Can Bonuses Be Legally Included in Monthly Salaries? Seeking Insights and Experiences

Dear Friends,

I want to know whether a bonus can be paid monthly as a part of the salary. I have seen replies stating that yes, it can be shown as part of CTC and can also be paid in monthly installments.

As per the Payment of Bonus Act, 1965 - Bonus is paid after the completion of the financial year within 8 months. It is a part of the company's profit or at the time of F & F, whichever is earlier, to the employee who has served for more than 30 days in a year. This means the bonus is paid for the previous year.

How can we pay the bonus for the current financial year in monthly salary installments? If anyone has any excerpts or judgments, please forward them.

Jiten

Hi Jiten,

You are right that a bonus can be included as part of the CTC during salary fixation, but it can't be paid on a monthly basis as part of the salary.

Dear,

Can anyone show the prohibition in the Bonus Act?

With Regards
V.Sounder Rajan

E-mail: rajanassociates@eth.net, rajanassociateslawfirm@gmail.com

Dear Jiten,

It can be paid as part of the monthly salary. You are right about mentioning that the bonus has to be paid for the previous financial year. This has been prescribed because the profit is declared for the previous financial year. Even if the company is running at a loss, it has to pay a minimum bonus to employees, and it can be adjusted in add-on/add-off for next year's profit.

If the company pays the bonus amount in advance, it's not a problem or non-compliance. So, it can be paid monthly as a part of CTC.

Regards,

Dear Ash,

I would like to understand how we are going to pay statutory bonus as per the Bonus Act on a monthly basis. How will you maintain Form No. A, B, C, and D under the provisions of that Act?

Taking into account the Sec.17(b) of the Payment of the Bonus Act, 1965, which reads as under :
17. Adjustment of customary or interim bonus against bonus payable under the Act.—Whether in any accounting year --
(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.
The Bonus can be paid with monthly salary and can be adjusted at the end of the accounting year and the requirement of maintaing registers and returns in form A,B, C & D can be maintained accordingly.
Tarun Singh

Hello,

Bonus under the Payment of Bonus Act 1965 cannot be paid in monthly installments. It is an annual payment, and you do not need any case law for this fact of the law. Also, kindly note:

1. Bonus, conceptually, is a share in the profits of the organization.
2. The Act provides a "formula" in which the "available surplus," the "allocable surplus," and therefore the percentage of bonus can be determined. This is one of the fundamental justifications for this being an annual payment.
3. The act provides for a "minimum bonus" and a "maximum bonus" that can be paid under the act. Since the "minimum bonus" is required to be paid even if the organization makes a loss and it does not have a supporting balance in the "set on" and "set off" calculations. For this reason, it has to be treated by the organization as a "deferred payment," and therefore bonus as part of CTC has to be restricted to 8.33% (and nothing else) of the basic+DA of the coverable employees unless the organization pays bonus @ 20% irrespective of the profit picture (in this case alone the company may treat the entire bonus as CTC).
4. What one may do, for the sake of convenience, is to first estimate the percentage of bonus that the organization MAY have to pay in a given financial year, then pay out the same in twelve equal installments but at the end of the year when the accounts are finalized and actual payable bonus is known, appropriate the due payment with the payment actually made. Even in this case, it cannot be considered as part of CTC.

Trust your queries are settled to satisfaction.

Regards,
Samvedan
September 16, 2008

Dear,

You may have read the provision of Sect 17(b) of the Act. The rule of interpretation of a provision of a Statute is that if there is no specific prohibition then by implication it is permitted. The Scheme of the Act has been made taking into account Manufacturing Companies. With the advent of Service Sector & Contract Employment, since it is a beneficial Legislation if payment of a minimum bonus of 8.33% is adhered to, it can be construed as compliance. With the advent of Flexi Staffing, it will be difficult to trace your employee to pay Bonus later.

The Law Commission will have to take note of these changes in the Employment scenario.

With kind regards,

Chennai – 600 001.

Off: 044-42620864, 044-65874684

As mentioned, the bonus can be paid on a monthly basis and can be part of CTC. Now, my query is, for the calculation of eligibility under ESI, the bonus so paid on a monthly basis should be treated as ESI salary. Further, do we have to pay ESI on the bonus so paid as well for the employees who are covered under the ESI Act? Hope I am clear.

Thanks,
Subhash Arora

Per my knowledge, ESI is calculated on gross salary; hence, the bonus amount is also part of the calculation for the same.