extends beyond just the base salary and vacation allowance of an employee. If an employee is entitled to a possible thirteenth-month bonus, overtime hours, or additional allowances, these also form part of the salary to be paid. The same applies to commission or bonuses, which should generally be paid based on the type of compensation.

Variable Performance-Dependent Compensation

If a variable portion of an employee’s salary is dependent on their performance, the employee is entitled to at least 70% of the average salary they would have earned if they were not ill. This also applies to performance-related bonuses that the employee could not achieve due to illness.

It must be plausible that the employee would have achieved these performances if they were not ill. A written agreement stating that an employee forfeits their bonus during sickness is not legally valid. The rules regarding salary continuation during illness are mandatory, and agreements that deviate to the detriment of the employee are not permissible.

Variable Non-Performance-Dependent Compensation

Variable compensations not linked to an employee’s performance do not fall under the obligation to continue payment during illness. For example, a profit-sharing based on the overall profit of the employer in a specific year is not included. However, there are instances where an employee may still claim a profit-sharing even if they were ill in that year. The principle of good employer practice determines whether an employer is obligated to continue paying this form of variable compensation to a sick employee.

Conclusion

During the initial two years of illness, an employee generally has the right to receive at least 70% of their salary. When it comes to variable compensations like commissions and bonuses, a decision must be made on whether these should also be paid during sickness. Performance-dependent variable compensations are typically required to be paid, while non-performance-dependent ones such as profit-sharing are not automatically covered by the salary continuation obligation. If you have any questions regarding the payment or allocation of variable compensations during sickness, feel free to reach out to us.

More information

Do you have questions about the payment or allocation of a variable bonus during illness? Or do you have other questions on similar topics? Please feel free to contact us.