Leaving Before Bonus Payout: Can I Still Get My Variable Pay Under the Bonus Act?

Hi all, My appointment letter includes a column in the salary structure as "Variable Pay inclusive of bonus as per the Payment of Bonus Act, 1965." This amount is paid to employees in the October salary. Currently, I am serving the notice period, and my last date is in September. The company's policy document mentions, "Variable pay is paid to the employees who are on board until 30th September." Since my exit date is 10 days earlier than the 30th, I have been informed by the company's HR that I won't be getting the variable pay. Is there anything that I can do? Is it lawful under the "Bonus Act, 1965"? Experts, please shed some light on my concern. Any help is appreciated.

Regards.

Dear Abbas,

Thank you for your reply. My salary is above 10,000 Rs, and I have been in continuous full-time employment for over three years with this organization. Could you please clarify if the policy of not paying a bonus if I leave before September 30th is lawful?

Thank you.

Understanding Variable Pay and Bonus Eligibility

Variable pay is typically included in the salary breakup sheet, subject to conditions such as achieving targets, performance, and profitability. Variable pay, which includes bonuses as per the Payment of Bonus Act, is a general condition binding on all employees, regardless of their relevance to the Act. The term "Variable Pay" itself indicates that it is not fixed but depends on various factors. Performance and profitability are primary factors determining the amount of this benefit. If the company makes a profit, employees receive a bonus at a rate higher than the statutory rate of 8.33%. Eligibility for a bonus is contingent upon meeting certain conditions, such as individual performance.

Measuring Performance for Variable Pay

To measure performance, you need predefined standards for each individual at the beginning of the year. Without such measures, performance evaluation becomes routine, considering whether the individual will continue contributing to the organization's goals. If it is expected that an employee will leave and not contribute to future profits, their performance may be rated low, affecting their variable pay. For those eligible under the Payment of Bonus Act, that part of the variable pay is assured, but for others, there is no guarantee. If targets linked to variable pay are met, the pay is granted, even if the employee is on notice pay when disbursed. However, if qualitative judgments are involved, the pay may not be granted.

Variable Pay and Minimum Wage Considerations

Since only part of the salary is variable, and the fixed portion exceeds the government's minimum wage, labor authorities may not provide redress for grievances related to variable pay. If the fixed component is below minimum wages, the situation changes. The company's policy on variable pay determines its availability. Employees cannot assume variable pay is guaranteed without meeting performance criteria or if they leave the company prematurely.

Regards,
Madhu.T.K

I agree with what you have said. However, the only reason I have been told for not receiving it is that my last date of employment is 15 days earlier than the date on which the Variable Pay is disbursed. Since the pay is for 1 year (considering from last year's disbursal) and I have worked for 11 months and 15 days, considering satisfactory performance, am I eligible for at least the bonus part of the variable pay? Is there any statement in the 1965 act that justifies an employee must work for the entire year?

Thanks.

I think I have clarified the point raised by you now in my previous reply itself. It is not a matter of law, and if at all any law is applicable, it is the Contract Act. If it is a part of the contract without any condition attached to it, then you can proceed against the employer based on the contract following the relevant provisions of the Contract Act, like breach of contract, etc. If not, it should be settled between you and your employer amicably and try to get at least a portion of the variable pay released.

Regards,
Madhu.T.K

Dear friends,

If the payment in lieu of a bonus is disbursed based on a contract or scheme (say Annual Performance Reward scheme), those who worked for the period but left before disbursement are eligible to receive it. However, if there is no such contract or scheme, and the payment is decided on mutual understanding between management and trade unions/employee representatives, the payment may be for employees on the payroll. Kindly verify the terms and conditions based on which the payment is disbursed.

Abbas P.S.