Productivity bonuses in Italy: the 1% flat tax Nordic employers should know

Nordic companies often pay a yearly bonus on company or team results. In Sweden or Denmark it is simply taxed as salary. In Italy, a bonus can be taxed very differently depending on how it is set up. A qualifying productivity bonus, premio di risultato, is taxed at a flat 1% in 2026, on up to €5,000 a year per employee, instead of normal income tax rates that run up to 43%.

That difference is large enough to shape how you design variable pay for your Italian team.

What qualifies  

The reduced rate is meant for bonuses linked to measurable improvements in productivity, profitability, quality, efficiency or innovation. In broad terms:

• the bonus must be based on a company or territorial agreement that defines the targets and how they are measured;
• the targets must be objective and verifiable, with a measurement period;
• the payment must depend on reaching an improvement, not just on the passage of time;
• the employee must be within the income limit set by law. The limit applied in 2025 was €80,000 of employment income; confirmation for 2026 was not found in our source.

A bonus paid at the manager’s discretion, or a guaranteed bonus, does not qualify.

Ordinary bonus vs productivity bonus  

For an employee in the 33% band, a €5,000 ordinary bonus loses about a third to income tax; the same amount as a qualifying productivity bonus loses €50.

The welfare option  

Under the same rules, the employee can often choose to receive part or all of the productivity bonus as welfare benefits instead of cash: health, education, care services and similar. These can receive even more favourable treatment [confirm 2026 welfare conversion rules]. It is worth offering, because some employees value it.

What this means for a Nordic company  

Design team or company targets, not only individual ones. The Italian rules reward measurable collective improvement. That fits Nordic management style well.

Put it in writing before the period starts. A plan designed after the results are known will not qualify.

Keep individual bonuses separate. Commissions for sellers and discretionary rewards remain ordinary pay. That is fine; just do not mix them into the productivity plan.

Mind the cap and the income limit. Above €5,000, or above the income limit, normal taxation applies.

Setting it up through an EOR  

With an Employer of Record (EOR), we are the employer in Italy, so the plan is set up under our company. We draft the plan on the targets you define, file what is required, and apply the 1% rate in payroll when the bonus is paid. You decide the targets and the amounts.

Steps  

1. Decide what you want to reward: revenue growth, delivery quality, cost reduction.
2. Define objective measures and the measurement period.
3. Set the bonus amounts, within €5,000 for the reduced rate.
4. Put the plan in writing before the period starts.
5. Measure, document and pay.

Questions we hear from Nordic companies  

Can one employee have a productivity plan? The plan is a company-level instrument; it can cover a small team, but it must be based on the required agreement and measurable targets. We check whether your case fits.

Does a productivity bonus count for the TFR? Treatment depends on how the bonus is structured. We show the effect in the quote.

In short  

A well-designed productivity plan lets Italian employees keep almost all of a bonus up to €5,000 a year. It needs written, measurable targets set before the period starts, and it works best for team or company results, which suits Nordic management. Keep commissions and discretionary rewards separate as ordinary pay, and let us check eligibility and the income limit before the plan is announced.

More on pay components in From RAL to net pay . To see the effect on cost, use the cost calculator .