Liability of the organization to pay performance incentive amount to an attrited employee

Dear All,

I want to know what the liability of the organization is in terms of performance incentive payout after the last working day of an employee. Can the organization reserve the right not to pay the performance incentive amount to the employee when it was not clearly documented in any of the communications like the Appointment Letter or communication on the incentive scheme, etc.? Also, what are the legal aspects towards this in terms of employment rules, labor laws, or shop and establishment laws?

We have an ex-employee who is claiming performance incentive for Q4 (Jan/Feb/Mar 20) which is not yet computed even for existing employees. Her last working day was in Feb, and we had already cleared her Q3 performance incentive. Now, she is writing an email asking for Jan & Feb incentives. She is also threatening on social media by tagging our organization and spreading negative words in the public domain. The gap that occurred was that before her last working day, we missed sending any communication on the point of INCENTIVE PAYOUT. In this circumstance, we are trying to understand what our next step should be in replying to the employee.

Dear Moumita,

I think that the phrasing of your question indicates your desire to refute the claim for the performance incentive just because the employee left the service. I don't think that there is any law on the payment of performance incentive, and it is purely contractual in nature. Even though there is no specific mention of the performance incentive in any document like appointment orders, your own statement that her Q3 Performance Incentive amount was already cleared implies the existence of such a scheme as an implied contract. The vouchers, if any received, would prove its periodical payment to the ex-employee. Therefore, your intention to refute her claim based on certain extraneous reasons is unfair, and any attempt to disown your liability to pay the incentive for past performance is illegal. Besides, if she happened to be an "employed person" under the Payment of Wages Act, 1936, and the performance incentive being an additional remuneration payable under the (implied) terms of employment as per clause (c) of Sec.2(vi) of the definition of wages under the PWA, 1936, she can institute recovery proceedings u/s 15 of the Act and claim compensation up to 10 times the amount due.

My suggestion, therefore, would be to have a mindset to pay the amount and reply to her that it would be paid as and when the P.I for Q4 is computed.

What Shri Umakanthan has written is absolutely correct.

While badmouthing the ex-employer on social media is not the right thing to do, the ex-employer should have given a clear-cut reply to her concerns regarding dues. There must be a schedule for working out and deciding incentive amounts that need to be adhered to. The payment for her services is due and needs to be cleared on time. No long-term benefits or gains accrue by trying to cut down on unavoidable payments.

Thank you very much for your reply, Umakanthan.M, Sir. It is helpful for me to amend our internal policies and rules as well.

Dear Madam,

If your PI scheme, by implication or by practice, requires an employee to work throughout the quarter, then the claim of the employee who left in the middle of the quarter is questionable, and perhaps you are not bound to pay.

Please check your scheme for this and reply suitably.

Regards,
Vinayak Nagarkar
HR and Employee Relations Consultant

The absence of a clear definition as to the term causes complications in calculating payments to employees, and what sort of payments would be considered as bonus, and what would be outside its purview.

However, if we see the trend prior to the enactment of the Act, employers would pay bonus based on their whims and fancies, the regulation of which was intended by the Act. Therefore, now there exists only one type of bonus today, which is the statutory bonus payable under the provisions of the Act.

Government of India had enacted the Payment of Bonus Act 1965 (“Act”) with a view to entitle employees to partake in the profits generated by the employer or the production/productivity of the establishment. This was seen as a way of motivating the employees by providing them additional payment in the form of bonus. As the law stands today, the Act is applicable to every factory and every other establishment in which 20 (twenty) or more persons are employed.

As the productivity is a need of modern businesses to survive and sustain in long run, organisations have been linking their pay packages to certain performance parameters and often such salary components are called ‘bonus’. And more often than not, this (performance) bonus is significantly higher then the bonus prescribed under the Act. Therefore, companies often have doubts whether they must still pay bonus under the Act, despite the payment of performance-linked bonus that they usually pay to their employees. This article seeks to analyze this aspect.

Regards