Understanding Bonus Rules: Should It Be Included in CTC and Appointment Letters?

Dear all,

Please confirm whether the bonus is to be added to the CTC of any employee and is to be mentioned in the appointment letter. Please help by explaining the bonus rules as per the Bonus Act.

Hi Neelima,

Although the Act does not specify it to be part of CTC, the company will not know how much profit it is going to get if the company mentions the same in CTC. It would be a parameter for the rest of the employee, and the same percentage is to be given. It is the prerogative of the management to decide what percentage is to be declared towards the bonus. If there is any union, it should be decided in negotiations with them.

Thanks,
Suresh

Hi Neelima,

Bonus will be a part of the CTC and it should be mentioned in the appointment letter. I suggest downloading the "Bonus Act" from the web and going through it. This will enhance your knowledge on this. If you still need ready-made material, please email me.

Regards
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Hi,

In addition to the above, please find attached the Payment of Bonus Act. Also, as mentioned above, please be informed that you have to mention the bonus in the appointment letter if included in CTC.

Regards,
AJ

Bonus depends upon profitability and productivity. These, in turn, depend on other factors - both internal and external - which are sometimes beyond the control of the employer. In such circumstances, how can you fix a rate of bonus right at the time of appointment? You cannot. However, if you wish to demonstrate a substantial amount as remuneration to the employee and attract employees by displaying such large figures, you can include it in the CTC. Nevertheless, the practice of showcasing such allowances and reimbursements should be discouraged at any cost.

Regards, Madhu.T.K

I am in total agreement with Madhu.

Bonus, to a large extent, depends on variable factors. Only if a certain amount is guaranteed at the end of stipulated time periods, should it be shown in CTC.

Regards

Hi,

I agree with Shri Madhu. If you show the bonus as part of CTC in your appointment order, it will become part of service conditions. In that case, if you reduce the quantum of the bonus based on the company's performance, the employee has the right to claim the same amount as it is part of the emoluments agreed upon by the employer. Hence, it is better to mention that the bonus will be paid as per the Payment of Bonus Act/Policy of the company to avoid future litigations.

Thanks & Regards,
Kalyan R

Hi Madhu,

I am in total agreement with you, but most of the MNCs now put up the average bonus as a fixed amount, which is included in the CTC as well. The variable bonus is then calculated according to the individual, team, department, and company performances, which is paid later to the employee. Since this practice is very prevalent nowadays, other companies can't afford to offer a complete variable bonus because every candidate today is ultimately looking for a bigger paycheck.

This practice started about five years back during campus interviews and has since become common in the regular recruitment industry as well. Consequently, it has become a significant factor that discourages other approaches since most corporates, including smaller ones, have adopted it. I support anything that benefits the candidate in the end.

Regards,
AJ

Dear Madhu,

Thank you for your suggestion. I would like to know whether or not the bonus is mandatory. Is it not fixed between 8.33% to 20% of Basic + DA depending on the organization as per the Payment of Bonus Act.

Best Regards,

Deepak Dwivedi

Dear All,

In one of the companies, they are following the procedure mentioned below for bonuses. Please tell me whether it is ethical or not. During the interview, the Cost to Company (CTC) is fixed at a certain amount, and the breakup is not disclosed to the employee. Subsequently, there is a deduction of a certain amount from their CTC, which is equivalent to 8.33% of Rs. 3500, under the guise of a bonus. This amount is then paid at the end of one year, on the eve of Diwali. Please advise on whether this practice is right or wrong on the company's part.

Vijay Shankar

Hi Deepak,

Please go through the attached document for details about the bonus act. I am not aware of any further amendments. If anyone does, please post.

Regards,
AJ

Hi Pankaj,

The situation you have mentioned is completely unethical and unacceptable.

As a candidate attending the interview, you are supposed to inquire about the breakup of the CTC. Please ask all your friends and colleagues to do the same.

I am aware of a very popular company that has a system wherein 20-40% of your bonus is accrued for the next year with the company and is transmitted to a fund. The company explains that it is done so that in the next term if profits can't be attained, then this fund helps the company and the employees with the bonus. It's an excellent strategy, and it is a very good action to ensure the retention level as there are certain rules attached to the rest 40-20% bonus amount in case of immediate exit from the company. But the good part is that this fund exists only for employees, and hence even if it's one guy's loss, the amount is distributed among the rest of the guys.

You must advise the company to stop the practice you have mentioned. I am not sure how prevalent this is.

Regards,

AJ

Hi Guys,

As per the Payment of Bonus Act, it has to be paid to every employee earning wages <= 10,000 per month. However, it shall be calculated up to wages of Rs 3,500 only.

Eligibility: up to Rs 10,000 Calculation: up to Rs 3,500 only.

As rightly mentioned by a few members, it should be paid between 8.33% to 20% of the basic wages, depending upon the profitability of the organization.

"Start-up" organizations (who have not completed 5 years) may be under the impression that they are not eligible for the payment of such bonus as per Section 16 of the act. However, please delve into it; the organization is under an obligation to pay this bonus for every accounting year in which they make a profit. So, please don't get carried away by it.

Especially for people from the HR department: How to save this HUGE COST

Organizations have to pay this bonus over and above the CTC, e.g., Rs 500 per month per employee, i.e., Rs 6,000 per employee per annum. Just imagine the cost for an organization having a mere 1000 employees, even Rs 60,00000 Lacs. Please note this is an additional cost over and above the CTC of the employee. Here is the solution to SAVE IT.

In every structure, there is a balancing component, e.g., 'Special Allowance.' I suggest making the bonus a part of your monthly CTC (especially for the employees eligible for it, i.e., whose basic wages are <= 10K). Since the maximum bonus is 20% of the basic, keep it at 20% for everyone. Now, calculate your balancing figure. In other words, split your balancing figure into two components, 'BONUS' and 'SPECIAL ALLOWANCE.'

Having done that, add a clause in the appointment letter like:

"Subject to your eligibility, statutory bonus for the current financial year shall be disbursed to you as a part of your monthly CTC only."

This would not only save huge costs for your organization but also make it legally compliant. Since you would be paying 100% bonus as per the law, they cannot question your bonus calculation if you happen to pay less than 20%.

The law always talks about the Minimum Benefit (8.33%) but never stops an employer from paying more than it.

Trust me, it is legally correct and will save crores of Rupees.

Hope you find it useful.

Hi Mukul,

I am a bit lost here. Forgive my ignorance, but could you please ascertain where the company is saving money? Your comments will be highly appreciated.

Regards,
AJ

Hi AJ,

I think the long explanation led to the confusion. Let me try to explain it by giving an example. Let's imagine your current salary structure is:

Basic - 7800 HRA - 3900 Conveyance - 800 Special Allowance - 2129 Gross - 14,629 PF - 936 ESI - 0 GPI - 35 CTC - 15600

An employee with the above salary structure would be eligible for a statutory bonus, which has to be paid by the organization as per the 'Payment Of Bonus Act' mandatorily. It may range from 8.33% to 20% of basic max. Let's imagine it is to be paid at 20%. Hence, your organization has to pay him at least (20% of 3500 basic) Rs 700 pm, i.e., Rs 8,400 PA PER EMPLOYEE. Now, just imagine the cost you have to incur for 100 employees, i.e., Rs 8,40,000, which can make a huge difference to your P&L.

Now consider this structure:

Basic - 7800 HRA - 3900 Conveyance - 800 Bonus - 700 Special Allowance - 1429 Gross - 14,629 PF - 936 ESI - 0 GPI - 35 CTC - 15600

In the above structure, everything else remains the same, except for the fact that I have split Special Allowance (balance component) into two parts - Bonus, which is 20% of Rs 3500 basic, and the rest Rs 1429 as a balancing figure. By doing this little smart thing and adding a line in the appointment letter (as mentioned in my last posting), you would be able to cover the bonus cost within the existing CTC of the employee without incurring HUGE COSTS at the end of the year.

Hope I am able to clarify it now. However, should anyone need further clarifications on the same, they may contact me at 09321856055 (Mumbai no).

Thanks

Hi Mukul,

Thank you for your effort and patience.

Please advise if the Gross Salary is a variable. Is not the company supposed to pay the exact amount of Gross salary as mentioned in the joining letter irrespective of any note mentioned.

The problem with the above-mentioned process is that you might end up with a lot of disgruntled employees since they probably have been used to a pay with a 20% cut. If the company is not able to generate enough profits, it might be reduced to 8.33%. Also, when does the balancing act happen?

Also, when introducing Bonus as a part of CTC, isn't it better to put 8.33% and then during the appraisal, according to the performance of the employee, a higher ratio to be paid immediately after the appraisal? By then, generally, the company has an idea of what its profits are going to be. In case the company is hit by a bad year, then they have the option of not paying more bonus.

Also, if Bonus is not part of Gross, then it can be paid at a 60%-40% ratio on a half-yearly basis. This might also help in the retention of employees.

Please put in your comments. I found your post very interesting.

Regards,

AJ

Dear Friends,

The Bonus Act does not specify that the bonus should be included in the Cost to Company (CTC). However, most organizations include the term "bonus" in the salary breakdown, portraying it as part of the salary. (The salary breakdown excel sheets are available on this site, provided by our friends; please review them.) Not only bonuses but also PF employee and employer contributions, as well as ESI employee and employer contributions, are being shown by some organizations.

Regards,
PBS KUMAR

Is the Bonus Act applicable to expats and onsite direct joiners? Are they covered under the Bonus Act?

---

Overall, your message is clear, but I have made some minor corrections to improve the grammar and readability.

Hi Aj,

My reply in bold below:

Please advise if the Gross Salary is a variable? Is not the company supposed to pay the exact amount of Gross salary as mentioned in the joining letter irrespective of any note mentioned. - Gross salary can only vary from the appointment letter only in few cases like a difference in paydays, payment of incentives, or payment of any other allowance, which is not a regular feature of the monthly salary. Otherwise, no way it can vary. Absolutely true. Every employee must get his salary as mentioned in his/her appointment letter.

The problem with the above-mentioned process is that you might end up with a lot of disgruntled employees since they probably have been used to a pay with 20% and if the company is not able to generate enough profits it might be reduced to 8.33%, also when does the balancing act actually happen? - It is also mentioned in the act that the bonus should be paid as per the profitability of the company in the concerned accounting year. However, if an employer wishes and can pay a higher amount, no authority would object to it.

Further, precisely to avoid this balancing act, I have suggested keeping the bonus component at 20% of basic, which is the maximum statutory limit, so that no authority would verify it or check your balance sheets for profitability if you happen to pay it less compared to previous years. Anyways, we are making it as a part of the CTC, hence no liability for the future.

Also when introducing Bonus as a part of CTC, Isn't it better to put 8.33% and then during the appraisal according to the performance of the employee, a higher ratio to be paid immediately after the appraisal, cause by then generally the company has an idea of what its profits are going to be, In case the company is hit by a bad year then they have the option of not paying more bonus. - I believe the first part of this question is answered above. I do understand that employees do expect some bonus/incentive at the time of Diwali, which in our case, has already been paid along with their monthly salary. To keep employees happy and satisfied, we can pay them an amount naming it as 'Diwali Bonus' which would not have any legal implications as statutory bonus has, hence the amount can be frozen as a fixed sum for all, as the management may decide. I am sure this would very well fit into their budget too.

Also if Bonus is not part of Gross, then it can be paid at a 60%-40% ratio on a half-yearly basis, this might also help in the retention of employees. - Honestly speaking, I don't think the amount of the bonus can be used as a retention tool. However, the way it is paid or its frequency or time of payment may induce people to stay back. In my opinion, the two most important factors due to which an employee sticks to an organization are primarily 'Culture' clubbed with growth opportunities in his/her current job role.

Hope you would find it as per your expectation.

In this context, I would like to express my thoughts on the concept of CTC, which stands for Cost to Company. However, while employing someone, the employer also derives some benefits. In the context of human resources being recognized as a form of capital, why do we limit our thinking to the cost of employment alone?

Please review the attached article on this subject.

Regards,
Madhu.T.K

Dear Pankaj,

What you are referring to is a retention amount (sometimes called a Retention Bonus) which is held and paid to the employee only if he completes a desired period of employment in the company.

Regards,

Hi Madhu,

I have to commend you on your article because you did think on the concept. The concept of CTC is just fair, I believe. CTC, as the term implies, is what the personnel is going to cost the company. As an employer, he has the right to know it. Profit generation is important not just for the employers but for the employees too. If the person was not beneficial to the company, then he wouldn't be working in the firm in the first place.

Also, with the present work culture prominent among employees who are ready to shift jobs for a meagre raise even though they are happy with the present company, employers are forced not to consider human capital as an asset to the company. Human Capital today is just a tool that has been hired.

Just thought of putting in my views.

Regards,
AJ

Hi Neelima,

A bonus is a statutory requirement for employees who fall under a specific salary range. For employees who earn more than the salary for the bonus limit, organizations pay the bonus as Ex-Gratia, Incentive, or Bonus itself. It should be mentioned in the appointment letter unless it's non-contractual and discretionary.

Thanks

Dear AJ,

I do not want to make my article sensitive or controversial. I only meant to convey the other side of the new theories of HRD. Practically and ultimately, our efforts are linked to profitability. I know that it is not practical to fix wages according to the marginal productivity theory of wages. We have come a long way from the subsistence theory of wages (the Iron Law of wages) through Karl Marx's philosophy to the present system of recognizing labor as capital. There has been a drastic change in the attitude of both employees and employers, but can we confidently say that an employee is safe and secure? My attempt was simply to present the other side of the highly highlighted HR practices of today. It was presented somewhat ironically. That's all. If we are to consider all the costs of getting things done attributed to a particular unit of employment, why do we not also acknowledge the benefits?

By adding the bonus to CTC or monthly salary, we do invite troubles. There may be an amendment to the definition of salary in the EPF/ESI Acts to include such special allowances hidden in the gross salary/CTC. A new interpretation of the definition is enough to compel employers to comply with it.

It may sound good to state a huge figure of CTC, but can anyone be content with just saying, 'my salary is so...'?

Regards,

Madhu.T.K

Hi Madhu,

Well said. I do respect your comments, and I also hope that someday there are definite rules laid down for employees and employers alike, thereby reducing the problems that we face today. But until then... let's just hope.

Regards,
AJ

Bonus payment is mandatory if an employee is covered under the Payment of Bonus Act. In this case, the bonus could not be part of the CTC. However, if the employee is not covered under the purview of the Payment of Bonus Act, the bonus will be included in his CTC. Please refer to the Payment of Bonus Act and any amendments related to it.

Right now Bonus funda is not in the market. The bonus amount is renamed as ex gratia, which is fixed and added to CTC. However, that should not be mentioned in the Appointment order. You can make it variable depending on the profitability of the business. Normally, the bonus is variable from 8.33% to 20% of Basic & DA's. (Under the Bonus Act, we cannot give more than 20%, which is why we are required to give this amount as Ex gratia).

No, the bonus should not be included in CTC. It is an unethical trade practice if you do it.

Best Regards,

M F Velati

Centre approves amendment in Bonus Act

Tuesday, October 30, 2007

The Centre has promulgated an ordinance approving changes in the Payment of Bonus Act, which would make workers drawing up to Rs 10,000 monthly salary eligible for an annual bonus. President Pratibha Devisingh Patil promulgated the Payment of Bonus (Amendment) Ordinance of 2007 on October 27, an official release said here today. Hitherto, only those having a monthly salary of up to Rs 3,500 were eligible to claim a bonus.

The Cabinet on October one had approved the amendment to Section 12 of the Act "to raise the eligibility limit for the payment of bonus from the salary or wage of Rs 3,500 to Rs 10,000 per month". The decision would benefit seven per cent of the total workforce in the country which is working in the organized sector. The payout proposal is broadly in line with recommendations of the 41st session of the Indian Labour Conference (ILC) held in April this year, and is the result of a long-pending demand of the trade unions, particularly by the CPI (M)-affiliated Centre for Indian Trade Unions (CITU).

I am of the opinion that a bonus can be included in CTC as it is a major cost to the company. CTC itself means cost to the company, which means it can include everything, including a bonus. As the company pays a bonus to its employees, it has no problem showing it on the appointment letter as well. However, take care not to include it in the minimum wages.

Thank you,
Kumaran Siva

Hi,

I went through all posts and interesting articles.

I want to give some clarifications here.

1. There are two issues we handle in employment:
A. Contract with the employee
B. Statutory Benefits.

2. CTC falls under the term of an individual contract. Here, we commit to pay the individual a sum agreed as CTC, including all benefits which includes statutory benefits.

3. Whether we indicate it or not, we need to pay the statutory benefits as provided.

Let us examine the case of Bonus.

Generally, a bonus is an annual amount payable to an employee.

This is guided by The Payment of Bonus Act.

Whether we commit or not, this amount is payable for these employees as per the Act.

Others who are not falling under this definition will be guided by the individual contract. We generally say that a Performance Bonus, based on the performance, will be paid every year. No commitment of a percentage is given here. It normally specifies a maximum.

During negotiations, indications are given that an employee might get 10% to 50% (for example). In this case, a minimum of 10% shall be paid. If an organization does not pay higher, it cannot be construed as unethical.

Siva

Hi,

According to my understanding, a bonus can be a part of CTC and otherwise as well. One bonus is a statutory bonus of 8.33%, which has to be a part of CTC as it is a cost to the company. It is paid to the employee at the end of the financial year or quarterly, depending on the company's policy. Another type could be a performance bonus, subject to the successful completion of a project.

Statutory bonus has to be a part of the appointment letter.

Regards,
Taranpreet Minhas
Email: taranpreet.minhas@gmail.com

Hi,

Let us examine the concept of CTC. After all, it is "Total Cost to the Company" which a company incurs on an employee as employment cost. Components could be any. Bonus will definitely be a part of CTC depending upon coverage and profitability, i.e., minimum @8.33% or maximum @20.00%.

Regards, Mohan.

In our organization, a bonus is a part of CTC. You can say it's a fixed bonus wherein every month the amount (so-called bonus) is deducted from the employee's CTC. The accumulated amount is given during Diwali time. However, the amount given is not the whole; only the accumulated amount of the last financial year. The balance amount will be received by employees only when they leave the organization as a part of their full and final settlement.

Regards,
Khushboo

Hi Jagdeesh,

I am attaching herewith all the documents pertaining to salary. I think this should be enough.

Regards,
AJ

Dear Friend,

Minimum wages are a statutory requirement to be followed by all employers under the Minimum Wages Act. It varies from state to state, with each state government adjusting it based on inflation every six months. Minimum wages are determined according to the nature of the employees' work.

Thank you,
Kumaran Siva

Hi,

Section 2(21) of the Payment of Bonus Act defines Wages/Salary as all remuneration capable of being expressed in terms of money. In this case, the employee crosses the ceiling contemplated in the Bonus Amendment Act. Hence, he will not be entitled to statutory bonus. Please correct me if I am wrong.

Thanks & Regards,
Kalyan R

In agreement with Siva and AJ, I would like to urge employees to make an effort in understanding their salary structures, and ensure that companies are not following unethical practices if employees are educated about their salary breakups before joining the company.

After all, "CTC" is construed on a need basis worldwide, with no single definition. It is a common practice these days to include bonuses as a part of the CTC, also known as the "variable" component of the salary. Companies set upper limits to these variable pays, and if observed closely, they are within the government guidelines percentage-wise. This practice is mainly adopted as it helps in boosting employees to perform at their optimum levels in order to take home 100% of the variable pay.

Dear Neelima,

Yes, if you have mentioned a bonus in the employment letter, then it will be a part of the CTC. However, a bonus is a part of CTC in any case as it is a cost that the company has to pay to the employee.

Thanks and Regards,

Kuldeep

Dear Neelima,

As per the Bonus Act, the bonus is always a surplus amount on the balance sheet to be distributed among the employees, ranging from 8.33% to 20%. We cannot add this to the Cost To Company (CTC) as if the company incurs losses in a financial year, it is not the company's liability to distribute bonus. For a new setup in the preceding 5 years, the company is always in an infancy period and not liable to pay a bonus to its employees.

Thank you.

Hi,

The Statutory Bonus is paid to employees drawing Basic Salary below Rs. 10,000/- per month. For companies declaring a Minimum Bonus of 8.33% (Min. 8.33%, Max. 20%, anything over this is ex gratia), they will have to pay 8.33% of Rs. 3500/-, which amounts to Rs. 292 per month. Employees whose Basic salary is below Rs. 3500/- need to pay 8.33% on the actual basic. However, this is subject to a minimum Bonus amount. Since this is an annual compulsory payment, it can very well be taken as part of CTC as most of the companies are paying Bonus.

Regards,
Subrato:dry:

Hi,

Q: 1) I joined the company in 2005, wherein at present I am working. It was not mentioned in my appointment letter while joining about including a bonus in the CTC.

After the last year's appraisals, a handsome amount (around 22k) was shown in my appraisal letter and revised CTC as "Performance allowance," which again was obtainable if I will work for the company for the next 6 months.

Now at the time of this year's appraisal, my CTC is showing a deduction (i.e., an adjustment) in the performance allowance, i.e., 22k LESS bonus. This means the amount that was shown last year as a performance allowance, i.e., 22k, is not really obtainable by me this year, as the company has already shown an adjustment of the bonus out of it (which bonus I had already received during last Diwali). How can a bonus given be adjusted or deducted from any of the allowances I am liable to get?

Q: 2) If someone is provided with company accommodation on a chargeable basis, does HRA appear or is it applicable legally in the CTC?

We have a practice of the following in our company:
- House is provided by the company.
- HRA is not shown in the CTC.
- House valuation is shown as a "perquisite" in the gross salary.
- ONLY the rent deducted from the salary is deducted from the house valuation.
- Still, the Gross salary shows an increase of 32 to 34K (because of the perquisite valuation), which increases my income tax.

Now during this year's appraisals, HRA is shown in the CTC under a different head, but at the same time, house rent is "DOUBLED".

Please guide me on whether company accommodation or outside rented accommodation will be helpful for me to save money.

Regards,
Chef

Hi Subodh,

When a company provides accommodation, it is treated as CLA (Company Leased Accommodation), which is considered a Perquisite, and the value of such perquisite has to be accounted for at the time of computation of your income tax. It gets calculated at 15% of the Gross Earnings and the actual rent (CLA amount) paid. The least of the two is exempted from tax.

It is highly recommended to opt for HRA instead of CLA, as it would be much more cost-effective compared to the CLA option. By availing HRA, you would be able to save more on tax as it allows full exemption, subject to the rent amount paid.

Please find enclosed the CLA Calculation sheet. Hope this helps.

Regards

Hi Subodh,

Mukul has already answered your second query, and he is absolutely right. Regarding your first query, I am a bit confused about the question. Please be informed that any amount once mentioned in the CTC has to be paid by the employer to the employee unless and until there are clauses mentioned in the CTC letter or the appointment letter; hence, check the same.

Once your CTC says that there is a performance bonus involved, the company has to pay that if there are no clauses stating that the bonus will be only paid under certain conditions. However, since you received the amount last year and this year the deduction was mentioned in your revised CTC, you can't take any action against the company. You must have changed the company since such a practice is not a good sign.

Regards,
AJ

Dear AJ,

Thank you for the reply. I will rephrase my question for you. For your information, I have not changed companies; I have been working since 2005 until now.

In the last year's CTC, Rs. 22000 was shown as Performance Allowance, to be paid during this year. There was a condition that if I continue working for a further six months, I am entitled to receive that 22k. I have continued working.

Now, in this year's CTC, the company has deducted/adjusted last year's bonus, which reduces my Performance Allowance by around 8400/-. In other words, the bonus paid to me last year has been deducted from my Performance Allowance, showing an adjustment in the total amount.

Am I not entitled to receive the full amount of Rs. 22000?

Regards,
Subodh

Hi Subodh,

Will this amount be paid to you once you leave the company? Anyways, I have to inform you that it's a very bad practice followed by your company.

Regards,
AJ

Hi all,

I am Yogesh. What are the total facilities and benefits under different labor laws that are made available to contract workers? If possible, a compilation of the same in a scientific manner is required.

Dear All,

This is really an interesting and valuable discussion going on. In my company, one of the clients is asking to distribute the Annual statutory bonus (Rs. 3500/- i.e. min. 8.33%) as "Advance Bonus Payout" (Rs. 292/-) in monthly salary components with a commitment to its monthly payout to employees as a part of Gross salary and its mention in monthly salary slips. Your advice is requested on whether this is feasible.

Regards,
Oindrila

Hi Oindrilla,

Advance payment, especially in the form of a monthly salary slip, is not desirable. It should be paid after declaring the balance sheet. Legally, you can show it as an advance against a bonus, but the chances of misinterpretation are very high. It is not advised.

Siva

Dear Subodh,

What were the exact terminologies used? In other words, can you reproduce the exact clause on performance bonus? We normally draft it in such a way that it is not payable in full. Unless we see the complete clause on this, we cannot say whether it is legally payable or not.

Siva

Hi Oindrila,

This policy is completely under your company's domain. It's your company policy that will decide how and when you have to disperse the bonus. It's a feasible option if you have candidates working only for this client. However, if you have multiple clients and many employees, you will need to involve your accounts department in the discussion.

It's advisable to check with your management to see if they would consider providing a bonus to only the employees working for this particular client and adding it to their monthly pay. This approach is risky as it may cause issues among your employees.

Regards,
AJ

Hi, this is Srinivasan. I would like to know if ex gratia is paid to an employee every year, or if there is a requirement to work a certain period in the company to be eligible for it. According to the appointment order, the company has specified that ex gratia is provided annually.

Hi Srinivas,

Please note that the company has to adhere to its appointment order, and hence the payment has to be done on a yearly basis. The payment decision is completely up to the company policies if they haven't mentioned such a thing in the appointment letter.

Regards,
AJ

Bonus is basically for the Class IV employees who draw a basic salary of less than Rs. 3500 per month. This bonus is mandatory by law, i.e., statutory bonus. Other bonuses these days companies call it as Performance Bonus or Variable Pay, which is a much better way to express. Companies normally give a percentage of the same and do not add cost to the CTC. This pay is actually over and above the normal earning you get as it is directly linked to the achievement of certain desired objectives and KRAs. I hope this will clear the air for bonuses now.

Dear Team,

Kindly help me with the following query.

I have a part of my CTC allocated to Flexible Benefits (Flexible Benefit Plan). I used to allocate funds for petrol and driver salary from my flexible benefits, which were non-taxable. Recently, I discovered that starting next month, the maximum amount I can declare is Rs. 1200 for petrol and Rs. 600 for driver salary.

Could you please provide clarification on this matter?

Thank you in advance for your support.

Regards,
Sachin

I would like to know the eligibility of the bonus and ex-gratia amount for an employee drawing a basic salary of Rs. 25,000.00 per month.

Hi all,

Is there any kind of provision that we can pay a bonus on the completion of 11 months in a new establishment?

Ranjan
09871103166

As per the Payment of Bonus Act, an employee drawing a basic salary of Rs 25,000 per month is not eligible to receive a bonus. However, if the establishment is willing to pay a bonus regardless of the salary, then it can do so.

For new establishments, even though the Act provides protection from paying bonuses for the first three years, if the establishment chooses to pay a bonus, it has the option to do so.

Regards, Madhu.T.K

Hi, I had a query that I wanted to discuss. Our company (Omnilink Systems) is a start-up in Bangalore. We started operations in December 2009 and got ourselves registered in February 2010. In the US, Omnilink has been established for the past 5 years. Currently, we have 6 permanent employees and 2 consultants (on the payroll of another consulting firm). Recruitment is ongoing, and the team size is expected to increase to 15+ in 2 months. Our top management (in the US) has considered providing a Deferred Bonus to all our permanent employees—i.e., 15% or 20% of CTC as a bonus to be distributed over a period of 4-5 years. We do not plan to include the bonus amount in the CTC.

Deferred Bonus in Appointment Letters

Can we proceed and mention in the appointment letter for these existing permanent employees and new employees (as and when they join) that "YOU SHALL BE ENTITLED TO A BONUS THAT WOULD BE DISTRIBUTED EQUALLY OVER A PERIOD OF FOUR YEARS"?

Registration for Payment of Bonus Act

Is it mandatory to get registered for payment of the Bonus Act?

Kindly advise me...

Thanks,

Lakshmi

Email: [Email Removed For Privacy Reasons]

Understanding Bonus Payment Obligations

When you fix a bonus as per the Bonus Act, you are expected to pay it within a certain period of time, i.e., within eight months of the close of the financial year. Therefore, the payment of a certain amount, say 15% of the CTC or Salary or whatever amount, over a period of five years will not satisfy the statutory obligations of an employer towards the payment of bonus. Why should you indulge yourself in troubles when you can avail the infancy protection available in the Payment of Bonus Act?

There is no registration required, but you have to send some returns to the Labour Authorities.

Regards,
Madhu.T.K

There is no change.

Regards,
R.N.Khola

Understanding the Bonus Act of 1965

As per the Bonus Act of 1965, the bonus must be paid at a rate ranging from 8.33% to 20%. The minimum bonus to be paid can be specified in the appointment letter. The ceiling was recently raised from Rs. 3,500 to Rs. 10,000. Certain organizations pay ex-gratia to executives earning more than Rs. 10,000 per month. I believe there is nothing wrong with mentioning the minimum assured amount in the offer of employment. Some of the leading/best employers in the country even include performance pay in the CTC, which is solely based on performance. However, they determine the performance pay based on average/normal performance.

Regards,
Rajesh Babu

Understanding the Bonus Act of 1965

As per the Bonus Act of 1965, the bonus must be paid at a rate ranging from 8.33% to 20%. The minimum bonus to be paid can be indicated in the appointment letter. The ceiling was recently increased from Rs. 3,500 to Rs. 10,000. Some organizations provide ex-gratia for executives earning more than Rs. 10,000 per month.

I believe there is no issue with specifying the minimum assured amount in the offer of employment. Some of the top employers in the country even include performance pay in the CTC, which is based solely on performance. However, they determine the performance pay based on average or normal performance.

Regards,
Rajesh Babu

Could you please advise if a bonus is payable on leaves encashed.

No bonus is payable on the amount of leave encashed.

Very important: The post pertains to 2010, some six years back, when the ceiling for bonus was Rs 10,000 and bonus was calculated on Rs 3,500. Now these are Rs 21,000 and Rs 7,000 respectively.

Madhu.T.K

We are facing a problem regarding the bonus because we received a work order from a government body to provide manpower services through outsourcing. While participating in the bidding process, the employer fixed the service charge at 5% of wages, which includes bonus payments. It was stated in the tender that the bonus payment would not be considered as part of the service provider's remuneration. In this situation, what steps should we take? If we continue working with the company, we will incur a loss of -3.33%.

Please advise on how to proceed in this scenario.

Thank you.