What Should You Do with Your Incentive and Profit-Sharing Bonuses?

In most companies, the payment dates for incentive and profit-sharing bonuses are set for May 31, 2024. But what should you do with this money?
 

According to 2021 data provided by the Directorate for Research, Studies, and Statistics (Dares), the average amount of profit-sharing bonuses was 2,000 euros, benefiting more than 5 million people. In addition, the average profit-sharing payment was 1,700 euros, also benefiting just over 5 million employees. However, recipients of these bonuses are asking themselves a crucial question: Is it more advantageous to receive this money immediately or to invest it in an employee savings plan?
 

Receiving bonuses immediately: a decision worth considering
 

Has your employer informed you of the amount of your incentive and/or profit-sharing bonuses? It may be tempting to ask to receive them as soon as possible. However, this decision is not without consequences. In fact, employee savings bonuses received without first being invested are subject to income tax. Depending on your household’s tax situation, choosing to receive the amount in cash rather than investing it may result in additional taxes.
 

Let’s take the example of an employee savings bonus with a gross amount of 1,500 euros. After the unavoidable deduction of the CSG-CRDS, the net amount comes to 1,355 euros. A household with a marginal tax rate (TMI) of 11% will therefore have to pay 134 euros in taxes in 2025 on income received in 2024 if it chooses to receive its incentive or profit-sharing bonus immediately. Only non-taxable households can therefore receive the full 1,355 euros bonus, after deduction of the CSG-CRDS.

What taxes apply to your incentive and profit-sharing bonuses?
 

If you are subject to income tax, choosing to receive your employee savings plan bonuses directly will require you to pay income tax on them. And the higher your marginal tax rate, the more you’ll owe the tax authorities. However, there is a solution to this problem: investing your bonuses in an employee savings plan. After a lock-in period of varying length, you can withdraw your money without it being subject to income tax.
 

In particular, it is possible to invest your profit-sharing and incentive payments in a company savings plan (PEE) or an inter-company savings plan (PEI). In this case, the funds are locked in for a period of 5 years. However, there are many circumstances that allow for early withdrawal, enabling you to recover your investment before the scheduled maturity date—for example, in the event of marriage, a civil partnership (PACS), divorce, or termination of employment.
 

Another option? Deposit all or part of the amount in question into a Retirement Savings Plan (PER) or a Group Retirement Savings Plan (Perco). However, be aware: the money is then locked up until retirement, and there are fewer options for early withdrawal than with a PEE. PERs and Percos should therefore be considered very long-term investment solutions. This decision must be explicitly communicated to your employer.
 

To allow their employees to make their choice, employers must provide them with a paper or online form at least 15 days before the date the employee savings are paid out, which is no later than mid-May in most companies. This selection form is of great importance because, if the employee in question does not make a choice, a default decision is made regarding the allocation of profit-sharing and incentive pay.
 

Thus, employee savings contributions may be partially allocated to a PER entreprise or a Perco, which are locked in until retirement. By default, 50% of profit-sharing contributions are allocated to this type of plan. Furthermore, if the employee does not specify a preference, the investment funds selected are generally money market funds or “conservative” funds, which often yield very low returns.