Maximum Statutory Bonus to be paid - Payment of Bonus Act Section 11 - CiteHR
Industrial Relations And Labour Laws
Korgaonkar K A
Private Consultant On Labour Laws
+3 Others

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I came across this section of Payment of Bonus Act Section 11 which says:
"In any accounting year, if the allocable surplus exceeds the amount of minimum bonus payable to the employees, the employer shall in lieu of such minimum bonus, be bound to pay bonus (maximum bonus) equivalent to the amount which shall not exceed 20% of the salary or wages earned by employees."
Now the question is :
1) whether we have to pay anywhere in the range of greater than 8.33% & less than 20%
2) do we have to pay 20% flat.
My understanding was that its the choice of employer to give between 8.33% to 20% incase allocable surplus is more than the amount of minimum bonus.
Need your help urgently for decision making.

Dear Sunnydays,
Please read the section 11 carefully which is given verbatim below:
Where in respect of any accounting year referred to in section 10, the allocable surplus exceeds the amount of minimum bonus payable to the employees under that section, the employer shall, in lieu of such minimum bonus, be bound to pay to every employee in respect of that accounting year bonus which shall be an amount in proportion to the salary or wage earned by the employee during the accounting year subject to a maximum of twenty per cent. of such salary or wage.
In above verbatim, "in proportionate to" is very important. You need to pay bonus in proportionate to allowacable surplus subject to max. 20%.

Dear Sir
But its very confusing to know the proportion. An example would helps immensely because the last line says "subject to a maximum of twenty per cent. of such salary or wage" which means not more than 20% but less than would also be complying in the eyes of law.

It is to be interpreted as any percentage above 8.33% subject to a maximum of 20% depending upon the profit. Madhu.T.K
Dear Madhu Sir,

An organisation has a practice to give bonus on basic salary ceiling Rs. 10,000. It means an employee get 10% of his basic salary (10000 *12*10%) or 120000 per year. Same amount is entered in accounts book (Balance Sheet). Now Please guide me on the below:


1. An employee basic salary is Rs. 12000. His 10% bonus is entered in balance sheet FY 2013-14 and in Bonus Register 'Form C'. Now the said employee leaves the organisation on 30.06.2014. While preparing the F&F, the HR gave him only 8.33% bonus instead of 10%. for the FY 2013-2014 and April-2014 to June 2014. So is it obligatory for a employer to give him 10% which is mentioned in Balance Sheet or can the employer deny the employee for any bonus as his basic salary is more than 10,000. or thirdly calculate his bonus on Rs. 3500 and give 10% as the law says and ignore the balance sheet. The employee has put an complaint in Labour Department under Payment of Bonus Act.

2. How much amount this employee can demand for the period April 2014 to June 2014 as the balance sheet is not prepared yet.



The right of employee to get bonus or the employer's liability to pay it should be as per the Payment of Bonus Act. At present an employee whose bonus qualifying salary (say, basic salary, dearness allowance) exceeds Rs 10000 is not eligible to get any bonus. If the salary does not exceed Rs 10000, then also his bonus shall be calculated as if his salary is only Rs 3500. Regarding the percentage varying from 8.33 to 20, the management shall take a call based on the allocable surplus. But paying the said percentage of bonus on a flat salary, that is, not restricting it to a percentage on 3500 is purely a management prerogative or there should be some settlement.

Considering the bonus as deferred wages, in respect of those who comes under the purview of Payment of Bonus Act , ie, those drawing salary of 10000 or less, the agreed amount should be paid irrespective of the fact that he has left in the current year. That means, if the amount provided is at the rate of 10%, then it will become payable for the year 2013-14. But since no amount has been provided for 2014-15, and if the bonus is paid at the time of leaving in June, naturally, we can restrict it to statutory bonus because we cannot say that the company would make profit this year and if the company would declare the same 10 % bonus this year. At the same time, if he is not an eligible employee but is is receipt of bonus in the past as a practice or custom, the employer can discontinue it once he discontinues service.

Again, if 10% is shown as payable by way of bonus in the CTC statement, then there is no way, you should pay 10% for this year also.


But sir as I mentioned the amount has been entered in balance sheet and Bonus distribution Register, If the organisation pays less than the amount mentioined in the balance sheet and in FORM C then the the employer has to show it in as Unclaimed Wages as the full amount has not been given at the time of F&F. Moreover, if the company does not pay him the amount, then the employee can demand the register and balance sheet in Labour Court to get his unclaimed amount. Sir. Please suggest.

Making provision and paying are different. You can provide for doubtful debts and that does not mean that the debtor need not pay it to the company and if the company demands it the debtor cannot say that since you have shown the amount due from me as doubtful, you cannot demand it. Like that provision for bonus will always be for higher amount and if something less than provided is paid, you can write it back as revenue in the current year. The employee, if not covered by Bonus Act, cannot sue the company just on the basis of provision made in the balance sheet. If he is a covered employee, certainly, he can claim it. This is because in respect of employees not covered by Bonus Act, whatever payment the employer makes under the heading of bonus are exgratia which is just like incentive and can be disbursed as per company policy. Again, if the company's policy is to pay it to all employees whether continuing in service or not, you can pay it.

Thanks a lot Madhu sir for clearing all my doubts.
But sir as I already mentioned that the company entered the name in Bonus distribution Register "FORM C" of those employee who are not covered under the act (Basic + D.A. >10000). Suppose if the amount of bunus of such employee entered in the register is 12000 but the employee is paid Rs. (3500*12*8.33%) = Rs. 3499 through his F&F. Now the balance amount of bonus is an unclaimed Wage as per Labour Welfare Fund Act. As this amount has been shown in Bonus Distribution Register "FORM C" then how can we write back it to revenue. If labour inspection see this register we can question about this amount.

While discussing the part of recovery of amounts due by way of bonus from employer in section 21 of the Payment of Bonus Act it has been clarified that employee means a person who is entitled to bonus under the Act and that means a person who is not entitled to bonus will not be able to claim it if denied. In the instant case, the claim is from an employee who is not an employee under the Payment of Bonus Act and as such there is nothing wrong in denying it and writing it back.

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