Currently, there is no unified laws and regulations on year-end bonus in China. Some companies may have stipulated in their employment contracts, company rules and regulations and employee manuals that employees no longer with the company shall not enjoy the year-end bonus. Is it a legal and valid provision? The answer depends on a number of factors and cannot be generalized.

If the company clearly stipulates in the employment contract, company rules and regulations or employee manuals that the year-end bonus is a special welfare to the employees which does not constitute part of the employee’s regular wages, whether to pay the year-end bonus or not shall be decided at the discretion of  the company based on the operation status of the company and the work performance of the employees, and the employees no long with the company shall not enjoy the year-end bonus of the current year, it is most likely to be upheld by the court in judicial practice. Of course, in judicial practice, the court will also review whether the rules and regulations and the employee manuals formulated by the company are legal in terms of procedure and content. If the relevant rules and regulations and employee manuals are not formulated through the democratic and publicity procedures required by the law, they will still be judged invalid even if the contents are reasonable and legal.

If the amount of the year-end bonus is clearly stipulated in the employment contract signed between the company and the employee, the year-end bonus will be treated as part of the employee's regular wages. Under this circumstance, it will be more likely to be judged invalid to provide that employees no longer with the company shall not enjoy the year-end bonus. The court may order the company to pay proportionate bonus to the leaving or terminated employee based on his or her amount of time served in the company.

To sum up, companies should make clear and specific provisions on the payment conditions and payment standards of year-end bonus in order to avoid disputes in the future. And they should strictly comply with the democratic and publicity procedures required by the law when they formulate the relevant provisions. For example, according to Article 4 of the Employment Contract Law of the PRC, when formulating, modifying or deciding on rules and regulations or major issues directly related to the vital interests of employees, the employer shall discuss and negotiate with the employee representatives or all employees before making a decision. And the relating decisions, rules and regulations shall be notified to the employees.

KAIZEN Group is equipped with experienced and highly qualified professional consultants and is therefore well positioned to provide professional advices and services in respect of the formation and registration of company, application for various business licences and permits, company compliance, tax planning, audit and accounting in China. Please call and talk to our professional consultants for details.