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Working As Assistant General Manager (personnel)
Hr Executive
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Hi All,

With respect to satisfactory answers to my queries previously, here again I have a question.

Being a fresher (sorry to repeat this, but its a fact) in HR, I am not sure about calculation of bonus to be given to employees/workers this Diwali. When I referred Payment of Bonus Act, there it is mentioned some kind of calculation of Gross profit and so forth.

The director of our company hasn't even indicated me to perform all this profit/surplus calculations before I calculate bonus. Hence, please let me know is there any direct (straight forward) method to calculate bonus in this short span of time. I have a basic idea that first i need to calculate the working days which shall amount to minimum of 240 days to be eligible for getting bonus. And then director has asked me to give 8.33% of their basic salary total for 12 months.

Now I want to know that I can count working days of staff on payroll of company and can calculate bonus on their basic salary. But I have no idea about contract workers. How to calculate their bonus because they get paid on "per day salary" so how can I know their basic salaries?

I also have confusion because sometimes people say that one full month's salary is given as a bonus or one basic salary or percentage wise. please clarify

Please let me know in detail.

From India, Ahmadabad
Dear Harshavardhan,

Basically, as per the Bonus Act, Every employee, whose gross salary is less than Rs. 10,000/- shall be entitled to be paid bonus by his employer in an accounting year, in accordance with the provisions of this Act, provided he has worked in the establishment for not less than thirty working days in that year, which could be maximum to Rs. 3,500/-.

As you have Contract Workers also, so they can be Paid "3500 / 12 x months worked". If you will take working days here, then it could make your employees unhappy, as as per their absenteeism, there bonus will be reduced. So, good practice will be this, that if your organization is paying as per this limit, then they should be paid on month basis, not on working days basis.

If the employer want to pay the bonus to their employee as per percentage basis, then the bonus can be paid a minimum of 8.33% to maximum 20% of Basic + DA as per the Rate of Profit (which will be calculated by your company CA).

The employer can't pay less than above detailed, above this the employer can pay upto maximum of their salary.

Hope your doubt is clear.

From India, Delhi
Thanks a lot Bhuwan for guiding me through. My doubt is clear that minimum of 8.33% bonus should be paid to employees and that I am going to pay also. But how to proceed with the calculation? You have mentioned that rate of profit will be calculated by company CA, but my MD has not indicated me of any such consideration of Profit rate. He has simply asked me to calculate the bonus by counting the total no. of working days and then considering summation of their monthly basic salaries and then calculating 8.33% of the total sum.
Moreover for contract workers, is it possible, that if I calculate their total working days and then divide it by 12 so i will get their total months worked?

From India, Ahmadabad
Dear Harshavardhan,
As you have mentioned that your MD has not indicated for any such consideration of Profit rate, in that case just go for calculation on 8.33% of Basic+DA or 3500, whichever is less. As you have mentioned above that you are also using payroll, so it must have option for calculation bonus also.
Apart from this, plz. also note that Bonus is not paid on working days, it is paid on "Paid Days" for each month. But, paying bonus on the basis on Paid Days, will little disappoint the workers. So, I'll just suggest to go for on monthly basis, the difference will not very much and for this you have to convince your management.
For calculation on Paid Days basis, you can calculate as "3500 or Basic+DA (which every is less) / 365 * total paid days". By this way, bonus can be calculated for both regular and contractual workers.
I will also suggest that please check the last years bonus payment sheet once before finalizing for current year.

From India, Delhi
By Payroll, i meant that employees on company payroll, and not the payroll software. I have to calculate in manually only. And unfortunately I don't have record or sheet of last year's bonus distribution as the person in HR before me had misappropriated the company funds and hasn't maintained any proper documents. Even I confirmed with Accounts department, but that person also doesn't have a record as he and me joined company in mid of 2013 only.
But anyways you have made me clear with how to go on with calculations, so that will help me a lot..
Thanks again Bhuwan :)

From India, Ahmadabad
Dear Harshvardhan,
First of all I would like to clear that for bonus 240 days is not the eligibility criteria, every workman who have worked for 30 days in the financial year will be eligible for bonus. Second for Bonus calculations Basic of each month Rs 3500/- (Max) or less (as the case may be) will be taken for bonus calculation. With 8.33% you will arrive max Rs 3500/- as bonus payable for all 12 month (April-March) & with 20% Max Rs 8400/- will be the Bonus payable to workman.
Thanks & regards,

From India, Mumbai
Dear Harsha
For the employees you can directly calculate the bonus on the basis of their Salary paid details during 01 Apr 2012 to 31 Mar 2013.
For the Contract workers you must take the attendance of the worker monthwise and make the formula as follows
Rs.3500 / No of working days in the month (Exclude Sundays and not holidays as the holidays are paid in addition) X No of days worked by the worker.
Hence if the worker worked for 20 days in a month then you can calculate (3500/26)*20 = Rs.2692 for that month and 8.33% of Bonus is Rs.224/- for that specific month.
Hope you understood how to calculate for Contractor workers.
If you have any further query do not hesitate to ask.

From India, Kumbakonam
Dear Harsha

Let me sum up the act for your easy reference,

An employee is eligible for bonus if his salary or wage does not exceed Rs. 10000/- as per Sec 2(13) of the Act.

Wage includes all remuneration (other than OT) and includes DA and all cash payments but does not include any travelling concessions, retrenchment benefit, contribution by the employer to any gratuity, PF, Pension etc and value in kind as per Sec 2(21) of the Act.

An employee has to work for not less than 30 days in that accounting year as per Sec 8 of the Act.

A minimum of 8.33% or Rs. 100, whichever is higher, has to be paid to the eligible employee at any cost whether the profit is made or not by the company as per Section 10 of the Act.

If an employee's salary or wage exceeds Rs. 3500/- per month, then for the calculation of bonus Rs. 3500/- will be considered as the ceiling amount as per Section 12 of the Act.

The above aspects have to be kept in mind for the bonus purpose.

Now, let us come to your case. Make a list of employees who are drawing salary or wage less than Rs. 10000/- per month and make a table- month wise, wherein their earned basic may be added for each month. Wherever the earned basic cross Rs. 3500/- per month, use the formula to keep it as Rs. 3500/- per month.

So, for each employee the maximum earned basic per year will be Rs. 42,000/- only and now you present your MD with two options,, one with 8.33% of bonus which will come to Rs. 3499/- and the other option with 20% of bonus which will come to Rs. 8400/-. Let your MD decide on the amount to be paid to the employees. You do not need to worry about available or allocable surplus.

Secondly, for contract workers also, you have to make a table- month wise and calculate their present days with the earned wage and if this amount crosses the ceiling amount of Rs. 3500/- please use the formula to keep it as Rs. 3500/- or else the earned wage may be given for each month and the rest will be followed as I have stated for your direct employees.

For example, if any of your contract worker has worked for 20 days in April, 5 days in May and 10 days in June and his daily rate of wage is Rs. 200/- per day, the earned basic for April will be 4000/- bus has to be restricted to Rs. 3500/- only, for May will be Rs. 1000/- and for Jun will be Rs. 2000/- and so on.

But at any cost, the total earned wage for a direct employee or the contract workers, in a year will not cross Rs. 42000/- and hence the bonus also will be the maximum of Rs. 3499/- with option 1 and will be Rs. 8400/- with option 2.

Hope I have not bored you with so much of calculation.

Happy reading.

P. Vathiraj

Associate Operations Manager

Aparajitha Corporate Service Limited

From India
Dear Vathiraj
Your exhaustive reply is really appreciable. Here you have clearly explained the Section 10, 11 & 12 of Payment of Bonus Act. If you throw some light on Section 13 of Payment of Bonus Act, it will be highly useful for all our members. Further your advice on how to use and where to use the Section 13 of Payment of Bonus Act will help our members a lot.

From India, Kumbakonam
Dear Bhaskar,

It is good that you have pointed section 13 of the Act, which talks about proportionate reduction in bonus for certain cases, wherein if any of the employee has not worked for all the working days in an accounting year, the bonus will be proportionately reduced.

But your attention is drawn on Section 14 of the same Act which talks about computation of working day wherein it states that for the purposes of section 13, an employee shall be deemed to have worked in an establishment in any accounting year also on the days on which--

(a) he has been laid off under an agreement or as permitted by standing orders under the Industrial Employment (Standing Orders) Act, 1946 (20 of 1946), or under the Industrial Disputes Act, 1947 (14 of 1947), or under any other law applicable to the establishment;

(b) he has been on leave with salary or wage;

(c) he has been absent due to temporary disablement caused by accident arising out of and in the course of his employment; and

(d) the employee has been on maternity leave with salary or wage, during the accounting year.

From your post, it is felt that you would want Section 13 to be applied to contract workmen who are working for less than 26 days in a month and are being paid only for the number of days worked and not for the days of absence.

Here again, no contract workmen would like to work for less than 26 days in a month until and unless there is an agreement between the Contractor and Contract workmen for the reduced period of employment. Also, please remember that the acts are meant to benefit the employees and not to harass them. In order to have a sound inter-personal relation, paying 20 or odd rupees would not matter to the management, but if there is any industrial disputes arising out of applying Section 13, then the management should have adequate evidences to prove. Please remember, at last the employees' demand would prevail in most of the cases due to lack of evidences from the employer's part.

My suggestion is to apply Section 13 only to those workmen who are on LOP on a regular basis and are proven so through some internal enquiry.

Put up for experts' comments.

P. Vathiraj

Associate Operations Manager

Aparajitha Corporate Services Limited

From India

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