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Managing your incentive schemes (3): How to deal with joiners and leavers?

As explained in our previous post, it is common practice for employers to award target-based bonuses to their employees. Eligibility to such a variable remuneration needs to be assessed according to a specific period of time, which can be a week, a month or a year. But how can one deal with employees who join or leave the company during that time period?

Pro-rated eligibility is always an issue that should be addressed in the employment contract or the bonus plan.

Under French law, pro-rating cannot be presumed. If it is not explicitly provided for, it does not apply.

 To prevent issues with the payment of bonuses, we recommend:

  • For joiners: specify how the bonus will be calculated for the first period, with specific objectives, if the “usual” calculation period has already started at the time the contract is signed;
  • For leavers:  set out what happens if they leave the company before the end of the calculation period, or before the bonus is paid.

Please note that under French law, payment of the bonus is not compulsory if the employee has not worked for the entire reference period. On the opposite, a bonus must be paid if the employee has reached their objectives and worked during the whole calculation period, even if they leave the company before the payment date. The employer is indeed not allowed to refuse the payment of the bonus on the ground that the employee was not present after the end of the calculation reference period. Under French law, such a condition is unenforceable. MGG Legal can help you drafting the relevant documents.