What Exactly Is a Statutory Bonus and How Does It Affect My Pay?

Hi All,

Please, can someone tell me what is meant by statutory bonus?

Thanks & Regards,
Arushi

Statutory Bonus means a bonus payable as per statute, i.e., the Payment of Bonus Act. As per the Act, an amount equal to 8.33% of the Basic + Dearness allowance paid to an employee who is eligible for the bonus is to be paid irrespective of the availability of surplus or profit. Therefore, 8.33% is the statutory minimum bonus payable. However, depending upon the availability of profit, the employer shall pay a bonus subject to a maximum of 20%.

Regards,
Madhu.T.K

If the employer is not paying the bonus due to losses, is there any penalty from the government department? What does the Bonus Act say? Could you please clarify?

Regards,
Ranjith Kumar M

Penalty for Non-Compliance with the Bonus Act

The penalty for non-compliance with the provisions of the Bonus Act is six months imprisonment or a fine of Rs. 1000, or both.

Regards,
Madhu.T.K

By way of amplification of what Mr. Madhu has said, I wish to add as follows:

Understanding Statutory Bonus

1) When one talks about "Statutory Bonus," one must first ensure that the "Statute" (The Payment of Bonus Act 1956) is applicable to the establishment.

2) The law on Bonus provides the "formula" to calculate "available surplus" and "allocable surplus" for the given year.

3) The law also states that the statutory bonus could range from 8.33% (Minimum) to 20% (Maximum) of the Bonusable salary (Basic+DA).

4) The law, alongside applicability to establishments, also stipulates to whom the act will be applicable and under what conditions!

5) The law also states that even when the organization incurs a loss, it is obliged to pay the Minimum Bonus to eligible employees.

6) The law has also provided a mechanism called a "Set On" and "Set Off" statement. Simply put, it requires the employer that when they make profits in excess of 20% Bonus, surplus up to another 20% has to be carried in the books (for three years) as a "set on," and when the employer incurs a loss in a particular year, then they are entitled to (for the next three years) "set off" for the related amount. This mechanism makes it possible for employees to receive the maximum possible bonus depending on the health of the "set on"-"set off" situation.

To gain a deeper understanding of the subject, one must study the law and the case law on the subject. I am merely providing an insight!

Regarding the punishment to the employer, yes, the act does provide a procedure to be followed to recover the due bonus from the employer, and for non-adherence, the employer is liable to be punished as Mr. Madhu said!

Trust that the basics are now clear!

Regards,
Samvedan

September 23, 2013

Additional Obligation Under the Act

Regarding Samdeven's comments, I would like to add another obligation under the act. If a company is newly established and not earning a profit, the act will not be applicable for the first five years to the newly established company. However, if the company earns any profit during the initial five years, the act shall be applicable to that company.

Thanks,
Mangesh Wakodkar

Is this statutory bonus required to be paid to all employees, or only to those employees whose basic salary is less than $3,500 per month? Please clarify...

Understanding the Payment of Bonus Act

As per the existing Payment of Bonus Act, a bonus is payable to employees whose salary does not exceed Rs. 10,000 per month. When calculating the bonus amount, consider the salary of all employees whose salary exceeds Rs. 3,500 as Rs. 3,500. This means an employee with a bonus-qualifying salary of Rs. 9,000 is eligible to receive a bonus. If the rate of bonus is 8.33%, it is calculated at 8.33% of Rs. 3,500 only, not on Rs. 9,000.

The above illustration is based on the law. In practice, the bonus is always decided after a settlement is reached between workers and management. In such settlements, there is no scope for the calculation of the bonus as described above.

Regards,
Madhu.T.K