Umakanthan53
Labour Law & Hr Consultant
Madhu.T.K
Industrial Relations And Labour Laws
Saswatabanerjee
Partner - Risk Management
Apex Management
Labour Laws Consultants
PL Kanthan
Proprietor
Saunee
Hr Manager
+2 Others

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Dear all, I have seen many companies paying bonus or keeping bonus as monthly component in their pay structure. Is it a good practice to do so? how does it affect actual bonus payment as per the act. Please throw some light on this.
Thanks!
Saunee

There is nothing wrong in showing the bonus in the monthly package provided its payment is made annually. Bonus is an annual payment and is expected to be paid within 8 months of closing the financial year and as such you can not pay it monthly. But in order to show what costs the company by employing you, the company can show it in your offer as monthly as well as annual components of remuneration.
Madhu.T.K

Thanks Mr. Madhu T.K, What about the scenario where bonus is the part of monthly structure and is being paid monthly as part of salary. is that OK?
Please read what I have written. I have stated that payment should not be made monthly whereas you can show it in the salary structure or CTC Madhu.T.K
Mr.Madhu,

I think what Saunee wants to know is the effect of not only the reflection of statutory bonus as a monthly component but also its actual proportionate monthly disbursement along with the regular salary during the entire accounting year. Bonus under the Payment of Bonus Act,1965 is determined on the basis of the performance of the industrial establishment in the accounting year and is calculated as a percentage of the total earnings of the eligible employees in that accounting year. Though monthly payment of bonus may be based on mere guess work, personally I don't think it is either inappropriate or legally incorrect. It can be termed either as interim bonus or bonus advance adjustable later against the bonus determined and paid after the close of the accounting year. It may reduce the burden of one-time- bulk payment in respect of the employer for he is bound to pay the minimum bonus even in case of losses and add up to the monthly earnings of the employees. However, such a practice may be convenient if there is a subsisting settlement, either bilateral or tripartite, enabling the predetermination of annual bonus strictly as per the provisions of the Act regarding minimum bonus or maximum bonus based on the performance only during its currency. I also would like to add that it may be a tactical move of the employer to gain an edge in the collective bargaining process of wage revision or to avoid the hassle of annual demand for bonus. It depends on so many positive factors like confidence of the employer regarding the stability and profitability of his operations, strict compliance of the provisions of set on and set off and above all the employer's commitment to his promise despite the odds of unexpected business reverses if any, beyond his control. At the same time, I also would like to add that the amount of bonus paid monthly along with the salary or wage can not be a component of the wage or salary structure other than for the purpose of CTC.

Thank you Mr. Umakanthan and Mr. Madhu T K for your inputs. It has helped understanding the concept. Thanks! Saunee
I agree with Mr. Umakanthan. Bonus element, whether it is accounted and paid monthly or annually at once is one and all the same, as long as the parameter is maintained and properly recorded.
Thanks everyone

Any amount paid monthly is counted as a part of the salary or wages of the employee.
As such, any bonus paid monthly is a part of the salary and not bonus at all
The bonus again becomes payable at the end of the year (or more correctly 8 months after end of the financial year). The argument of "setting off customary bonus or preliminary bonus" is also not applicable as monthly bonus payment is not considered.
In the end, its a bad and risky practice as the company is open to the risk of being asked to pay the same again. Lawyers may argue the matter in different ways in court, but are you willing to take the risk to see if your lawyers point of view prevails ?

Dear all,
The payment of Bonus (more particularly percentage) is linked with the profitability of the company that is why eight month's period from closing of financial year is allowed for its disbursement. Nothing is wrong in paying the bonus on monthly / quarterly / half yearly basis which is called "interim bonus". At the end of the year when bonus is calculated, the interim bonus so disbursed during the year can be adjusted and remaining amount is released.
If you go through the contents of form C (disbursement register), it allows deduction from payable bonus on account of "Interim bonus or bonus paid in advance", "Amount of Income Tax deducted", "Deduction on account of financial loss, caused by misconduct of the employee".
P K Sharma

Dear Sir,
Bonus if paid monthly will attract ESIC or employee will deviate from benefit if crossed limit. Moreover. monthly payment will affect the profitability of the company and percentage of bonus to be declared annually will be affected.
The above points need also consideration.
Thanks
V K Gupta


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