01 Is it illegal to deduct performance pay? The latest reply from Shenzhen Human Resources and Social Security Bureau
Regarding this issue, recently the official WeChat account of Shenzhen Human Resources and Social Security Bureau released an article titled "Can the company deduct performance pay at will?" to provide a reply.
Case Introduction:
On September 8, 2023, Xiao Liu joined an information technology company as a human resources supervisor, and the two parties entered into a written labor contract.
On June 21, 2024, the company reached a consensus with Xiao Liu to terminate the labor contract. After the termination of the labor relationship, a dispute arose between the two parties regarding the performance pay for April and May 2024.
Subsequently, Xiao Liu applied for arbitration, stating that the company had never carried out performance appraisals and demanded that the company pay the deducted performance pay. The company argued that the deduction of performance pay was a performance appraisal of Xiao Liu and was reasonable and legal.
Arbitration Result:
The arbitration committee supported Xiao Liu's claim.
Case Analysis:
According to the salary details submitted by the company, Liu's monthly performance pay was 1,000 yuan. The company deducted 270 yuan of the applicant's performance pay in 2024.
When the company failed to provide evidence to prove the existence of a performance appraisal system, nor provided evidence to prove the existence of an agreement related to performance appraisal with Liu, and also did not conduct performance appraisals on Liu after employment, the performance pay had been paid at 1,000 yuan per month.
The company began to deduct the applicant's performance pay from April 2024, which violated the agreement in the labor contract that the performance pay was 1,000 yuan per month. Therefore, the company should make up a total of 770 yuan of Liu's performance pay for April 2024 and May 2024 according to the agreement.
Conclusion:
Performance appraisal is an important system for employers to motivate and discipline employees. In order to give full play to the guiding role of performance appraisal, first of all, a sound performance appraisal system should be formulated through democratic procedures to ensure that the assessment basis is reasonable and legal.
Secondly, the employer should organize employees to study the relevant performance appraisal system and clarify the appraisal objectives and basis for their respective positions. Finally, performance appraisal should be carried out through appropriate assessment procedures to avoid arbitrariness. Only by making employees convinced can the best assessment results be achieved.
02 Legal Analysis of Performance Pay
According to Article 3 of the Interim Provisions on Wage Payment:
The term "wages" as used in these Provisions refers to the wage remuneration paid by the employer to the employee in various forms in accordance with the provisions of the labor contract.
If the labor contract or the enterprise's rules and regulations have clearly stipulated that the wage composition is the basic wage and performance pay, the performance pay should be regarded as an important part of the employee's wage composition.
In practice, in case of disputes arising from the payment of performance pay, the employer shall bear the burden of proof for the following matters regarding the standard of its wage calculation and the reason why it does not need to pay the corresponding performance pay:
◾ Before the implementation of the assessment, clear and specific assessment standards and procedures have been preset;
◾ The assessment standards and procedures have been formulated through democratic procedures in accordance with the law and publicized;
◾ The performance appraisal results are objective, fair, reasonable and scientific.
The performance appraisal system falls within the scope of the enterprise's autonomous management right, but it also involves the vital interests of employees. When an enterprise conducts performance appraisals on employees, it should make an objective and fair assessment based on the employees' work performance and achievements, and give play to the positive role of performance appraisals in promoting employees' healthy competition and the common progress of the enterprise.
If the employer and the employee have not made a special agreement on the payment conditions of the performance pay, whether the company is in loss or profit, as long as the employee has normally provided labor and met the corresponding assessment conditions, the employer should pay the employee's performance pay on time and in full.
In short, the key factor in whether the performance pay can be deducted lies in whether it is agreed in the labor contract.
If the specific content of the performance pay has been agreed in the labor contract, then it is reasonable and legal for the company to deduct the performance pay through performance appraisal, but it cannot be deducted arbitrarily.
To deduct performance pay, four conditions need to be met:
◾ After deducting the performance pay from the salary, it shall not be lower than the local minimum wage standard;
◾ The performance appraisal system must go through the publicity procedure;
◾ The performance appraisal system needs to be informed to the employee and signed for confirmation by the employee (usually informed in the labor contract);
◾ There is no situation of malicious assessment.
If there is no agreement in the labor contract, any act of deducting performance pay is illegal.
03 Can the company split the fixed salary into post salary and performance pay?
In recent years, more and more employers have been adjusting their salary structures. Among them, splitting the fixed salary into post salary and performance pay is one of the common practices. So, is this practice legal?
According to Article 47 of the Labor Law of the People's Republic of China:
The employer shall, in accordance with the characteristics of its production and operation and its economic benefits, independently determine the wage distribution method and wage level of the unit in accordance with the law.
Article 4 of the Labor Contract Law:
The employer shall establish and improve labor rules and regulations in accordance with the law to ensure that employees enjoy labor rights and perform labor obligations.
When formulating, amending or deciding on rules and regulations or major matters directly related to the vital interests of employees, such as labor remuneration, working hours, rest and vacations, labor safety and hygiene, insurance and welfare, employee training, labor discipline, and labor quota management, the employer shall discuss them with the employees' congress or all employees, put forward plans and opinions, and determine them through equal consultation with the labor union or employee representatives.
During the implementation of the rules and regulations and major matters decisions, if the labor union or employees consider them inappropriate, they have the right to propose them to the employer and have them revised and improved through consultation.
The employer shall publicize the rules and regulations and major matters decisions directly related to the vital interests of employees, or inform the employees.
From the above legal provisions, it can be seen that the unit has the right to adjust the salary structure, but the adjustment of the salary structure often involves the modification of the labor contract. If the employer intends to modify the labor contract, it must, in accordance with the law, adopt a written form and reach a consensus through consultation with the employee.
Generally, the employer's unilateral adjustment of the salary structure must be based on the premise of not affecting the employee's income standard. Otherwise, if the unit unilaterally adjusts the salary structure without consulting and obtaining the consent of the employee and reduces the salary, it is an illegal act, and the employee can claim that the enterprise has not paid the labor remuneration in full.