How Can We Smoothly Transition Our Bonus Calculation Period Without Upsetting Employees?

Dear Friends,

We calculate bonuses for our employees from the period of October to September every year and distribute them well in advance of Deepavali. Now, we would like to reschedule the calculation period in line with the Payment of Bonus Act 1965, that is, April to March. However, our employees are not willing as this conversion will reduce the bonus they have earned in the previous year. We have a regular practice of giving 16.66% as a bonus. Please advise on a suitable package so that this conversion can be smoothly handled.

My factory is in Tirupur and deals with garment manufacturing.

With anticipation

Dear [Name],

I could not understand your query because October to March is only a six-month period. Could you please clarify it?

Thank you.

J. S. Malik

Hi Ram

Greetings.

Your case is a typical one and happens anywhere. If I am correct, your bonus cycle is OCT TO SEPT, which you would like to change to Apr to Mar as per the Bonus Act. The workers question this change as they would be receiving a lesser amount. Your question will be resolved as follows:

1. You pay the bonus as per the act, 16.66% for the period April to March to them.

2. You also calculate the bonus for the period April to October '08 and pay this as an advance to them (without disbursing the amount).

3. This advance amount has to be adjusted in the future bonus. Hence, convince the workers on the above formula. I don't think any other formula works out except this.

Cheers,

Trisha
HR Professional

Hi,

We had three brainstorming sessions to arrive at a solution. Some points are as follows:

1. Calculate bonus for April 2007 to March 2008 and distribute it in Oct 08 (Here the period from April 2007 to Sep 07 is already calculated).

2. Calculate an 11-month bonus (i.e., from Oct to Aug, Sep to Jul, Aug to June, and so on) and give it. Over a 6-year period, the April to March system will come into place.

3. As this is too lengthy a period, it is further suggested to have a 9-month period (from Oct to June and July to March) for bonus calculation for two years.

4. In any case where the bonus is reduced to less than 12 months, some incentives can be suggested.

Can anyone suggest better options so that both employees and management will be in a win-win situation?

You may consider the option of paying the minimum bonus as per the act and the rest as ex-gratia. That way, you could try two ex-gratia payments in this financial year (bonus+ex-gratia in Oct08, only ex-gratia in Apr09 for Oct08 to Mar09 period), communicate to the employees in advance of the new bonus cycle from next year. The financial year is taken care of, and the prorata money goes to the employee.

You will have to verify the applicability of the above suggestion; I have not tried it before myself. The six-year exercise looks too cumbersome and administratively very taxing.

Dear Raghesh,

Your suggestion seems to be interesting. The challenge lies in convincing our employees for a minimum bonus, as the practice for many years has been to provide a 16.66% bonus.

Mr. Rameshan, you will be paying out the 16.66% only, but in two parts. One is the statutory limit, and the rest as ex-gratia.