Rajanassociates
Legal Counsel
Chanchal
Human Resources

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Hi All,
I work with an IT company and a few days back I met up with someone who told me that the Payment of Bonus Act has made it compulsary to pay bonus to all employees at the rate of 20% of the surplus of the company's profits to eligible employees which is higher than the current 8.33%.
I would like to know if the same is true and if IT and ITES companies come under this change.
Thank you!
Chanchal

Section 10 of the Payment of Bonus Act, 1965 (as amended till date) mentions that every employee shall be paid a minimum bonus of 8.33%. The 20% you mention is the maximum bonus an employee is entitled to during an accounting year (April-March), as per Section 11 of the Act. For this purpose, where the salary or wage of an employee exceeds Rs.3,500/- per month, the bonus payable to such employee shall be calculated as if his/her salary or wage were Rs.3,500/- per month.
This rule applies to every company across all industries except public sector and a few companies specified by the Government under relevant rules.
Hope this clarifies.

Hi,

Thanks for the info but I got this off the net:

Govt to discuss linking bonus with profit

New Delhi, Nov 27 (PTI) The Government today said it will discuss with managements the proposals of trade unions to link the payment of bonus with profitability of companies rather than fixing a ceiling on this beneift.

"If there is a possibility to link bonus with profitability, we will discuss it with managements," Labour Minister Oscar Fernandes said in Rajya Sabha replying to a debate on the Payment of Bonus (Amendment) Bill, 2007 which was passed by the House.

The Bill, which replaces the ordinance brought by government in October for raising the limit of monthly salary of industrial workers to be eligible for annual bonus to Rs 10,000 from Rs 3,500 earlier, has already been passed by the Lok Sabha.

Responding to a demand by members, Fernandes said his Ministry would facilitate a meeting between those working in private schools and nursing homes with their managements so that these sectors were also covered under the Bonus Act.

He said the ceiling of Rs.10,000 was well above Rs.7,500 recommended by the Labour Commission which was achieved after the Government intervened for a consensus between the workers and the managements.

The Bill also proposes to extend the bonus benefits to all construction workers employed by builders or contractors, even if they have worked for a month. However, they would get bonus proportionately, if they worked for less than a year.

Through the Bill, the calculation limit of salary for bonus has also been raised from Rs 2,500 to Rs 3,500 per month.

source: <link outdated-removed>

Chanchal

Firstly, it is still being considered as clearly reported in the news item. For it to take the shape of law, the cabinet has to amend the existing Act, which would take some time and effort from our beloved elected representatives. Hence, for now, the existing 20% cap still holds good.
Secondly, even if an amendment were to be made as mentioned in the news item, it only means that the 20% cap will be lifted to enable employees to be entitled to higher bonus depending entirely on the employee's performance and the company's profit for that accounting year. This, in my understanding, does not mean that every employee would be entitled for bonus of 20% of his/her salary.
Your friendly Lexorcist.

Dear
A News item does not make the law. The Bill is to replace the Ordinance. The next round of the proposed ammendments cannot be passed without the change in the Bonus Law going through several levels.It is only an indication by the Hon"ble Minister of the changes that are likely to come in the near future.
With Regards
V.Sounder Rajan

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