When is paying a bonus an obligation for the employer?
Recently, the Shanghai Pudong New Area People’s Court handled a case in which Mr. Li’s employer failed to pay him his agreed-upon annual bonus. Mr. Li felt he had worked hard all year and definitively deserved a bonus.
His employer however contested having to justify his decision not to pay the bonus this year. Ultimately, the Court supported the employee’s claim for the payment of the annual bonus, basing its decision on the company’s employee handbook regarding annual bonuses.
So, what does the law actually say about the annual bonuses?
Is the annual bonus a “wage”?
The annual bonus is a component of certain wages.
According to Article 4 of “Regulations on the Composition of Gross Wages” from the National Bureau of Statistics, gross wages do include bonuses. Furthermore, according to Article 2 of “Interpretation of Several Specific Scopes of the” from the National Bureau of Statistics, ‘annual bonuses’ are included in bonuses (labor dividends). In this way, the annual bonus is a component of certain wages and is labor remuneration.
When does an employer have an obligation pay annual bonus?
The annual bonus is an affirmation of the employee’s performance over the previous year, and is generally paid according to the employer’s own operating conditions. It is important to note here that the payment of an annual bonus is a voluntary act of the employer, and is not, as such, enforced by law.
As indicated above, any annual bonus is generally part of an agreed-upon employment contract or is stipulated in the rules and regulations guidelines of the employer.
However, the absence of a written agreement does not preclude the payment of the annual bonus.
If the employer has a certain history of paying annual bonuses, and the employees have therefore formed a reasonable expectation with regard to the payment of such annual bonus, the employee’s request for payment of an annual bonus may be supported, even if the employer disputes it and cannot provide an adequate reason for withholding payment of such bonus.
What about employees who have worked for less than one year?
For employees who have worked for less than one year, if it is clearly agreed in the employment contract that no annual bonus should be paid for working for less than one year, the employer is usually not required to pay.
If this is not agreed, according to the principle of fairness and the principle of distribution according to work, for employees who have worked for less than one year, the employer is usually required in practice to pay the annual bonus to the employees according to the proportion of the actual employment time.
According to the Labor Dispute Mediation and Arbitration Law, the general time limit placed on applications for arbitration of a labor dispute is one year. However, if a dispute arises during an ongoing labor relationship, an employee’s application for arbitration is not subjected to the one-year limitation.
The annual bonus is labor remuneration, so the time limit for claiming the payment of an annual bonus is within one year from the date of termination of labor relationship.