The Employee Profit-Sharing Act (ZUDDob-1) – A Comprehensive Overhaul of the Employee Profit-Sharing System

Authors I Boštjan Špec and Anja Bošnik

 

On March 11, 2026, the Employee Profit-Sharing Act (“ZUDDob-1“) entered into force, comprehensively regulating the field of employee profit-sharing and repealing the previous ZUDDob from 2008.

 

Participation in profits remains voluntary, and the right to participate is non-transferable. Crucially, all employees must participate in profits under the same conditions, which does not mean that all employees must participate equally in profits.

 

Key changes in ZUDDob-1

 

• The share of profits that can be distributed among employees is increased from the current maximum of 20 percent to 33 percent of the profits for a given fiscal year.
• The upper limit on payouts is raised from 10 percent to 20 percent of the annual gross wage amount.
• Mandatory registration of contracts is abolished and replaced by a notification to the ministry responsible for the economy.
• The law provides for three possible schemes: cash, stock, and profit-sharing.
• A 100 percent tax credit on corporate income tax for profits paid to employees is introduced, which can be claimed as early as the following year, not only after three years.
• Income is taxed on a schedular basis—the tax rate for the cash scheme is 30 percent, and 25 percent for the stock or partnership scheme.
• Income is not included in the annual income tax base and is not subject to social security contributions.
• Different amounts may be distributed to different groups, and companies may also take additional criteria into account (such as the employee’s average individual performance rating and other criteria).
• A 3-year lock-up period applies to the received shares or equity interests, and the company has a right of first refusal.

 

Who is considered an employee under ZUDDob-1?

 

An employee is defined as a natural person who is in an employment relationship with the company based on an employment contract. An employee also includes a member of management, a proxy, and an executive director, provided they have an employment contract and are not entitled to profit sharing on that basis. However, an exception applies to an employee who is simultaneously a direct or indirect holder of a business share or shares, or who holds at least 10% of the voting rights or at least a 10% stake in the company’s capital (majority owner of the company), as well as their spouse and common-law partner.

 

Types of Profit-Sharing Schemes

 

The law allows for the use of the following schemes:

 

• cash scheme,
• a stock scheme,
• a partnership scheme.

 

The cash plan entitles employees to receive their share of profits in cash.

 

The stock plan entitles employees to receive their share of profits in the form of shares. The value of the shares issued must not be lower than the last market price of the shares already issued. If the shares are provided through an increase in share capital, the preemptive rights of existing shareholders are excluded, and the rules on public offerings of securities under ZTFI-1 do not apply. The shares must be registered in the employee’s name no later than three months after acquisition.

 

The profit-sharing scheme, however, grants employees the right to receive their share of profits in the form of an independent (individual) business share in a limited liability company (d.o.o.). The value of the share is determined by the company based on market comparability or using recognized valuation methods.

 

Under both the share and partnership schemes, a three-year lock-up period applies from the acquisition of the right to the applicable amount of profit, and the company has a right of first refusal upon sale, which takes precedence over the shareholders’ right of first refusal.

 

Profit-Sharing Agreement

 

The central instrument is the profit-sharing agreement (hereinafter: the agreement), by which the company undertakes to pay the employee a share of the profit in accordance with the agreed scheme or schemes.

 

The company may have only one such agreement in effect at a time, which must apply to all employees, except for those excluded from the application of ZUDDob-1. The agreement may be concluded for the distribution of profits for one or more fiscal years, including the past fiscal year.

 

ZUDDob-1 specifies the mandatory elements of the agreement (in particular, the contracting parties; the agreed schemes; the share of profits allocated to employees; the criteria for determining the amount of profits to which employees are entitled, etc.). The right to profit sharing may be subject to the condition of the duration of the employment relationship, provided that such period does not exceed six months.

 

The procedure for concluding the agreement is prescribed by law. The procedure begins with the submission of an initiative, which may be submitted by employees, management, or shareholders.

 

On the employees’ side, the initiative may be submitted by a representative trade union, the works council, or an employee representative appointed by the employees at a general meeting. No later than 15 days after receiving the employees’ initiative, management must draft a reasoned opinion and inform the employees of it. Management may also submit its opinion with justification to the general meeting so that the latter may decide on the initiative, or it may immediately begin negotiations with the employees. If management decides to refer the matter to the general meeting, it is obligated to comply with the general meeting’s decision.

 

A prerequisite for the management to begin negotiations with the employees is the existence of the company’s articles of association permitting such use of profits or a prior resolution of the general meeting regarding the use of profits. On the company’s side, the decision to conclude the agreement is made by the general meeting with a simple majority of the represented share capital. The company’s resolution must also include authorization for management to conclude the agreement.

 

On the employees’ side, the decision is made by representative trade unions, the works council, an employee representative, or an assembly of employees, depending on the company’s organizational structure. The resolution must also include authorization for an authorized person to conclude the contract and appoint a contract administrator.

 

If a contract has not been concluded within 45 days of the submission of the proposal, the company’s general meeting may, at the initiative of the employees, management, shareholders, or partners, adopt a resolution on employee profit sharing (hereinafter: the resolution), in which case the provisions governing the conclusion of the agreement shall apply mutatis mutandis to the procedure for submitting the initiative.

 

Based on the resolution, management prepares a profit-sharing plan (hereinafter: the plan), which must comply with the rules established by law; otherwise, it may be null and void. Among other things, the following must be taken into account:

 

• that all employees who meet the conditions are included;
• one or more profit-sharing schemes are established in accordance with the law;
• that at least 5% of the net operating profit generated in the respective fiscal year is distributed;
• the payment deadline;
• the conditions and methods for disposing of the company’s shares or stock, as well as the possibility of the company repurchasing such shares or stock, including the determination of the method for setting the repurchase price;
• when determining the criteria for calculating the applicable profit amount, the distribution must be taken into account: 30–90% based on gross payroll and 10–70% based on the average number of employees;
• the possibility of additional criteria (e.g., individual work performance up to 30% of the profit share).

 

There is a notification obligation, pursuant to which management must submit the agreement or resolution to the ministry responsible for the economy no later than 15 days after the conclusion of the profit-sharing agreement or the adoption of the resolution on employee profit-sharing. Management must also submit any amendments to the agreement or resolution and notify the ministry if the agreement is terminated.

 

Acquisition and Exercise of the Right to Profit Sharing

 

An employee acquires the right to profit-sharing on the date the resolution on the use of profits is adopted, which stipulates that a portion of the profits is allocated to employee profit-sharing.
The employee is entitled to the amount determined in accordance with the agreement or profit-sharing plan. The employee must be notified of the amount due in the usual manner no later than 30 days after the conclusion of the agreement or the adoption of the resolution.

 

Termination of the Profit-Sharing Agreement

 

The agreement terminates upon the expiration of the term for which it was concluded; on the date of the commencement of bankruptcy proceedings or the confirmation of a compulsory settlement; upon the dissolution of the company; or if the company terminates the profit-sharing agreement under certain conditions in the event of a statutory reorganization. For an employee, the agreement ceases to be effective upon the termination of the employment relationship.

 

The company may terminate the profit-sharing agreement when the general meeting adopts a resolution to terminate the agreement. The termination takes effect at the beginning of the fiscal year following the fiscal year in which the resolution to terminate the agreement was adopted.

 

Tax Benefits

 

The company may claim a reduction in the tax base under the Corporate Income Tax Act (ZDDPO-2) for 100% of the applicable amount of profit from the previous fiscal year distributed to employees, up to the amount of the tax base, provided that:

 

• the share of profit allocated to employees does not exceed 33% of the net operating profit generated in the relevant fiscal year, and at the same time does not exceed 20% of the gross payroll for the fiscal year in which the profit is distributed;
• the ratio of profit distribution among employees does not exceed one to eight at the company level, whereby the ratio is calculated based on the lowest and highest applicable amounts of profit sharing among employees who were employed full-time by the company throughout the entire fiscal year;
• the conditions related to ensuring wage growth are met;
• all employees participate in profit-sharing under the same conditions.

 

Regarding the condition for ensuring wage growth, ZUDDob-1 stipulates two alternative conditions, namely:

 

• The average monthly gross wage is higher than the average monthly gross wage in the private sector in the previous fiscal year, and the growth in the company’s average monthly gross wage reaches at least 70% of the growth in the average monthly gross wage achieved by companies in the same SKD sector in the previous fiscal year.
• The average monthly gross salary is higher than 120% of the average monthly gross salary in the private sector in the previous fiscal year, and the growth in the company’s average monthly gross salary exceeds the average annual inflation rate in the Republic of Slovenia in the previous fiscal year.

 

Transitional reduced thresholds apply for the 2025 and 2026 fiscal years. A company may claim tax benefits if the average monthly gross salary is higher than or equal to 50% of the growth in the average monthly gross salary by industry, or if the average monthly gross salary is higher than or equal to half the average annual inflation rate.

 

The reduction in the tax base may be claimed as early as the following year and not only after three years, as stipulated by the previous law.

 

Income from cash, stock, or partnership schemes is taxed on a schedular basis – the tax rate for cash schemes is 30 percent, and for stock or partnership schemes, 25 percent. This income is not included in the base for calculating social security contributions.

 

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It is crucial that the profit-sharing system is properly designed from the outset. The system must first and foremost comply with the law, while also being tailored to the company’s specific needs. We offer you comprehensive support in this regard, both in selecting the appropriate scheme and in preparing the necessary documents, reviewing tax aspects, and ensuring the system’s long-term compliance.