The Internal Revenue Service has reinstated its employee bonuses for fiscal 2013, avoiding litigation with an employees’ union but drawing criticism from at least one prominent Republican lawmaker.

The payouts are expected to reach $62.5 million, compared to $89.1 million for fiscal 2012, according to the agency.

The IRS put a hold on its financial awards in July because of the government-wide budget cuts known as the sequester, saying the move would help avoid two additional days of furloughs. Agency spokeswoman Michelle Eldridge said the decision proved to be unpopular, adding that it “significantly affected employee morale.”

The deal, announced Monday, limits IRS payouts to 1 percent of salaries instead of the 1.75 percent allowed under the agency’s collective-bargaining agreement. The National Treasury Employees Union, which represents most of the affected employees, said it reluctantly agreed to the reduction to prevent a protracted fight.

“Payment of these earned awards to employees is an important step in recognizing their valuable contributions to the IRS and the nation,” said NTEU president Colleen M. Kelley. “The awards are a relatively small amount of money, but they go a long way toward acknowledging the hard work of employees who exceed their performance expectations for the year.”

IRS Commissioner John Koskinen, whom the Senate confirmed in December, said in an announcement to employees on Monday that neither side received everything they wanted in the agreement, adding that it represents “an appropriate compromise in the circumstances in which we find ourselves.”

Sen. Orrin Hatch (R-Utah), ranking member of the Senate Finance Committee, criticized the deal on Monday, questioning why the IRS would reinstate performance awards for an agency that last year acknowledged inappropriate behavior toward advocacy groups seeking tax-exempt status.

“It’s hard to think of a group of people less deserving of bonuses than IRS employees,” Hatch said in a statement. “Frankly, this is outrageous. I understand that not every IRS worker was responsible, but this just is the wrong signal to send the American people who were rightly outraged by how this agency treated people for their political views.”

An inspector general’s audit released last year found that the IRS had targeted certain advocacy groups for additional scrutiny based on their policy positions and names. The actions largely affected conservative and tea party groups, the report said.

Koskinen answered critics of the bonus agreement in his statement on Monday, saying the decision became clear to him after visiting with employees during his first weeks on the job. “This is money best spent on our existing employees,” he said. “I firmly believe that this investment in our employees will directly benefit taxpayers and the tax system.”

The deal came as agencies are finalizing their new budgets under the $1.1 trillion appropriations bill Congress and President Obama approved last month. The legislation provides some departments with limited relief from the sequester.

At least one other agency, the Labor Department, announced on Monday that it would reinstate performance awards for fiscal 2013. Labor Secretary Thomas Perez sent a message to employees saying the agency would maximize the awards “within the current restraints.”

“While we all must continue to be careful stewards of the taxpayer’s funds, we are in a much better place financially as a department than we were a year ago,” Perez said.

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