Human Resource And Industrial Relations
Consultancy_hr & Ir
Dgm - Hr And Admin
Hr Professional
Private Service (managar Hr)
Pf & Esi
+2 Others

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HI - ours is a service industry. We are paying bonus @ 20%.
To increase the employees take home pay every month, we are planning to pay the 11.67% of the eligible bonus every month, in the pay slip, under the column "Bonus Paid in Advance".
The amount so paid shall be deducted from the total bonus payable @ 20% and the bonus registers will be updated as 20% paid less 11.67% already paid.
With the payment of the 11.67% in the pay slip, will ESI be deductable for this amount also.
If yes, then we may have to pay the 11.67% in a separate sheet thus excluding from the pay slip. This will call for extra addtnl paper work and also disbursement.
We are firm that our books of accounts has to show the bonus as 20% and also help employees to take home more pay by 11.67%.
Can I get authenticated professional help in the matter please ?
:: Dhinakaran

Dear Mutyalu :
While thanking you for ur spontaneous suggestions, please note that we want to pay through the payslip every month.
Is this allowed without ESI contribution ? Pls comment.
:: Dhinakaran

Hi Dhinakaran,

It's advisable to get a written legal opinion from a reputed legal professional in such matters.

I am nonetheless keen to share my views which you may find useful.

Bonus in its nature is profit sharing.

Whether an Organization has made profits or not gets determined only when the books for the financial year are closed.

And since it has that uncertainty element, [not fixed, paid after a duration of 12 months etc.], Bonus is excluded from the scope of wages under ESI.

From the facts you have stated, it appears that your Company makes 20% bonus, that too part in advance on a month-on-month basis without attaching any profitability condition.

Thus in spirit, what you pay as "Bonus" is actually a fixed salary component payable each month.

And such a fixed component being paid month-on-month can be treated as a wage component and thus would attract ESI. Paying through a separate slip would be immaterial.

This of course is my logical interpretation. As mentioned earlier, it's always safe to have a written opinion from a reputed legal expert. It helps HR Manager as well as CEO.

Cheers !


The webpage of ESIC referred by Mr. Mutyalu is just great. It clearly gives an idea about ESI contributions components.
In the light of new ESI ceiling revision to rs.10000/-, everyone would like to see that their employees cross this limit without any burden to the company.
Here is an interesting case:
If employee X's gross is Rs.9800/- he is convered under ESI and the contribution from employer's side and his side will be there which may cost around 465 Rs. to the company. But rarely he visits ESI hospital, so it is staff's request to bring him out of the ceiling. Comapny also has given a medical allowance on Rs. 300/- p.m. which the employee gets as taxable salary. This helps employee also & the employer also.
Companies who have flexible component structuring scheme can make use of this combination!!!

Hi Dhinakaran,
It can be possible, but according to my point of view there might only one problem in certain cases that bonus is always paid for the fanacial year i.e from April to March, and you want to pay it monthly there might be chances of excess payment so strict vigil a/c department should be for this purpose, also at the time of ESI inspection this point may be clarried to the inspector etc along with the agreement of bonus.
And also please note that bonus is no profit sharing this is mendatary for 8.33%.

Dear Dhinakaran, I am afraid you can’t pay every month. I have personally handled a situation where production incentive was paid every month. It attracted ESI. So will be this case. Regards AM

I have read through all the replies. Without joining isssues with any of the view (and some of them are good) I state my views as under.

1) Payment of Bonus payable by application of the Act is a profit sharing scheme and it was always meant to be so since inception of the act.

2) Being a welfare legislation, it has provided for a minimum bonus that must be paid irrespective of whether the organization concerned has in fact earned profits in the particular year or not! This is 8.33% of bonusable wage for the year. The maximum bonus payable being 20% of the bonusable wage for the year.

3) The bonus under the act has to be calculated each year after the accounts are finalized and for that a time limit of EIGHT months has been provided under the act within which to pay the bonus under the act.

4) No, bonus (statutory i.e. the one under the act) can NOT be paid in monthly instalments. If an organization does pay in such instalments, these would be termed as "advance against statutory bonus" and NOT as bonus.

5) Since payments, called by any name, if made at a frequency of less that three months, will be eligible for ESI deduction.

6) When 8.33% has to be paid compulsorily, some feel that it is merely a "deferred wage" and NOT bonus under the act. This view is fallacious for two reasons. First, the act has no concept of a "deferred wage" and secondly, the act has provided a mechanism called "set on and set off" which is meant to provide general stability and consistency in the quantum of bonus payable each year. This ensures that bonus remains always a share in the profits and there are merely the minimum bonus limits (8.33%) and maximum bonus limit (20%)

7) Finally, I would suggest that you review your present policy on this subject with assistance from a good lawyer/consultant and take corrective actions, as you may be advised. (Someone indeed suggested that you should obtain a legal opinion and keep the same on record. I fully endorse that and state that the money spent on that would be sound investment.)

I hope you have now a comprehensive view of the facts, but feel that you should also study the act. It is very interesting.



November 22, 2006

Dear Samvedan : Thks for ur comments and suggestions. As already indicated, we plan to pay the bonus under the caption "Advance Bonus Pai' Rgds :: Dhinakaran

Sorry to keep at it! I must clarify again that,"Advance Bonus" means "bonus being paid in advance (ie ahead of its due date) for which we have no authority anyway, and "Advance paid against Bonus" means that its just money being advanced to concerned employees that would be finally appropriated against the bonus under the act as and when it is calculated, declared and becomes due and payable.

In my opinion the first is clearly unsupported at law and the second, aside of being unsupported at law, will also attract ESI since it is a payment made at a frequency of less that two months and it is NOT bonus anyway!

What I have said above may appear like hair splitting, but we have to be careful and have to do only that is clearly permitted by law. Our actions are always liable to be interpreted b the enforcement authorities for their own reasons and if we can not explain to their satisfaction, we get dragged in disputes and probable litigation.

It is for this reason I am underscoring the seemingly fine difference between "Advance Bonus" and "Advance paid against Bonus". I hope you appreciate the difference.



November 23, 2006

Dear All,
I completely agree with Samvedan and would like to further add, how are you going to treat it in case of loss if the same cannot be adjusted.
For example, if on the last two months loss accumulated exceeds the first ten months profit. In such a situation how are you going to adjust??? Just think.

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