Ex-gratia is a voluntary payment often given as a mark of compassion. Example when someone is injured, disabled and in cases of death. Since the payment is voluntary, it is not bound by any legality- in other words, there is no obligation to make an ex gratia payment.
Bonus literally means 'extra'. In the organisational context, bonus is any payment made beyond the salary and perks and usually linked to productivity-individual or collective. Unlike ex-gratia, bonus is statuatory, since government has fixed the minimum rates for the same. In practical effect, bonus is fixed through collective bargaining and not necessarily linked to actual productivity.
I hope I have thrown some light on this.
Bonus is essentially a "share in the profits" of the organization. To streamline many dissimilar practices in industries so that dissatisfaction over the payments by employers to the employees could be contained. In the past such payments were dependent on the whims and facies of the employer and there was no thought about rationality in payments and equatability.
As an answer the country passed law, "Payment of Bonus Act 1965" and it became mandatory for an employer to pay bonus in terms of the act which provided mode amd modality for calculating bonus. I am attaching a brief note on the subject. The note covers the topic but cannot provide all details.
Ex-gratia is a terms that refers to any payment made by the mployer "gratis" which means, "of his own free will" and under no obligation of any law. The practices regarding this are many and I will cite only some, so that the conceptual difference is easily understood.
1) When the profits do not support large bonus, the employer may some amount from out the revenues of the firm, in acknowledgement of the workmens' contribution.
2) On an event of significance tot he organization, like completing a specific period of existence, completion of a large export order etc.
3) Any other reason that is NOT a binding on the employer, but the employer "wishes" to make such a payment.
All in all, these two terms look related, but in reality are conceptually different! Are we now clear?
December 13, 2006
From India, Pune
Thank you very much for making me clear about thes two terms. Now I just want to know whether these two (Ex gratia and Bonus ) include in employees CTC or not.
But thaks once again now i have some idea about these two terms.
From India, Mumbai
There is no law as to the inclusions and exclusions from the CTC.
Essentially CTC is a management's way of looking at the entirity of "Employee Related Costs" that it incurs to employ the number of employees it employs at any given time. It is an indicator of whether the company is more or even less in relation to the output/profits. It is a part of the check and balance systems that the management follows.
In my opinion, considering the character of the payment (being ex-gratia) it should not be a part of CTC. It may be so, in particular year when it is paid. But if it is going to be paid each year, then it loses the character of being "ex-gratia" and needs to be called something else and then you may include it in the CTC.
December 13, 2006
From India, Pune
Yes. you are correct. But, if we started paying something, it becomes culture of the orgn. and everybody expect the payment every year. In industries like ours (hospitals) as we are not covered under Payment of Bonus Act, we pay in the name of ex-gratia every year and hence we use to include it in the CTC.
I think i am clear now.
From India, Chennai
If the Payment of Bonus Act 1965 is NOT applcable to you and the organizatio wants to make a payment in lieu(as it were) then it is perfectly in order to include such a payment in the CTC. On that I am with you.
December 14, 2006
From India, Pune
I am often get confused with these two terms- Ex-gratia & Bonus. Could anyone tell me the concept and PT is applicable to Bonus or not? i have confused copmany was establishment 8 year back, already completed 5 years , in my company have another 3 units these units was started last year.its applicable for bonus or ex-gratia? could anyone give me a with details as soon as possible.
Your information will be precious for me.
From India, Bangalore
Bonus is a share of profit paid to the employees by the employer as per Bonus Act of 1965. The minimum bonus is 8.33%. There are certain modalities of payment of bonus and the employer is required to submit returns to the authorities which is also subject to audit and inspection by the authorities.
But ex gratia payment is not covered under any statute since it is entirely a discretionary payment. There are many companies who pay bonus in the name of ex gratia to the its employees who are not entitled to bonus as per the Bonus Act 1965.
Regarding inclusion of Bonus in CTC my answer is " yes". Statutory payments like PF contribution and cost of gratuity are included in CTC . If u look from that angle I find no reason why bonus will not be covered under CTC.
From India, Calcutta
From India, Delhi
Your interpretations are very informative. But some of the organisations to avoid the Bonus they say we are not getting the profits for this year. Since it is mandatory how the management is providing such incidents ? My point of order is any way 8.33% is mandatory to give the Bonus to the employees is it correct.?
Your coments are very valuable please give.
From India, Kakinada
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