China: Legal Interpretation And Application Of Year-End Bonuses Under Chinese Law

Last Updated: 22 August 2016
Article by Anderson Zhang

The term "year-end bonus" generally refers to the material incentive a company gives to its employees to reward them for their good performance and contribution to its development. With continuous economic growth a goal of many companies, more and more employers are offering, and more employees are expecting, year-end bonuses. This trend raises various legal issues.


A "year-end bonus" is usually the bonus paid by an employer, as specified by its rules and regulations or as otherwise agreed, to an employee at end of year or another agreed-upon date. Year-end bonuses may be paid in the form of: (1) a fixed amount, equivalent to a month's salary, or as 13th- and 14th-months salaries (widely adopted by foreign enterprises), to which all employees are entitled, as long as the employees are all awarded the bonus payment, regardless of individual performance or company profits; (2) a floating bonus, which is a performance bonus paid on the basis of annual individual performance appraisal results and company profits; or (3) a "red packet," generally determined by the boss, without a fixed rule, which might be related to the individual employee's contribution, qualifications, relation with the boss or other factors.

No matter which form is chosen, a year-end bonus is a material incentive to employees. Then what is the essential legal nature of a year-end bonus?

According to Articles 4 and 7 of the "Provisions on the Composition of Total Salary" promulgated by the National Bureau of Statistics,1 a year-end bonus is a component of "Total Salary" and part of "labor remuneration."

Once the legal nature of the year-end bonus is clear, we have the answers to many questions. For example, disputes about year-end bonuses are typical labor remuneration disputes; therefore they fall into the scope of acceptance of labor dispute cases. Moreover, being in the category of salary, a year-end bonus should be included in the salary counting. Finally, a year-end bonus is taxable as normal wage income.


Because a year-end bonus is a part of salary, the various forms it can takes are similar to those of base salary and, like base salary, should be agreed upon by both the employer and the employee at the time of hiring or during the employment.

Common forms of agreement with respect to year-end bonuses are:

1. Agreed to individually. As with an individual's base salary, a year-end bonus is agreed to between the employer and the employee and is documented in the employment contract or other agreement.

2. Stipulated by rules and regulations. During employment, the employer, to stimulate the employees' enthusiasm for work, pays a year-end bonus to certain, or even all, employees, in a form stipulated by its rules and regulations. At its core a matter of collective motivation, this form of bonus is much easier to negotiate than a program designed to account for individual differences.

3. Agreed in the collective contract. Like the form governed by rules and regulations, year-end bonus provisions in the collective contract also apply to certain groups of, and even all, employees.

If a year-end bonus is agreed or stipulated to as above, and the employee meets the agreed-upon conditions, the employee will be entitled to the year-end bonus. A question arises, however, as to precisely when a year-end bonus is paid.

First, from the term "year-end," we may learn that the appraisal period is from the beginning of a year to the end of the year. For this purpose, "year-end" refers to the appraisal period instead of the time of payment of bonus.

Second, "year" does not necessarily mean calendar year and is likely to be a company's fiscal year. To avoid uncertainty, a year-end date should be expressly agreed to by the parties and that should apply for appraisal purposes.

Third, the time of payment of the year-end bonus should also be subject to the agreement between the parties.

Therefore, a year-end bonus is not necessarily required to be paid at the end of a calendar year.


1. Should a year-end bonus be included in the calculation of economic compensation?2

A year-end bonus is a part of salary so it should be included in the calculation of economic compensation.

2. Should the year-end bonus be included in the calculation of double pay if there is no signed written employment contract?

In accordance with the Employment Contract Law and the Regulation on the Implementation of the Employment Contract Law, an employer who fails to enter into a written employment contract with an employee more than one month and less than one year from the date of employment shall pay double salary to the employee every month. However, no national law or regulation specifies whether the year-end bonus is included in double salary under these circumstances. The courts are divided on this question and different precedents have arisen, with some employers having been ordered to pay full salary, others base salary, and still others the salary after deduction of risk and welfare allowances.

3. Is an employee who is employed for less than one year entitled to a year-end bonus?

Conditions for payment of a year-end bonus should initially be subject to the terms of the agreement between the parties. If an employee employed for less than one year is entitled to a year-end bonus by express agreement or as provided for in the employer's rules and regulations, then as long as the contract terms are reasonable, the parties will be required to perform and observe such agreement or provision in good faith.

Ideally, entitlement to a year-end bonus for employment of less than a year should be expressly agreed to. Some companies stipulate that such employee is not entitled to the current year's year-end bonus; some stipulate that such employee is entitled to the year-end bonus on a pro rata basis pegged to the date of employment; and some stipulate that such employee is entitled to the full year-end bonus.

4. Is an employee who leaves before expiration of his employment contract entitled to the year-end bonus?

Conditions for payment of the year-end bonus under these circumstances should be subject to the terms of the agreement between the parties. If it is expressly agreed to by the parties or is provided for in the employer's rules and regulations, as long as the terms are reasonable, the parties are expected to perform and observe such agreement or provision in good faith.

5. Is an employee who takes maternity, sick or other leave entitled to the year-end bonus?

It is specified by the prevailing employment laws and regulations that maternity leave shall be deemed as normal attendance. Therefore, bonuses based on the appraisal of attendance as a full attendance bonus and the year-end 13th month's salary should be fully paid.

For a performance-based year-end bonus, the company cannot assert that an employee has poor performance because he or she took maternity or sick leave. Moreover, whether an employee taking the maternity or sick leave is entitled to a performance bonus is subject to its rules or agreement and is controversial in judicial practice, particularly when it is not expressly specified by rules and regulations or agreed by the parties.


1 Provisions on the Composition of Total Salary, Article 4: Total salary consists of the following six parts: (1) hourly wage; (2) piecework wage; (3) bonus; (4) allowance and subsidies; (5) overtime pay; and (6) salary paid under special circumstances. Article 7: Bonus refers to the labor remuneration paid to employees for their additional efforts and their work to increase revenue and reduce expenditure, including: (1) production bonus; (2) bonus for practicing thrift; (3) labor competition bonus; (4) incentive salary of government organizations and public institutions; and (5) other bonuses.

2 Employment Contract Law, Article 47, paragraph 3: Monthly salary refers to the average monthly salary of the employee in the 12 months prior to termination or end of the employment contract.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
8 Nov 2016, Webinar, Washington, United States

Join Dentons government contracts lawyers for a Public Contracting Institute (PCI) webinar series involving the most current industry analysis in government contract cost accounting from a team of leaders in the field with unparalleled experience

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.