★Brief
On 28 August 2017, Yao joined a network company in Shanghai as an information supervisor. The two parties agreed in the labor contract that their labor remuneration included position basic salary and bonus. Among them, the position basic salary included under: “basic salary”, “quarterly performance pay” and “year-end bonus (formerly 13th salary)”, all of which were fixed amounts.
In May 2019, the network company refused to pay Yao’s year-end bonus for 2018 on the grounds of poor operation and performance.
Yao believed that since the two parties had agreed that the year-end bonus was part of the basic salary and the company did not have any restrictions on the terms of the year-end bonus, the company should pay it in accordance with the contract, so he applied to the local labor dispute arbitration committee and later appealed to court.
★The verdict
After hearing the case, the court held that, firstly, according to the labor contract between the parties, the “year-end bonus (formerly the 13th salary)” was a fixed amount and was agreed under the basic salary, not under the bonus. Secondly, both parties confirmed that the year-end bonus was changed from the thirteenth salary, which was a basic remuneration for labor. In addition, after the thirteen salaries were changed to the year-end bonus, there was no negotiation between the parties or rules and regulations formulated through democratic procedures, which stipulated that the year-end bonus should be paid by the employer after assessment.
Therefore, the court held that the year-end bonus belonged to Yao’s basic remuneration rather than bonus and ordered the network company to pay Yao the year-end bonus in accordance with the contract.
★ Comment of Lawyer Tang
This case is a dispute arising from an unclear agreement on the nature of the year-end lump sum bonus.
As the end of the year is approaching, many employers will pay a year-end bonus to their employees as an incentive for their hard work over the year. It does not seem to matter whether the bonus is called a “year-end bonus” or a “13th salary ” bonus. In fact, although both year-end bonus and 13th salary are bonuses under labor law, there are significant differences in the nature and manner of payment.
The thirteenth salary, as the name suggests, is the thirteenth month’s salary. Originally, it refers to a one-month salary paid in a lump sum at the end of the year by some foreign-funded enterprises in China after the reform and opening up of the country, to replace various kinds of subsidies. Later, this practice was also followed by major domestic enterprises.
Therefore, unlike the year-end bonus, the 13th salary is generally considered to be a basic labor remuneration. If the parties have agreed on the payment of 13th salaries in the labor contract or enterprise rules and regulations, and the worker has fulfilled his or her labor contract obligations during the year, the employer should pay the worker the full amount of 13th salaries in accordance with the contract. In practice, the employer has more autonomy in deciding whether to pay the year-end bonus and how much to pay according to the actual operation of the company and the performance of the employees.
It is recommended that the employer, when setting up the year-end lump sum bonus, should clarify the name of the project, the scope of the personnel to be paid and the criteria for payment, in order to avoid unnecessary disputes.
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