Understanding Employee Bonus Calculations: How Do You Balance Fairness and Compliance?

Can anyone let me know the concept of employee bonus calculation? What is the statutory bonus to be paid to all employees per Companies Act? Also, let me know the different types of bonus calculations which can satisfy both the employee and the company. What is the best way to calculate bonuses in the current BPOs and IT sectors?

Dear Srin,

Please find attached the PowerPoint presentation on bonuses.

AMENDMENT TO THE PAYMENT OF BONUS ACT, 1965

The Cabinet, in its meeting held on October 1, 2007, approved the amendments to the Payment of Bonus Act, 1965, which are as follows:

i) Amendment to Section 2(13): To raise the eligibility limit for payment of bonus from the salary or wage of Rs. 3500 to Rs. 10,000 per month.

ii) Amendment to Section 12: To raise the ceiling for the calculation purpose from the salary or wage of Rs. 2500 to Rs. 3500 per month.

iii) Deletion of Section 32(vi): To cover the employees employed through contractors on building operations.

Thus, the employees, including those employed through contractors on building operations, will be entitled to receive bonuses as per the revised ceilings for the year 2006-07 and onwards.

Hi,

Bonus is payable as per the act at the rates specified therein and as below:

1. Any employee who draws salary/wage (Basic+DA) less than Rs. 10,000 per month will now, due to this amendment, be covered as an employee under the Payment of Bonus Act 1965. (In the past, this limit was Rs. 3,500 per month (Basic+DA)).
2. The percentage of bonus is a derived percentage from the method prescribed under the act (of calculating Gross Profit, Available Surplus, and the Allocable Surplus and then the percentage of Bonus that can be paid).
3. The law stipulates that even when the company makes a loss, it is obliged to pay a bonus of 8.33%, and whatever the profits the company cannot pay a bonus exceeding 20%. The first is called the Statutory Minimum Bonus, and the other is called the statutory Maximum Bonus. Subject to other provisions of the act, the percentage of bonus varies between these two levels.
4. The rule is that the calculated bonus is to be paid on the actual salary/wage (Basic+DA) up to (now) Rs. 3,500. (In the past, this limit was Rs. 2,500) and the maximum salary/wage (Basic+DA) on which a bonus can be paid is Rs. 3,500. (In the past, this limit was Rs. 2,500).
5. Therefore, if the calculated bonus was 20%, then in the past, an employee drawing salary/wage between Rs. 2,500 and Rs. 3,500 per month would get Rs. 6,000 as Bonus (i.e. 2500*12*20%) and now he would get Rs. 8,400 under the same conditions (i.e. 3500*12*20%).

Hope this clears things up.

Anurag

I am interested to know whether a Co-op Bank that has been running with a huge accumulated loss for a long time is obligated to pay a bonus to its staff at a rate of 8.33% or not. Awaiting an early reply to settle a dispute, please.

With regards,
Apurba Sen

Incentive Structure for Mid-Year Starters

The incentive structure of certain organizations is prorated for workers who start working in the middle of the year. In this particular scenario, the bonus is computed according to the extent to which the employee has been employed during the year. If, for instance, the incentive cycle runs from January to December, then an employee who starts working in May may be eligible for a bonus depending on the number of months they have been employed by the company.