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As per Bonus Act,
"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 wages earned by the employee during the accounting year subject to a maximum of twenty per cent of such salary or wage"
Query : We have enough allocable surplus, can we declare a bonus percentage between 8.33% & 20% or we are liable to pay 20% flat?

From India, Mumbai
PL Kanthan

Even if you have more surplus fund in the any a/c year, it is mandatory only to pay bonus @ 8.33%. There is no compulsion that 20% is to be paid if the surplus is more; if the management is willing to pay @ 20%, no one will stop.

From India, Thane

Dear Anonymous friend,
I am of the views that if an employer has allocable surplus, he can pay a maximum bonus of twenty percent of the total salary or wages of the employees of the establishment in that Accounting year.The rest surplus will be carried forward for set on in the succeeding years to be utilisation for payment of bonus in the manner as illustrated in the Fourth Scheduled as given in Section 15 of the Payment of Bonus Act, 1965.
BS Kalsi,
Member Since August, 2011

From India, Mumbai

Pl. go through the thread " The Principles of Set on and Set off under the Payment of Bonus Act,1965".
From India, Salem

You are required to pay bonus to the extent you have money in your allocable surplus account.
If you don't have profit or inadequate profit, minimum you have to pay is 8.33%
If you have profit exceeding 20% of annual wages (subject to limit specified) you need to pay 20%
If your profits are between the two limits above, you need to pay the maximum that will be accommodated in allocable surplus for that year (but subject to set on set off rules)

From India, Mumbai

Can pay 8.33% and the remaining as exgratia as you like. Pon
From India, Lucknow

Pon, If the allocable surplus is more than 20% of annual wages, they do not have an option but to pay 20% bonus. It’s not a choice. It’s dictated by the act. I think you misread the post
From India, Mumbai

Dear All,
We are providing the 20% Bonus to all the employees since long..Now the management wants to Reduce to 8.33%.
As since this is the long practice ..Can we change to minimum bonus of 8.33%. Or we need to take permission from Labour Department?

From Japan, Osaka

Dear Colleague,
The Bonus which is paid by organizations is depending on the Profits of the company based on " Allocable Surplus" and " Available Surplus". ( You may refer this document which might be available with your Accounts departments which is prepared in line with the Provisions of Bonus Act.

If your profits and the surplus for bonus is reduced drastically compared to the years during which you paid 20% bonus earlier, then you have every right to reduce the bonus proportionately. The Bonus Act stipulates 8.33% as the Minimum Bonus below which you can not pay. Hence the suggestion is plot your profit trend and bonus % trend of past. Compare with current year Profit and workout prorata basis. It may come anywhere for example like 14% or 18% etc and try to pay that. If you have no profit then you may try for 8.33% after aligning your Trade Union or Workers internally.

As long as there is no dispute there is no problem if both Management and Workers / Trade Unions agree for a lower percentage of bonus. If there is dispute then it will go for Conciliation. Hence you may align the Labour Commissioner of your area well in advance and take his guidance.

There is no need for any permission legally from Labour Dept on this matter.

From India, Chennai

Bonus % as per POB Act is scientific. From Gross Profit after arriving available surplus and the allocable surplus ( usually done by the finance/accounts dept) % of Bonus has to be arrived. As per latest amendment, minimum bonus has to be paid based on actual salary/ 7000/- if actual salary is 7000/- per month or more OR minimum wages which ever is higher.

First of all based on minimum wages and allocable surplus ( considering Set on or Set off if any ) find out the exact amount to be disbursed for payment of minimum bonus 8.33%. If allocable surplus is more than that, then calculate the % of bonus in the following way.

Rs. X/- is required to pay 8.33% bonus across the board then Rs.Y/- (more than X/- ) allocable surplus can pay 8.33*Y/X = Z%. If value of Z is more than 20, then % of bonus will be restricted to 20% as per POB and the rest amount subject to maximum equivalent to 20% will be set on.

While calculating all above, one should remember that Bonus is a deferred wages and all value should be based on particular financial year basis not on the basis of payable year.

S K Bandyopadhyay ( WB, Howrah)
CEO-USD HR Solutions
+91 98310 81531

From India, New Delhi
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