Industrial Relations And Labour Laws
Labour Laws & Ir
Deputy General Manager - Personnel
Asst Manager Hr
Labour Laws, H R Management
Service, Manager- Hr
Training And Development
Though the Act does not specify it to be part of CTC, the Company will not know how much profit it is going to get?
If the Company mention the same in CTC, it would be a parameter for the rest of employee and the same percentage is to be given.
It is the prerogative of the Management to decide, what percentage is to be declared towards Bonus. If there is any Union, it should be decided in negotiations with them.
Bonus will be part of the CTC and it should be mentioned in appointment letter. I suggest: download "Bonus Act" from web and better go through the same. This will enhance your knowledge on this.. If you still need a "ready made" stuff, then please mail me.
I agree with Shri Madhu. If you show bonus as part of CTC in your appointment order, it will become part of service conditions. In that case, if you reduce the quantum of bonus based on the performance of the company, the employee has the right to claim the same amount as it is part of the emoluments agreed by the employer. Hence it is better to mention that bonus will be paid as per the Payment of Bonus Act/Policy of the company to avoid future litigations.
Thanks & Regards
I am in total agreement with you but most of the MNC's now put up average bonus as a fixed amount and is included in the CTC as well. The variable bonus is then calculated according to the individual, team, department & company performances which is then paid later to the employee.
Since this practise is very prevelant nowadays the other companies can't afford to put up with a complete variable bonus as at the end of the day every candidate today is looking for a bigger paycheck.
This practise started about five years back during the campus interviews and hence has caught up the regular recruitment industry too.
Hence it has become too strong a factor to discourage since most of the corporates including the smaller ones have started practising it.
I am in for anything that benefits the candidate at the end of the day.
In one of the company they are following under mentioned procedure for bonus please tell me whether it is ethical or not. At the time of conducting interview CTC is fixed at the certain amount and breakup is not told to employee then there is a deduction of certain amount from their CTC which is equal to the 8.33 % of Rs. 3500/- in the name of bonus and this amount is paid at the end of one year on the eve of diwali. Please tell whether it is right or wrong on the part of the company.
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.
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.
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).
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.
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.
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.
Please go through the attached article on it.
Have to commend you on your article because you did think on the concept.
The concept of CTC is just fair I believe.
CTC as the term implies is what the personnel is going to cost the company, as an employer he has the right to know it. Profit generation is important not just for the employers but for the employees too.
If the person was not beneficial to the company then he wouldnt be working in the firm in the first place.
Also with the present work culture prominent among employees who are ready to shift jobs for a meagre raise eventhough they are happy with the present company. Employers are forced not to consider human capital as an asset to the company, Human Capital today is just a tool that has been hired.
Just thought of putting in my views
Bonus is a statutory requirement for employees who fall under a specific salary range. For the employees who earn more than the salary for the bonus limit, the organizations pay the bonus as Ex-Gratia or Incentive or Bonus itself.
It should be mentioned on the appointment letter unless its non contractual and discretionary.
I donot want to make my article sensitive or contravesial. But I only meant to convey the other side of the new theories of HRD. Practically and ultimately, our efforts are linked to profitability. I know that it is not at all practical to fix up wages according to marginal productivity theory of wages. We have travelled a long from subsistence theory of wages (the Iron Law of wages) through Karl Marks philosophy to the present system of recognising labour as capital. There has been drastic change in the attitude of both the employees and employers, but still can you say that an employee is safe and secured? My attempt was just to say the other side of the much highlited HR practices of today. It was presented in some what ironical manner. That's all. If we are to add up all the costs of getting things done attributed to a particular unit of employment, why do not we accept the benefits?
By adding the bonus to CTC or monthly salary we do invite troubles, there may come an amendment to the defenition of salary in the EPF/ESI Acts to include such special allowances hidden in the gross salary/ CTC. new intrepretation to the defenition is sufficient to force employer to follow it.
It sounds good to say huge figure of CTC, but can any body satisfy himself with just saying that 'my slary is so........?
President Pratibha Devisingh Patil promulgated the Payment of Bonus (Amendment) Ordinance of 2007 on October 27, an official release said here today.
Hitherto, only those having a monthly salary of upto Rs 3,500 were eligible to claim bonus.
The Cabinet on October one had approved the amendment to Section 12 of the Act "to raise the eligibility limit for payment of bonus from the salary or wage of Rs 3,500 to Rs 10,000 per month".
The decision would benefit seven per cent of the total workforce in the country which is working in the organised sector.
The payout proposal is broadly in line with recommendations of the 41st session of the Indian Labour Conference (ILC) held in April this year, and is the result of a long-pending demand of the trade unions, particularly by the CPI (M)-affiliated Centre for Indian Trade Unions (CITU).
I went thru all posts and interestring articles.
I want to give some clarifications here.
1. There are two issues we handle in employment A. Contract with the employee
B. Statutory Benefits.
2. CTC falls under the term of individual contract.. Here, we commit to pay the individual a sum agreed as CTC including all benefits which includes statuory benefits.
3. Whether we indicate or not, we need to pay the statutory benefits as provided.
Let us examine the case of Bonus.
Generally Bonus is an annual amount payable to an employee.
This is guided by The Payment of Bonus Act
Whether we committ or not, this amount is paybale for these employees as per the Act.
Other who are not falling under this definition, will be guided by the individual contract. We generally say that Performance Bonus based on the performance will be paid every year. No committment of percentage is given here. It normally specifies maximum
during negotiations, indications are given that an employee might get 10 % to 50%( example) In this case minimum of 10% shall be paid If an organidation does not pay higher, it can not be construed as unethical.
According to my understanding ,bonus can be part of CTC and otherwise also..one bouus is statutary bonus 8.33%,which has to b part of CTC as its a cost to the company,paid to employee at tne end of financial year or quaterly,depending on comapny policy and other could be performance bonus,subject to successful completion of project..
Statutary bonus has to be part of appt letter..
Let us examine the concept of CTC . After all it is " Total Cost to the Company " which a Company incurs on a employee as employment cost. Components could be any.
Bonus will definitely be a part of CTC depending upon coverage and profitability i.e. maximum @20.00%.
But the amount given is not the whole , only the accumulated amount of the last financial year. That is the balance amont will be received by employees only when he leaves the organisation as a part of his full and final settlement.
Minimum wages is a statutory requirement to be followed by all employer under minimum wages act. It differs state to state and all state government fix it according to inflation in every six months. Minimum wages fixed according to nature of work of the employees.
Sec 2(21) of the Payment of Bonus Act defines Wages/Salary as all remuneration capable of being expressed in terms of money. In this case the employee crosses the ceiling contemplated in the Bonus Amendment Act. Hence he will not be entitled for statutory bonus.
Please correct me if I am worng.
Thanks & Regards
After all, "CTC" is construed on need basis, all throughout the world, with no single definition. :)
Its a common practice these days to make bonus, a part of the CTC, AKA "variable" component of salary. The company sets an upper limit to these Variable pays and if observed closely they are within the Govt. guidelines %age wise. It is adopted mainly as it helps in boosting employees to perform at their optimum levels in order to take home the 100% of the variable pay.
As per bonus act the bonus is always a surplus amount of Balance sheet to be distributed amount the employees and vary from 8.33% to 20% we cannot add this in CTC as if company bear some losses in FY then it is not liability of company to distribute bonus and for New set up for preceding 5 years company is always in Infancy period and not liable to pay bonus to its employees
The Statutory Bonus is paid to employees drawing Basic Salary below Rs. 10,000/- pm. For company's declaring Minimum Bonus of 8.33% ( Min. 8.33% , Max.- 20%, over this is exgratia) will have to pay 8.33% of Rs. 3500/- which comes to Rs. 292- pm. Employees whose Basic salary is below Rs. 3500/- need to pay 8.33% on the actual basic. However, this is subject to a minimum Bonus amount. Since this is an annual compulsory payment it can very well be taken as part of CTC as most of the Company's are paying Bonus.
Q :-1) I joined the company in 2005 wherein at present I am working. It was not mentioned in my appointment letter while joining, about including bonus in the CTC.
After the last year appraisals, a handsome amount (around 22k) was shown in my appraisal letter and revised CTC as " Performance allowance" which again was obtainable if I will work for the company for next 6 months.
Now at the time of this years' appraisal, my CTC is showing a deduction (i.e. an adjustment) in the performance allowance. i.e. 22k LESS bonus. which means the amount which was shown last year as performance allowance i.e. 22k, is not really gettable by me this year, as company has already shown an adjustment of the bonus out of it, (which bonus I had already received during last diwali)
How come a bonus given can be adjusted or deducted from any of the allowance I am liable to get ?
Q:-2) IF someone is provided with company accomodation on chargable basis, does HRA appears or applicable legally in the CTC ?
We have a practice of the following in our company :
- House is provided by company.
- HRA is not shown in the CTC.
- House valuation is shown as " perquisite " in the gross salary.
- ONLY the rent deducted from the salary is deducted from the house valuation.
- Still the Gross salary shows increase of 32 to 34K. (because of the perq valuation)
- Which increases my income tax
plz guide me whether company accomodation / outside rented accomodation will be helpful for me to save money ?
When a company provides accommodation, it is treated as CLA (Company Leased Accommodation) which is treated as a Perquisite and Value of such perquisite has to be accounted for at the time of computation of your Income tax.
It gets calculated @15% of the Gross Earnings and Actual rent (CLA amount) paid. Least of the two is exempted from tax.
It is highly recommended to opt for HRA instead of CLA, as effectively it would be extremely costly as compared to HRA option. By availing HRA you would be able to save more tax as it allows you full exemption, subject to your rent ampount paid.
Pls find enclosed the CLA Calculation sheet. Hope this would help.
Mukul has already answered your second query and he is absolutely right.
Now ragading your first query I am a bit confused about the question.
Please be informed that any amount once mentioned in the CTC has to be payed by the employer to the employee unless and untill there are clauses mentioned in the CTC letter or the appointment letter, hence check the same.
Once you CTC says that there is performance bouns involved the company has to pay that if there are no clauses saying the the bonus will be only payed in such and such conditions. But since you received the amount last year and this year the duduction was mentioned in your revised CTC you cant take any action against the company. You must have changed the company since such a practise is not a good sign.
thankx for the reply.
i will refurnish my question for u. FYI, I have not changed the company, I am working since 2005 till date.
say in the last year's CTC Rs. 22000 was shown as Performance All. which has to be paid during this year.
There was a condition that If I will continue working for further six months I am liable to get those 22k. I am continued.
Now In this years' CTC, company has deducted / adjusted the last year's bonus which brings down my performance all amount by around 8400/-.
in other words, the bonus paid to me last year, has again recovered from my performance allowance, showing an adjustment in the performance all.
Am I not liable to get the whole amt. of Rs. 22000/ ?
This is really an interesting & valuable discussion going on.
In my company one of the client is asking to distribute the Annual statutory bonus(Rs.3500/- ie. min. 8.33% ) as "Advance Bonus Payout" (Rs.292/-) in monthly salary components with a commitment to its monthly payout to employees as a part of Gross salary and its mention in monthly salary slips.
Your advice is requested whether this is feasible.
Advance payment that too in monthly salary slip is not desirable It has to be paid after declaring the balance sheet
Legally, you can show as advance against bonus but still the chances of misinterpreatation arfe very high
It is not advised
What were the exact terminolgy used . In otherwords can you reproduce the exact clause on performace bonus.
We normally draft in such a way that it is not paybale in full
Unless we see the complete clause on this we can not say whether it is legally payable or not.