What's the Maximum Bonus Percentage for Executive HR? Urgent Help Needed!

Hey guys,

Can anyone tell me what the limitation is on the bonus percentage for Executive HR? The minimum is 8.33%, but what is the maximum?

Please reply as this is urgent.

Thanks in advance.

Regards,
Chanda

Dear Friend,

With reference of your quesry please go through the below lines, where I have mentioned the details as per Payment of Bonus Act, 1965, whereas the nos. are indicating the respected sections and subsections....


8. Eligibility for bonus.—Every employee shall be entitled to be paid by his employer in an accounting year, bonus, in accordance with the provisions of this Act, provided he has worked in the establishment for not less than thirty working days in that year.

9. Disqualification for bonus.—Notwithstanding anything contained in this Act, an employee shall be disqualified from receiving bonus under this Act, if he is dismissed from service for --
(a) fraud; or
(b) riotous or violent behaviour while on the premises of the establishment; or
(c) theft, misappropriation or sabotage of any property of the establishment.
1[10. Payment of minimum bonus.—Subject to the other provisions of this Act, every employer shall be bound to pay to every employee in respect of the accounting year commencing on any day in the year 1979 and in respect of every subsequent accounting year, a minimum bonus which shall be per cent of the salary or wage earned by the employee during the accounting year or one hundred rupees, whichever is higher, whether or not the employer has any allocable surplus in the accounting year:

Provided that where an employee has not completed fifteen years of age at the beginning of the accounting year, the provisions of this section shall have effecting relation to such employee as if for the words “one hundred rupees”, the words “sixty rupees” were substituted.]

2[11. Payment of maximum bonus.—(1) 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 wage earned by the employee during the accounting year subject to a maximum of twenty per cent, of such salary or wage.

(2) In computing the allocable surplus under this section, the amount set on or the amount set off under the provisions of section 15 shall be taken into account in accordance with the provisions of that section.]

3[12. Calculation of bonus with respect to certain employees.—Where the salary or wage of an employee exceeds 4[two thousand and five hundred rupees] per mensem, the bonus payable to such employee under section 10 or, as the case may be, under section 11, shall be calculated as if his salary or wage were [two thousand and five hundred rupees] per mensem.]

5[13. Proportionate reduction in bonus in certain cases.—Where an employee has not worked for all the working days in an accounting year, the minimum bonus of one hundred rupees or, as the case may be, of sixty rupees, if such bonus is higher than per cent, of his salary or wage for the days he has worked in that accounting year, shall be proportionately reduced.]

Dear Friends,

It's very simple: deduct 20% from Basic + DA for Bonus if the company has set 20% as the Bonus amount. The same procedure applies to Gratuity as well. Just ensure you consider the fixed percentage.

Thank you.

Hey Deepak,

I got your point, but I want to know if there is any maximum limitation on bonus percentage for the hierarchies like for "Executives" the maximum bonus limit is 30%, for "Managers" it is 20%, etc. Can you help me with this?

Regards,
Chanda

Ok, agreed, but this is when the company has a fixed bonus. In our case, after our 6-month appraisal, being an HR executive, we got a 25% bonus based on your ratings, whereas our expectation of a bonus was somewhere around 30 to 40% due to the good rating. Now, other employees on the work floor, such as Analyst level-3, received 58% of a bonus following the same procedure.

Now, my question is: Is there any bonus act that states the company cannot pay HR executives more than 25 or 30% of a bonus?

Regards

Dear Chanda,

It seems you are trying to correlate the performance bonus with the incentive. Is this correct? Let's discuss further to clarify any confusion.

Best regards

No, yaar. We get a bonus twice a year i.e. for April and October, and both are dependent on our performances. All eligible employees get a bonus depending on their performance ratings. For this time, we (Executive HR) got 25%, and some employees on the work floor got more than 50% of a bonus. Now, I want to know if there is any act that says the company cannot give more than 25% of a bonus to Executive HR. Hope I am clear.

Dear Chanda,

As this case appears to be different from others, where the employer pays bonuses based on productivity calculations, possibly as part of a contract or a general understanding between the employer and employees, the bonus percentage can be increased, fixed by agreement. You mentioned an Executive HR being paid 25%, while Managers receive up to 50%. In such cases, you may refer to the below section of the Payment of Bonus Act 1965:

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

(i) Where an agreement or settlement has been made by employees with their employer before the commencement of the Payment of Bonus (Amendment) Act, 1976 (23 of 1976), or
(ii) Where employees enter into any agreement 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 the bonus due to them under such agreement or settlement, as the case may be:

(Note: Ins. by Act 66 of 1980, (w.e.f. 21st August, 1980)) Provided that any agreement or settlement where employees relinquish their right to receive the minimum bonus under Sec.10 shall be null and void insofar as it purports to deprive them of such right:

(Note: Subs. by ibid) Provided further that such employees shall not be entitled to be paid such a bonus in excess of twenty percent of the salary or wage earned by them during the relevant accounting year.

Please let me know if this matter still seems confusing; we will strive for the best result.

Hi Deepak,

In our company, we have a scorecard for evaluation. Depending on the percentage we have scored, we receive a bonus. I would like to hear your comments on this.

Regards,
Deeps

Dear Chanda ji,

Please see the attachment for the "Payment of Bonus Act checklist"; it may clarify your doubts.

Regards,
PBS KUMAR

Hi Chanda,

It's not that you are getting a bonus twice; it's your performance reward. The bonus is paid once a year, with a minimum of 8.33% and a maximum of 20.5 for all.

With regards,
Sikata

Dear Friends,

I guess it's all a simple matter but still confusing.

Deepak: First of all, thanks a lot for sharing valuable information about the bonus. But still, what I feel is the bonus linked with production is different from what our friend Chanda is mentioning in this post. And according to me, the Bonus Act doesn't speak about different slabs for different people in the organization. Correct me if I am wrong.

Regards,
Amith R.

Dear Hayram,

I have attached one Excel file containing the calculation of Gratuity. I hope it will be of some use to you.

Regards,
Amith R.

Dear All,

I think Chanda is talking about the performance bonus laid down by the company, which is linked to deliverables, and not the bonus under the Payment of Bonus Act, 1965.

Regards,
ACCHR

Dear Amit/Deepali, :-P

Maybe I have given a bit far answer from the right query, but I tried a lot to understand the query first. At a moment, I felt it's something related to performance bonus, but later on, I corrected myself with the reason that it is calculated based on productivity, evaluating the performance, which again clarifies it as a performance bonus. However, it seems the matter is yet to be more elaborated by the thread owner.

Secondly, as Deepali has asked for comments, I would like to clarify one thing: whether a company fixes the percentage of the bonus, or it may depend on various techniques such as scorecards, appraisals, or the performance growth of the company. It never goes beyond the fixed limit of 20%, isn't it??

Dear All,

Going through all the replies, I want to add that as per the Bonus Act of 1965, a special provision is given for the payment of a bonus linked with performance. However, for this, an agreement should be in place with the union, and for a valid agreement, every agreement should be registered at the Labor Department. In explanation of this special clause, it is clearly mentioned that a performance-based bonus should not be less than 8.33% and not more than 20%.

So it is clear that the bonus given under the Bonus Act, whether linked with performance (under any agreement) or linked with profit, has a minimum limit of 8.33% and a maximum of 20%. This information can be shown in Form C.

Going beyond the Act, any organization is free to give performance-based bonuses to its employees as per its own policy. A performance-based bonus for HR executives may be 25% or any percentage fixed by the management. It depends upon the organization's policy.

Thanks,

Hi, Deepak. Can you explain the formula for calculating the bonus? As per my knowledge, (total wage on a particular year)/(total number of days present by employee) * 8.33. Is this correct? I have doubts about it.

Thanks for your information. Bye.

Hello All,

I agree with Deepak's explanation on Bonus. However, I believe Chanda has a different query. Unknowingly or I don't know, Bonus is mixed with Performance Pay. In our organization, we call it Variable Pay (Performance Pay), and we receive it every quarter. The calculation of this pay depends on the team's performance. Sometimes it exceeds 100% or falls below 90%, but this does not mean we receive money beyond our CTC. The standard amount is fixed in the CTC. Each quarter, we receive approximately 4-5K (depending on performance). I am unsure of the basis on which this amount is calculated and how it is distributed within the team. Every organization has its own policies.

Chanda,

If you are receiving a Bonus above 20%, then your organization might have different policies to address it. I can provide you with an example from my experience. In the year 2006, I received a bonus at a rate of 8.33% simply because my basic salary was below 10K monthly. Many employees in our organization did not receive it.
(For your information, I am from the IT industry, and I apologize if the rules/processes/policies differ from those in production/manufacturing.)

Please clarify if I am mistaken.

Thanks,
Kishor

CALCULATION OF BONUS:

The method for calculation of annual bouns is as follow:

1. Calculate the gross profit profit in the manner specified in-
   1. First Schedule, in case of a banking company, or
   2. Second Schedule, in any other case.
2. Calculate the Available Surplus.
   Available Surplus = A+B, where A = Gross Profit – Depreciation admissible u/s 32 of the Income tax Act - Development allowance - Direct taxes payable for the accounting year (calculated as per Sec.7) – Sums specified in the Third Schedule.
   B = Direct Taxes (calculated as per Sec. 7) in respect of gross profits for the immediately preceding accounting year – Direct Taxes in respect of such gross profits as reduced by the amount of bonus, for the immediately preceding accounting year.
3. Calculate Allocable Surplus
   Allocable Surplus = 60% of Available Surplus, 67% in case of foreign companies.
4. Make adjustment for ‘Set-on' and ‘Set-off'. For calculating the amount of bonus in respect of an accounting year, allocable surplus is computed after considering the amount of set on and set offf from the previous years, as illustrated in Fourth Schedule.
5. The allocable surplus so computed is distributed amongst the employees in proportion to salary or wages received by them during the relevant accounting year.

In case of an employee receiving salary or wages above Rs. 2,500 the bonus payable is to be calculated as if the salary or wages were Rs. 2,500 p.m. only.

Hi Deepak,

As I said, in my company, it's not restricted to the limit of 20%. It totally depends upon the percentage we score in our scorecard. Please update me if there is any new policy or rule applied, specifically to the scorecard system.

Regards,
Deeps

Hi all!

Is there any exemption from maintaining the registers of Allocable Surplus & Set on / Set off if the establishment is new or there is a Productivity Linked Bonus?

Thanks,

I can provide a clarification on bonus calculation as per the following:

1. Basic + DA = 10000, how much?
2. Basic + DA > 10000, how much?
3. Basic + DA < 10000, how much?

Please reply.

Regards,
gopu.s

Some companies give PP (profit percentage) in April; it goes up to 25% maximum for every employee. The bonus lower limit starts from 8.33% for blue-collar workers, but for executive ranks, it depends on the company's financial stage. Performance is a key factor in determining the bonus.

According to Section 31A of the Payment of Bonus Act, the ceiling for bonus calculation is 20% of annual wages or salary.