Is It Fair for IT Employees to Lose Variable Pay if They Resign Before Payout Date? Seeking Legal Insights

Query on Variable Pay in Indian IT Companies

I have one query. I searched the entire Google but did not find a single answer for that. This might help lakhs of our IT employees group as this is a very unique and crucial query.

In Indian IT companies which follow Fixed + Variable pay, the structure is OK. But the problem arises when the companies state that the Variable pay will be paid only if the employee is on the company's roll on the "Date of payment of the variable pay"... Most of the companies pay it annually.

Due to this, companies save crores of rupees, and employees lose the same every year. Employees work so hard all the time and lose a significant amount of variable pay as an indirect compensation for their resignation from the company. For example, if in a financial year an employee is relieved, say a month or a week before the variable payout date at the end of the year, then he/she is not even paid for the 11 months... even if the ratings of that employee are good... even if the last working day of the employee is 1-2 days before the payment of variable pay, then also he/she is not paid that.

So, is this logically and legally correct? Is hard work worth nothing? Can a company make rules that only benefit the company? The company says that the offer letter mentioned the rule, and the employee signed the offer...

This is wrong. The employee should get the Proportionate variable pay whether he/she is on the roll or not on the variable payment date.

Does signing an offer which states this make it legal? I don't think that just signing an offer makes everything written in the offer legally viable and true. If this were the case, then there would be no court cases at all.

I wanted to know what can be the stand as per Indian laws like the Industrial Dispute Act, wages, etc., and if there are any cases filed or decided in any court of India?

Please give your opinion and reference to any section of any relevant laws of India which apply to this.

Variable Pay as a Retention Tool

Many companies use variable pay not only to incentivize employees for good performance but also as a retention tool. If employees resign and leave, it defeats the purpose or intention of the company offering variable pay. To that extent, not paying employees who quit before the relevant date is understandable as long as it has been disclosed upfront and the employee has accepted it. Alternatively, if it is part of the official HR policy that is disclosed and accepted by the employee, then it is also acceptable. One way an employee can avoid this situation is to remain until the payment date.

Regards

Thanks for your prompt reply. I understand why companies implement such policies. However, my query is about the legal standing of these policies. Just because a company policy or rule is included in an offer letter signed by an employee, it doesn't necessarily make it legal. Even if both parties have signed the offer, and even if it is a company policy, it cannot legalize a 'one-sided benefit' or other void agreements.

For example, many companies have a "Salary Freezing" policy, which is mentioned in the offer letter signed by the employee and notified through corporate emails before freezing. However, these actions do not make salary freezing legal in India. Such policies are overridden by the Industrial Dispute Act, Wages Act, and other relevant acts of India. Similarly, if a company policy states that they do not provide a service certificate if an employee absconds or leaves on a bad note, and this is mentioned in a signed offer letter, the higher acts and rules of the Government of India override this. It mandates the company to provide the service certificate in any case, whether the employee absconded or was properly relieved.

So, my question is not why companies have variable pay—I understand that. I am asking if it can be legally challenged. I believe it is legally void as it benefits only the company and is logically an unfit policy.

I agree with Dilip. My dear friend, in your query, you keep mentioning the legal system in India and also refer to the Industrial Disputes Act and Wages Act. There is nothing known as the Wages Act in India, and when you specify law, kindly mention the name and provisions correctly. I keep mentioning in many posts on Cite HR that employment terms in any organization are guided by:

1. Contract/Individual contract
2. Legislations

You Have Raised Two Questions:

1. Variable Pay - Can this be paid only to employees on the rolls as of the date of payment?
2. Freezing of Salary

Variable Pay:

If there is a mention in the offer letter and any subsequent policy declaration that such payments shall be made only to those employees who are on the rolls of the company, it is absolutely legal to enforce, and an employee who has left cannot make any claim. No one has tested in court whether software engineers and other hardware engineers are workmen under the Industrial Disputes Act. Even assuming that they fall under the definition of workmen under the ID Act, they may not be eligible for a bonus under the Payment of Bonus Act as the salary limit under the Payment of Bonus Act is Rs 10,000. Even assuming some employees get less than Rs 10,000, then they are eligible for a bonus calculated at Rs 3,500 for the previous year. Other payments are guided by settlements in individual contracts. I have signed many settlements under the ID Act for the payment of ex-gratia only for employees who are on the rolls of the company as of the date of payment. Such settlements were signed before the conciliation officer under sec 12(3), hence absolutely legal.

Hence, such practices on Variable Pay are absolutely within the legal framework in India.

Freezing of Salary:

I do not understand where you get the idea that the Indian legal system does not allow freezing of salaries. When you talk about freezing, I presume that you are mentioning a NO INCREMENT situation. If there is a mention in your appointment letter about the scale of pay, then you are entitled to increments as mentioned in your letter. Legally, you are not eligible for anything more. It is only based on market conditions that organizations effect salary revisions. Even in the case of workmen under the ID Act, management can give notice under Section 9 for freezing salaries. Of course, one needs to discuss the issue before the Conciliation Officer before doing the same. But in respect of others who are not workmen, there is no law that says that organizations need to revise salaries every year.

It is definitely not one-sided. As for variable pay, the employee has to fulfill the condition of staying with the company on the date of payment, and the employer has to fulfill the condition of making the payment. There is nothing one-sided in this contract as both conditions can be complied with.

I hope I have shed some light on the question raised.

Regards,
T. Sivasankaran

I am also a victim of this fraud. This fraud has been committed by a very big corporate house that presents itself as having the best HR policies. It is neither mentioned anywhere nor communicated to employees that "To receive the variable, one has to be on active payroll on the day of variable declaration." HR keeps on assuring all employees that they will receive their variable along with others. However, upon my inquiry, they informed me that the company has decided not to pay the variable, which is performance-linked as per the appointment letter, to former employees. They are also withholding the variable for the year 2008-2009.

I am planning to file a case in civil court for breach of contract and fraud against this group, ESSAR (Essar Information Technology Limited).

Regards

Hi all, I have an issue regarding the same. I worked for an organization where the variable pay period is every six months. I completed that six-month period, and they announced the variable pay for January to June. However, they are saying they considered the July to September quarter and are giving variable pay for January to June. I spoke to them, and they said they won't give variable pay for January to June as they are considering the July to September quarter. My last working day was in August. So, can anyone clarify if I am eligible for variable pay or not?

Classification of Employees in India

In India, the classification is twofold: Workman and Supervisory or Managerial Staff. This "Variable pay forfeit" applies to Supervisory or Managerial Staff, as for the workman, the Payment of Wages Act will apply. Such non-payment can be construed as a deduction in pay.

Current Situation in the IT Industry

In the IT industry, everything is in the inception stage without any organized group monitoring all your allegations. Until the government interferes and sets up a Redressal Mechanism for the IT industry, all such infractions will continue.

Steps to Take if You Are a Workman

In case you can prove that you are a workman not doing any Supervisory or Managerial work, you can still file a complaint with the Payment of Wages Authority. Fearing a fallout, the management may pay up, but you can also expect them to put up a big fight. Going to a civil court will be necessary if you do not come within the definition of workmen. Consult a local lawyer.

Regards,
Advocates & Notaries

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All these details look okay, but my situation is a little different. In my office, the Variable Pay period is from April to March, i.e., April 2013 to March 2014. I am still in the office, but the HR (Company Management) is delaying the VP announcement. I may be relieved by May 31, 2014. If there are delays, how can I proceed in my situation? Please let me know if I can do anything here or how to proceed regarding VP.

Warm Regards,
Sreedhar

I am in the same situation as Kailashrathi was a few years back. I just need to know if someone has ever tried it legally. I work for a firm where variable pay is paid annually for Jan-Dec (2014) with the next year's February (2015) salary. However, my last working day is Jan 27th, 2015. Is there any way that I can get the variable pay? Has anyone contested this situation legally?

Thanks,
Gaurav

The Ethics and Legality of Withholding Variable Pay

One more thing, why should these firms benefit from the employees' money by not paying variable pay and marking it as revenue? Doesn't it look like some kind of fraud? Does signing the offer letter mean everything is legal? When firms can decide their payout cycles, payout percentages, and payout dates, how are these things regulated? Which laws govern this kind of fraud? Don't you think the firms are making a lot of money by withholding these variable pays from every departing employee? Why shouldn't this money be considered fraudulent?

If an employee works for 11 months, they should be paid the variable for those 11 months. This is the ethical standard. Please share if you have a different reason other than the obligation of signing the offer letter or the argument of retaining the employee. If an employee needs to be retained, offer them the best working environment; don't withhold money they are owed. Variable payout is the right of the employee; it's part of the CTC. Employees should not feel obligated regarding the payout; it's their money.

Hi Everyone, I need your expert advice on a matter related to my bonus payment. I am an employee of an IT company in the BFSI domain. The annual cycle has been revised for the year 2014 from January to December (previously it was April to March).

Thus, the appraisal process, merit increments, and bonus amount were adjusted to take into consideration the new annual cycle (Jan-Dec).

Now, I resigned from the company on 16 March 2015. They have not given me the bonus payment and are not citing any reason for it. However, my offer letter states bonus pay as part of CTC (though at the company's discretion). To add to my case, all my peers who joined with me have received the bonus payment. We all received the same rating in the appraisal process, the same merit increase, and there is nothing to differentiate me from my peers—except the fact that I resigned on 16 March, two weeks before the bonus payment on 30 March 2015.

My question here is that the company's annual cycle now runs from January to December, and I was an employee as of 31st December 2014. I applied for resignation on 16 March, and my last working day is 16 June 2015. Still, they have not given me the bonus (which would be around 50K). My salary is around 50K+.

Please provide your inputs on whether I can fight for the bonus and challenge the company's decision.

Thanks,

Rohan

Hi,

I have faced a situation like this before. The variable pay year runs from April to March (it is usually announced in January, but they did not make any announcements this time). I was supposed to receive my variable pay along with the March salary. However, the company has delayed the payment (almost every company in India is experiencing delays). It has not been paid out until May, and I was supposed to be released in May, but the company has not paid the amount. What can I do in this situation? It's frustrating dealing with such irresponsible individuals.

Regards,
Sreedhar

Variable Pay Issues in IT Companies

Can anyone help me? I am also facing some variable pay issues. I am working as a developer in my current company, and the company deducts variable pay every month as mentioned in my offer letter. They give me variable pay after one year is completed. However, in the next year, they informed me that there is a policy change where they will deduct the variable pay in the next six months to evaluate performance and other factors. Unfortunately, due to the company's client moving and the lack of projects, they are relieving me at the end of this month. They have not given me my three months' variable pay, stating that according to the company policy, they will only provide it after six months. I am not resigning this time; the company is relieving me. Can anyone please advise me on what I should do from a legal standpoint to ensure I receive my variable pay?

Thanks & Regards,
Archi