Employee Bonuses and Resignation: What Happens When You Quit Before Receiving Your Bonus?

When employees resign or leave a company before receiving their bonuses, the situation can be unclear and complex, especially in jurisdictions like California where specific laws and regulations apply. Understanding the rules regarding bonuses can help you make informed decisions and avoid conflicts with employers. This article breaks down the scenarios and provides guidance on what typically happens with bonuses in such instances.

California Law: Performance-Based Bonuses

In states like California, bonuses based on personal performance or goals metrics must be paid. These bonuses are considered earned compensation and are legally required to be provided to employees under certain conditions. Here is a breakdown of typical scenarios:

Personal Performance-Based Bonuses

For bonuses that are tied to the employee's performance metrics, such as a quality assurance (QA) reject rate under 1.0 with a minimum of 1000 units, employees are generally entitled to receive the bonus even if they leave the company before receiving it. If an employee meets the performance criteria by a specified deadline (e.g., March 31) and resigns afterward, they should be paid the bonus because it is earned compensation.

Example:
Assume an employee completes a QA reject rate of under 1% by March 31 and resigns on April 1. Based on the performance metric achievement, the employee is owed the bonus.

Overall Company Results-Based Bonuses

Bonuses tied to general conditions such as overall company results or a good economy are not considered earned compensation in California. Employers are not legally obligated to pay these bonuses, and they may decide to withhold payments if employees leave early.

Example:
If an employee expects a bonus tied to overall company results from a December 31th to December 31st performance period and resigns in September, the company may not be required to pay a prorated bonus for the earlier period.

Employees can seek payment of these bonuses through legal means, but the success of such actions depends on specific legal and contractual agreements. Consultation with a legal professional or the state’s department of labor is recommended.

General Bonus Regulations: The Bonus Act 1965

According to the Bonus Act 1965, established bonuses or those tied to specific performance are treated uniformly whether an employee resigns or remains employed. Hence, if an employee completes the notice period and the required performance, they are eligible for their statutory bonus despite resignation. However, for performance bonuses, the criteria for payment may differ and can be enforced based on employment contracts and the company’s policies.

Situations and Advice

Consider the following real-world scenario:

Example:
An employee who was laid off in September is still entitled to receive the year-end bonus based on Jan 1 to Dec 31 performance. The bonus is typically paid in February or March. Despite leaving, the employee's bank account is credited, and the bonus is subject to tax in the new year.

Employers may have incentives to pay bonuses to incentivize current employees to stay. However, if an employee has met the required criteria, they should be paid the bonus as a matter of legal entitlement. Failing this, a disgruntled employee can pursue legal action. However, the actual outcome can vary significantly, and it is advisable to assess the strength of the case before proceeding.

If an employee is denied payment, they should request a written explanation or engage a lawyer to assist in resolving the issue.

Conclusion

Understanding the nuances of bonus payment regulations can help employees navigate the complexities of leaving a job and still receiving their rightful compensation. Whether the bonus is performance-based or tied to overall company results, it is crucial to consult relevant laws and seek legal advice to understand your rights.

Key Takeaways:

Performance-based bonuses are legally required to be paid in California. Overall company results bonuses are not legally required to be paid if the employee leaves early. Seek legal advice if an employer fails to pay a deserved bonus.