Azim malik
Hello all, If any employee’s basic pay is less than 21k and he gets a performance bonus. Can he be eligible for a statutory bonus also in the same period?
From India, Vapi

Dear Azim,

I think that the difference between performance bonus and statutory bonus would automatically answer your question.

Performance bonus is an additional compensation paid by some employers to an employee or a department for having achieved certain predetermined score threshold of quantified performance. It is not compulsory but optional either subject to the discretion of the employer or its inclusion in the hiring contract in order to incentivize the employees to perform better. The periodicity of payment of performance bonus can be monthly, quarterly, biannually or annually with or without ceiling. It can also be introduced project wise or some critical performance wise for some specific period to drive extra efforts.

On the contrary, payment of statutory bonus is covered by the provisions of the Payment of Bonus Act,1965. Once the Act becomes applicable to the establishment and the employee is one as defined u/s 2 (13) of the Act and not otherwise disqualified bonus has to be paid to him based on the performance of the establishment in the accounting year either at the minimum percentage or the maximum percentage as the case be INDEPENDENT of the performance bonus.

From India, Salem

Dear Colleague,
As very clearly mentioned by our Colleague, there is a difference in the term " performance Bonus" and " Statutory Bonus"

Performance Bonus ( herein after mentioned as PB) is normally paid voluntarily. If look back he origin of PB, lot of focus was given during globalization and presence of MNCs in India wherein thrust was given to create a " Performance Culture". That led to creation of systems like Projects/ KRAs/ KPIs/ Goals/ Business Objectives mostly for each Financial year. The achievement of KRA/KPI etc lead to eligibility of " Performance Bonus" "Performance Pay" "Performance Incentive" etc which are normally over and above the Basic Components of CTC. Few companies included Performance Bonus as part of CTC where as few companies kept if outside the CTC. To earn this pay, the Individual has to achieve certain numbers as part of his role based on prefixed KRA etc. This is PB. Normally PB is paid to all employees despite their Salary levels and even to General Managers and so on.

In the case of Statutory Bonus ( herein after mentioned as SB), as you rightly mentioned for those employees whos wages are not exceeding Rs.21,000/- per men-sum, then they are eligible to get statutory bonus calculated at the rate of 8.33% ( minimum SB) to the rate fo 20% ( maximum SB) for each financial year which is calculated based on restricted wages of Rs.7000/- per month or the stipulated Minimum Wages if any for that scheduled employment whichever is higher. Here this payment is paid based on the "Establishment's Financial Performance" based on workings called " Allocable Surplus" and "Available Surplus" and Principles called Set-On / Set-Off.

SB is subject to certain leverages given to newly started establishments upto 5 years time. Generally SB is statute based which is normally called " Deferred Wages" which is called 13th month wages in practical term. This is mandatory and can not be denied to any one who are covered under the Payment of Bonus Act 1965. Hence this is a statutory requirement or statutory obligation on the part of the employer.

There is one important aspect under the Act is Production or Productivity lined Bonus based on a settlement between Employer and Employee which is clear from the below provision:

31A. Special provision with respect to payment of bonus linked with production or productivity.-Notwithstanding anything contained in this Act,-

(i) where an agreement or a settlement has been entered into by the employees with their employer before the commencement of the Payment of Bonus (Amendment) Act, 1976 (23 of 1976), or

(ii) where the employees enter into any agreement or settlement with their employer after such commencement,

for payment of an annual bonus linked with production or productivity in lieu of bonus based on profits payable under this Act, then, such employees shall be entitled to receive bonus due to them under such agreement or settlement, as the case may be:

[Provided that any such agreement or settlement whereby the employees relinquish their right to receive the minimum bonus under section 10 shall be null and void in so far as it purports to deprive them of such right:

[Provided further that] such employees shall not be entitled to be aid such bonus in excess of twenty percent. of the salary or wage earned by them during the relevant accounting year.]

Further only adjustment allowed is under section 17 of the Act in case if the employer pays any customary bonus :

17. Adjustment of customary or interim bonus against bonus payable under the Act. Where in any accounting year-

(a) an employer has paid any puja bonus or other customary bonus to an employee; or

(b) an employer has paid a part of the bonus payable under this Act to an employee before the date on which such bonus becomes payable,

then, the employer shall be entitled to deduct the amount of bonus so paid from the amount of bonus payable by him to the employee under this Act in respect of that accounting year and the employee shall be entitled to receive only the balance.

Hence PB is independent of SB and SB is statutory right of the employees subject to their eligibility mentioned by Payment of Bonus Act 1965

All the Best, God Bless,
Doctor Siva Global HR
Tamil Nadu

From India, Chennai

As per the provisions of Payment of Bonus act, if your organisation has a system of Performance Bonus then the fixed Annual Bonus does not apply, as long as the Performance Bonus / Incentive is more than 8.33% of salary.

For this purpose, we are talking of a proper system where the employee is entitled to performance bonus or incentive as a right, based on specified formulae and not as a variable amount given at discretion of management.

The answer to the query is based on the structure of your performance bonus system, not on the amount of basic salary the employee is getting.

Please read Sec 31A. Special provision with respect to payment of bonus linked with production or productivity

From India, Mumbai

Dear Friend,
The Performance Bonus does not cover under any Act but an additional payment apart from wages and also a hidden part of CTC. The management pays by evaluating the performance and to match the loss on Financial resession.

The Annual Bonus is under the statute, you are eligible for bonus for FY 20-21 provided you fullfill the criteria.

From India, Mumbai
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