Is Our Bonus Calculation Practice Legal in the Garment Industry? Seeking Advice from HR Experts

Dear Sir,

We have a practice of calculating and giving bonuses as follows: All employees with less than one year of service will receive 8.33%, and those with more than one year of service will receive 14% of the bonus.

As we are in the garment field and undergo rigorous social compliance audits frequently, please confirm whether this practice is legally correct or if we may face any charges of violations under any acts or codes of conduct.

Awaiting senior's comments on this.

Can anyone please advise me on who the appropriate authorities are to whom closure intimation should be given, even though it is a Memorandum of Settlement under 12(3) signed among the workmen, Trade Union, and ALC.

Regards,

Ashok K. Gupta

E-Mail: asugupt@yahoo.co.in

Closure Intimation to the authorities under Labour Laws

Hi Rameshan,

As per the Payment of Bonus Act, any worker who works in the factory for 30 days is eligible for a bonus minimum at the rate of 8.33% on the earned wages (Basic & DA) for the bonus period (Oct to Sep or April to March, whichever may be the case), subject to a minimum of Rs.100. Provided that the earned wages (Basic & DA) should not be below the minimum wages fixed by the State Government.

If the company gives 14% of a bonus for above one year of service and 8.33% for below one year of service, there will be an issue raised by the compliance auditors as it discriminates against the workers in providing benefits based on service, which is not in line with the Act. However, the aim of the bonus act is to pay the bonus to all workers based on the profit/loss of the company during the financial period.

If the company fixes 8.33% as the bonus percentage, it should be paid to all workers as 8.33%, irrespective of their service. If it is 14%, it should be 14% for all employees based on their earned wages (Basic & DA) during the bonus period.

Note: As per the Payment of Bonus Act, all workers earning wages (Basic & DA) up to Rs.10,000 are covered under the act. The maximum ceiling for the payment of the bonus is Rs.3,500. For example, if a worker who earns Rs.5,000 exceeds Rs.3,500 in bonus amount, they will be limited to Rs.3,500. If the company wishes to pay more than Rs.3,500 as a bonus, they can do so without limitation.

Hope the information provided is useful.

Regards,
Ganesh

Thank you, sir, and this information is highly sufficient to clear my query. But again, it is my job to persuade the management to standardize the bonus percentage; otherwise, as you rightly pointed out, I may invite charges of discrimination.

Hi,

Bonus will be declared based on the set-off, set-on, and allocable surplus. The payment of bonus to the employees should be uniform, i.e., of the same ratio.

Declaring the bonus as 8.33% for employees with less than one year of service and 14% for those with more than one year is not advisable.

Reena

Hi,

Bonuses will be declared based on the set-off, set-on, and allocable surplus. The payment of bonuses to employees should be uniform, i.e., of the same ratio. Declaring the bonus at 8.33% for employees with less than one year of service and 14% for those with more than one year is not advisable.

Reena