How Should Companies Handle Financial Losses from Bonus Act Amendments?

Dear All,

I have a very urgent question related to an amendment in the bonus act. Due to this amendment, those employees whose basic is less than or equal to Rs 10,000 will now get a bonus. Here lies a problem - some of the employees in my company were getting ex-gratia previously (which was a part of their CTC, and the percentage of ex-gratia was much higher than the bonus obviously), but now due to the amendment, the company has paid them a bonus. So, they have suffered a financial loss! Please let me know whether the company should compensate them since the employees are losing out on their money (as it was a part of their CTC). What have other companies done? Have they compensated the employees or not? Kindly advise.

Thanks,
Ritu Agarwal

Since it was previously a part of their CTC, you must compensate them. You can pay the remaining amount after deducting the bonus amount from the total sum.

Regards,

Ritul Pathak

Dear Ritul,

Thank you for replying. Even we thought so. Ideally, this should be done if it was part of CTC. However, do you know if any company has taken that step? (I mean in this scenario of the global economy crunch.)

Thanks,
Ritu

Dear Ritu,

Am I correct in understanding that previously, if there was an employee x earning Rs 9,000 and employee y earning Rs 11,000, then both were getting a percentage as ex gratia bonus? Now, because of the amendment, the employee who is earning Rs 9,000 has their bonus restricted to Rs. 8,400, and employee 'y' continues to get their old bonus? Is this change only applicable to those falling under the amendment bracket of applicable bonus recipients?

If this is the case, it cannot be! Please let me know.

Thank you.

Dear Joseph,

Yes, you have understood correctly. Please advise on what we should do with employees of the 'X' category. Also, please suggest what other companies have done in similar situations. In this case, ex gratia was a part of their CTC.

For the second case, some employees never had ex gratia as a part of their CTC, but they have been receiving it as a practice for many years (their basic was less than Rs 10,000). However, due to an amendment in the Bonus Act, they have been paid bonus (and not ex gratia). What should we do in such cases?

Kindly advise. Thank you very much.

Ritu

You cannot find the term CTC in any Labour Act to describe your salary. The eligibility of bonus is not at all dependent upon what your company costs by employing you, but it is the basic salary and the dearness allowance you get. If your Basic salary + Dearness Allowance is not more than Rs 10,000, you are eligible for a bonus. However, the bonus will not be calculated on the total gross of basic + DA but is restricted to Rs 3,500 per month only. That is, even if you get Rs 10,000, your bonus will be calculated as if you were getting Rs 3,500.

The ex-gratia mentioned in the appointment letter as part of CTC should be treated as a monthly payment and not a bonus, which is paid once a year. Moreover, the Bonus Act is meant for the payment of Bonus and not ex-gratia. It is illogical to deprive the employees of any benefits they are getting just due to an amendment in the Act.

Regards,
Madhu.T.K

I am in complete agreement with Madhu T. K. You cannot decrease an agreed remuneration through an amendment that is irrelevant to the agreed remuneration. As suggested by VGK, pay the rest in monthly salary as a special allowance (taxable).

Dear Sanjeev,

What I know is that if you fall within the bracket of Basic + DA as outlined in the Bonus Act, then the amount received is considered as bonus. However, if you receive a higher Basic + DA, then it is termed as ex-gratia. Both amounts are documented in Form D, the Annual Return of the Bonus Act, which must be submitted within 30 days after the bonus disbursement in the organization.

Best regards

You could do a couple of things.

First and foremost, change the nomenclature of the Ex-Gratia payment to 'Bonus' and ensure that the same is reflected on the payslip.

Secondly, you could try and communicate to all employees via a general circular (ideal during annual increment time), and inform them that the ex-gratia amount being paid to them was, in fact, a bonus. The intention of the management was to pay a bonus, but since they were not eligible for the same, it was being paid under a different head and also much higher than the statutory requirement. What needs to be effectively communicated is that the CTC of the individual is not adversely affected in any way.

Hope this helps...

Innovation

Dear Guntha,

Here it is, a scanned copy.

Regards,
Joseph

Dear All,

Please brief me on Bonus Calculation as I don't have a very clear knowledge of the calculation of bonus. Please tell me what the minimum amount to be taken for this calculation is and the maximum to be exempted. Kindly reply to my email address shaikhky@gmail.com.

Thanks & Regards,
Khursheed

Hi Ritu,

The Bonus Act is a separate matter, and employees whose basic pay + DA is less than or equal to 10,000 should receive a bonus restricted to 3,500 per annum. The ex gratia payment you mentioned is part of their CTC, which you promised to pay them. Therefore, you are required to pay both amounts to all eligible employees. We have also implemented the same practice in our organization.

Regards,
Sree

Dear,

This return under the Bonus Act will be included in the Annual Return under the Factories Act, 1948. It should be submitted not later than 30 days after the disbursement of the bonus. Form D under the Bonus Act should be submitted along with the Annual Return under the FA-1948.

Thank you.

Dear Sir,

Please let me know about the recent amendment in the Bonus Act. We also pay bonus as a part of CTC. Please clarify about the new amendment.

Thanks and regards,
Chini
Mumbai

Ritu,

I fully agree with TK that the bonus and ex gratia are two different things. The Bonus Act states that there is no bar to paying an employee the agreed sum as part of his remuneration. There is no concept of CTC under any law.

Rajeev

Dear all,

I have a very urgent question related to an amendment in the Bonus Act. Due to this amendment, those employees whose basic is less than or equal to Rs 10,000 will now get a bonus. However, a problem arises as some of the employees in my company were receiving Ex gratia previously, which was a part of their CTC, and the percentage of Ex gratia was much higher than the bonus, obviously. Now, due to the amendment, the company has paid them a bonus, resulting in a financial loss for these employees. Should the company compensate them since the employees are losing out on their money, as it was a part of their CTC? What have other companies done in similar situations? Kindly advise.

Thanks,
Ritu Agarwal

After amending the bonus ceiling, you have to decide whether to pay above the higher limit of the bonus. In case the bonus is part of the CTC, you can't deduct the bonus as per the earlier practice because the CTC is negotiated with employees.

Dear Ritu,

Please note that a bonus is nothing but, in the first instance, a profit-sharing initiative by the employer for the efforts of the employees. As far as the law is concerned, all organizations that have completed their 5th year of inception must, irrespective of their profit/loss, provide a bonus (Min-8.33%, Max-20%). This will be implemented through the concept of Set-on and Set-off.

Every worker must compulsorily receive a bonus, but when it comes to staff, especially highly paid staff, they are often paid as ex gratia, which the organization provides as a form of profit-sharing or through any other concept it may have. In some cases, as you have mentioned, these bonuses are included in the CTC, and if there are any additional benefits, they shall be paid to the employees to motivate them. Essentially, we need to review the policy and compensation structure when making such payments to highly paid employees within the organization.

I hope this is clear. For further clarification, feel free to ask your questions.

Dear Ms. Ritu Agarwal,

Since there is an amendment in the bonus act, the employer cannot decline to pay the ex gratia amount. The employer has to bifurcate the present amount of ex gratia into Bonus and Ex gratia since it is a part of CTC.

Please feel free to contact the undersigned for further clarifications at Mobile No. 9949218492.

P.V.R. SHARMA
HEAD-HR
SHRIRAM LIFE INSURANCE CO LTD.