Labor disputes concerning the claim for year-end bonuses by departing employees have become a common occurrence. When employees leave their positions, common points of contention include:

whether the bonus should be paid for the entire year if the employee has not completed the full year of service;

whether the bonus should be paid if the annual assessment has not been conducted before the departure, and;

whether the bonus can be withheld if it has not been disbursed by the time of departure.

Nature of Year-End Bonuses

According to the Provisions on the Composition of Wages, the total amount of wages includes the remuneration directly paid to all employees by an employer within a certain period, which encompasses bonuses.

Interpretations on Several Specific Issues of the “Provisions on the Composition of Wages” further clarify the scope of bonuses, including production (business) bonuses, including bonuses for exceeding production targets, quality bonuses, safety (accident-free) bonuses…year-end bonuses (labor dividends), etc.

From this perspective, year-end bonuses are generally considered a component of wages and do not usually spark disputes.

In examining disputes related to year-end bonuses, the following factors should be considered:

1. Whether the composition of the wages includes year-end bonuses

The main examination criteria are the labor contract, related agreements, or offer letters that may contain provisions regarding year-end bonuses. Additionally, the internal regulations of the employer should be examined to determine if they include provisions on year-end bonuses. The actual practice of disbursing year-end bonuses by the employer during the performance of the labor contract is also relevant.

If there is an explicit agreement or regulation regarding year-end bonuses, or if it can be demonstrated that year-end bonuses have been consistently disbursed in practice despite the absence of contractual or regulatory provisions, the burden of proof for reducing or withholding the year-end bonus rests with the employer. If the employer fails to provide any evidence, the adjudicatory authorities are likely to require the employer to pay the bonus.

2. Whether it is in line with labor contract or internal regulations if the employer refuse to pay

1) According to the labor laws of the PRC, the provisions of the labor contract cannot violate legal requirements or infringe upon the legitimate rights and interests of employees.

Whether any provisions (including the one regarding bonus) in the labor contract are appliable depends on if those provisions violate mandatory legal regulations or infringe upon the legitimate rights and interests of employees. ( You may check our previous post to know more: Unlocking the Power of an Employment Handbook

According to Article 26 of the “Labor Contract Law,” if an employer exempts itself from legal responsibilities or excludes the rights of employees, the labor contract is invalid or partially invalid. Year-end bonuses, as part of an employee’s wage, should not be exempted by contractual provisions from the employer’s legal responsibilities or the employee’s right to receive remuneration.

2) Internal regulations should be established through democratic procedures, publicly discussed, and should not violate legal requirements or infringe upon the legitimate rights and interests of employees.

Article 4 of the “Labor Contract Law” stipulates that employers should formulate regulations and rules in accordance with the law and publicly disclose them to employees. When formulating regulations related to labor compensation, a democratic process should be followed.

If the employer’s internal regulations related to remunerations to the employees have not undergone a democratic process or public disclosure, or if the content is illegal, they cannot be lawfully applied.

3. Whether the conditions for receiving year-end bonuses are reasonable.

a. If the employer has a specific regulation that specifies that departing employees are ineligible for year-end bonuses after going through a democratic public disclosure process, or if an employee voluntarily resigns without meeting the conditions for receiving year-end bonuses, or if the year-end bonus is defined in relevant regulations as an incentive for employees to serve the employer in the long term and if the regulations have undergone a democratic public disclosure process, the likelihood of supporting departing employees in receiving year-end bonuses is relatively low.

b. If there is evidence that the employer has indeed disbursed year-end bonuses but lacks legitimate and effective provisions or clear agreement on the conditions for paying year-end bonuses, claim on certain proportion of year-end bonuses based on the employee’s actual working period is likely to be supported.

c. Please be noted, if the labor contract is illegal terminated by the employer, claim on certain proportion of year-end bonuses based on the employee’s actual working period shall be supported.

In summary, year-end bonuses are considered part of an employee’s wages, and employers should fully comply with the contractual provisions or regulatory requirements by lawfully paying the bonuses. Withholding year-end bonuses from departing employees without reasonable justification is not permissible.

Relevant legal provisions:

Article 30 of the Labor Contract Law: Employers should pay employees remuneration in a timely and full manner as agreed upon in the labor contract and according to national regulations.