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Hi Deepak, Please go through the attached document for details about the bonus act. I am not aware of any further amendments. If anyone does please post. Regards, AJ

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Hi Pankaj,

The situation you have mentioned is completely unethical and unacceptable.

As a cadidate attending the interview you are supposed to enquire about the breakup of the CTC, please ask all your friends and collegues to do the same.

I am aware of a very popular company which has a system wherin 20-40% of your bonus is accrued for the next year with the company and is transmitted to a fund, the company explains that it is done so that in the next term if profits cant be attained then this fund helps the company and the employees with the bonus. Its a excellent strategy also it is a very good action to ensure the iteration level as there are certain rules attached to the rest 40-20% bonus amount in case of immediate exit from the company but the good part is that this fund exists only for employees and hence even if its one guy's loss the amount is distributed amoung the rest of the guys.

You must advise the company to stop the practise you have mentioned. I am not sure how prevelant this is.

Regards,

AJ

Hi Guys,

As per the payment of bonus act it has to be paid for every employee earning wages <= 10,000 pm. However, it shall get claculated upto wages of Rs 3,500 only. I.e

Eligibility upto Rs 10,000
Calculation : upto Rs 3500 only.

As rigthly mentioned by few members, it should be paid between 8.33% to 20% of the basic wages, depending upon the profitability of the organization.

"start- up" organizations (who have not completed 5 yrs) may be under an impression that they are not eligible for payment of such bonus as per the Sec-16 of the act. However, pls delve into it, the organization is under an obligation to pay this bonus for every accounting year they would made profit in. So, pls don't get carried away by it

Especially for people from HR department: - How to save this HUGE COST

Organization have to pay this bonus Over & Above the CTC. e.g Rs 500 pm per employee i.e rs 6000 per employee per annum. Just imagine the cost for an organization having mere 1000 employees even RS 60,00000 Lacs. Pls note this is an additional cost over and above the CTC of the employee. Here is the solution to SAVE IT.

In every structure there is a balancing component e.g 'Special Allowance". I suggest make bonus as part of your monthly CTC (especially for the employees eligible for it i.e whose basic wages are <= 10 K). Since maximum bonus is 20% of basic, keep it @ 20% for every one. Now, claculate your balancing figure. In other words Split your balancing figure into two components 'BONUS' & SPECIAL ALLOWNACE.

Having done that, add a clause in the appointment letter like

"Subject to your eligibility, statutory bonus for the current financial year shall be disbursed to you as a part of your monthly CTC only"

This would not only save huge costs for your organization but also make it legally compliant too. Since you would be paying 100% bonus as per the law they cannot delve into your bonus claulation if you happen to pay less than 20%.

Law always talks about Minimum Benefit (8.33%) but never stops an employer to pay more than it.

Trust me it is legally correct and will save crores of Rupees.

Hope you would find it useful.

Hi Mukul, I am a bit lost here, forgive my ignorance but can you please ascertain where the company is saving money? Your comments will be highly appreciated. Regards, AJ
Hi AJ,

I think the long explanation lead to the confusion. Let me try to explain it by giving example. Lets imagine your current salary structure is :

Basic - 7800
HRA - 3900
Conveyance - 800
Special All - 2129
Gross - 14,629
PF - 936
ESI - 0
GPI - 35
CTC - 15600

An employee with the above salary structure, would be eligible for statutory bonus, which has to be paid by the organization as per the 'Payment Of Bonus Act' mandotorily. It may range from 8.33% to 20% of basic max. Lets imagine it is to be paid @ 20%. Hence, your org has to pay him atleast (20% of 3500 basic) Rs 700 pm i.e Rs 8,400 PA PER EMPLOYEE. Now, just imagine the cost you have to incurr for a 100 employees i.e Rs 8,40,000, which can make a huge difference to your P&L.

Now consider this structure :

Basic - 7800
HRA - 3900
Conveyance - 800
Bonus - 700
Special All - 1429
Gross - 14,629
PF - 936
ESI - 0
GPI - 35
CTC - 15600

In the above structure everything else remains same, except for the fact that I have splitted Special Allow (bal Component) into two part - Bonus, which is 20% of Rs 3500 basic and rest Rs 1429 as balancing fig. By doing this little smart thing and adding a line in the appointment letter (as mentioned in my last posting), you would be able to cover the bonus cost within the existing CTC of the employee, without incurring HUGE COSTS at the end of the year.

Hope I am able to clarify it now. However, should anyone needs further clarifications on the same they may contact me at 09321856055 (mumbai no).

Thanks

Hi Mukul,

Thank you for your effort and patience.

Please advise if the Gross Salary is a variable? Is not the company supposed to pay the exact amount of Gross salary as mentioned in the joining letter irrespective of any note mentioned.

The problem with the above mentioned process is that you might end up with a lot of disgruntled employees since they probably have been used to a pay with 20% and if the company is not able to generate enough profits it might be reduced to 8.33%, also when actually does the balancing act happen?

Also when introducing Bonus as a part of CTC, Isnt it better to put 8.33% and then during appraisal according to the performance of the employee a higher ratio to be paid immediately after the appraisal, cause by then generally the company has an idea of what its profits are gonna be, In case the company is hit by a bad year then they have the option of not paying more bonus.

Also if Bonus is not part of Gross then it can be paid at a 60% -40% ratio on a half yearly basis, this might also help in the retention of employees.

Please put in your comments. I found your post very interesting.

Regards,

AJ

Dear Friends,
Bonus act does not say to include the bonus to be given to employee in the CTC. But most of the organisations are to fix the salary break ups the term bonus is also included and showing it as part of the salary.( The salary break up exl sheets are lying in this cite produced by our friends please go through). Not only bonus , PF employee & employer contribution, ESI employee and employer contributions are also some organisations are showing.
Regards,
PBS KUMAR

Is Bonus Act Applicable to Expats and Onsite Direct Joinees. Are they covered under Bonus Act
Hi Aj,

My reply in bold below :

Please advise if the Gross Salary is a variable? Is not the company supposed to pay the exact amount of Gross salary as mentioned in the joining letter irrespective of any note mentioned. - Gross salary can only vary from the appointment letter only in few cases like difference in pay days, payment of incentive or payment of any other allowance which is not a regular feature of the monthly salary otherwise noway it can vary. Absolutely true. Every employee must get his salary as mentioned in his/her appointment letter.

The problem with the above mentioned process is that you might end up with a lot of disgruntled employees since they probably have been used to a pay with 20% and if the company is not able to generate enough profits it might be reduced to 8.33%, also when actually does the balancing act happen? - It is also mentioned in the act that the bonus should be paid as per the profitabality of the company in the concerned accounting year. However, if an employer wishes and can pay higher amount no authority would object to it.

Further, precisely to avaoid this balancing act, I have suggested to keep bonus component @ 20% of basic which is the maximum statutory limit, so that no authority would verify it or check your balance sheets for profitability if you happen to pay it less as compared to previous years. Anyways, we are making it as a part of the CTC, hence no liability for future.

Also when introducing Bonus as a part of CTC, Isnt it better to put 8.33% and then during appraisal according to the performance of the employee a higher ratio to be paid immediately after the appraisal, cause by then generally the company has an idea of what its profits are gonna be, In case the company is hit by a bad year then they have the option of not paying more bonus. - I believe first part of this question is answered above. I do understand that the employees do expect some bonus/incentive at the time if Diwali, which in our case, has already been paid along with their monthly salary. To keep employees happy & satisfied, we can pay them an amount naming it as 'Diwali Bonus" which would not have any legal implications as statutory bonus has, hence amount can be freezed as a fixed sum for all, as the management may decide. I am sure this would very well fit into their budget too.

Also if Bonus is not part of Gross then it can be paid at a 60% -40% ratio on a half yearly basis, this might also help in the retention of employees. - Honestly speaking, I don't think amount of bonus can be used as a retention tool. However, the way it is paid or its frequency or time of payment may induce people to stay back. In my opinion the two most important factors due to which an employee stick to an organization is Primarily 'Culture' clubbed with growth opportunities in his/her current job role.

Hope you would find it as per your expectation.

In this context I would like to repost my feeling towards the concept of CTC. This means cost to company. But while employing one the employer is getting some benefit also. In the context of human resouces being recognised as something like capital, why do we confine our thinking to cost of employing only.
Please go through the attached article on it.
Regards,
Madhu.T.K


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