Confused About Bonus Calculations? Seeking Clarity on Wage Limits and Tax Exemptions

Respected all,

We are going to calculate bonus. I would like to know the maximum wages limit to calculate bonus. Some are telling me that monthly wages should not exceed 3500 Rs. for bonus calculation. Also, we want to clarify if I give a bonus to a worker exceeding 8.33%, whether the excess percentage will be exempted from tax or not.

If I am correct, the minimum bonus percentage is 8.33% of Basic salary + DA (but the salary should not exceed 3500 Rs.), and the maximum bonus percentage is 20% of Basic salary + DA (but the salary should not exceed 3500 Rs.)

Please guide me as this is the first time I am calculating bonuses.

Regards,

Dear Shekhar,

The maximum wage limit for the bonus is 10,000, and for bonus calculation, it is 3,500. The maximum bonus is 8,400, and any amount above 8,400 is called ex-gratia.

Regards,
Rahul

Dear,

You are correct. There are two things: eligibility for a bonus and the calculation of the bonus.

The employees getting basic + DA less than 10k are eligible for a bonus. The bonus is calculated based on 3500 if the basic is between 3500 to 10k. This means if someone's basic is 6000, we will consider it as 3500 for bonus calculation purposes. If someone's basic is 3000, it will be counted as 3000.

Thank you.

J. S. Malik

Respected Rahul sir,

When will we calculate the bonus on 3500 Rs, and how will the amount of 8400 Rs come about? Because you are stating that the maximum amount of the bonus is 8400 Rs. If I am correct, then I understand that the maximum limit of wages for calculating ex gratia is 5000 Rs. Please guide me as I am very confused. I am new in this area.

Regards,

Dear Shekhar,

I see your calculation is at 3500, which means individual basic + DA is 3500 per month. For 12 months, it would total 3500 * 12, amounting to 42000. Now, deduct the bonus on 42000 at 8.33%, which is Rs 3500. Also, calculate the maximum bonus on 42000 at 20%, resulting in Rs 8200.

I hope it is clear now. There is no rule or law for calculating ex gratia; it depends on your company's internal policy.

Thank you,
J S Malik

Respected Malik Sir,

Thank you for that. One more question: my top management has decided to give a bonus only to workers who come under the minimum wages. For the office staff, he wants to give an ex gratia amount because the office staff is not covered under minimum wages. It may be or not.

Regards

Dear Shekhar,

Your top management is thinking in an illegal way. There is nothing for staff and workers in the bonus act or bonus calculation. Whoever is getting basic + DA less than Rs. 10,000 is eligible for a bonus and is to be paid the bonus as per the bonus act.

Thanks,
JS Malik

Dear Shekhar,

First of all, you need to know that the bonus is payable to employees who have worked on any day within the financial year, i.e., April to March. Secondly, salary eligibility should be Rs. 10,000/- with components such as basic + DA/VDA. Thirdly, the calculation of the bonus should be based on Rs. 3500/-, meaning the bonus salary should amount to Rs. 3500/-. Consideration of the number of days should be the paid days within the financial year. The percentage to be paid ranges from 8.33% as the minimum to 20% as the maximum of the bonus salary. The calculation formula will be bonus salary (Rs. 3500/-) * number of months worked * percentage of bonus payment.

Thanks & Regards,

Sumit Kumar Saxena
9899669071, 0120-4131277

Dear All,

May I ask 2 questions associated with this topic?

1. Does it mean that the minimum and maximum bonus per the bonus act is not applied to employees earning Rs. 10,000? Or will the bonus be capped at 8.33%-20% x Rs. 3,500? What is the correct bonus calculation for people with a basic salary > Rs. 10,000?

2. I recently joined a US company. The bonus amount is determined based on the financial results of the internal fiscal year from Jan-Dec. The bonus for Jan-Dec 2008 was paid in Feb 2009. There is an employee (> Rs. 10,000) who has just resigned, and the last day is Mar 31, 2009. Is the resigned employee eligible for the bonus of Jan-Mar 09? What is the appropriate formula for the 2009 bonus?

Your valuable advice is appreciated!

Sanjay

Dear Mr. Malik,

We have a driver who is paid $9000.00 as basic salary and $2000.00 as a conveyance allowance. Would he be eligible for a bonus?

Thank you.

Dear Ms. Shefali,

Definitely, he will be eligible for a bonus, but calculate the bonus on $3500 only.

Thanks,
JS Malik

Thank you, Mr. Malik. He is the only one with this salary. Can we review his salary structure to prevent this from happening again? (We need to give him an increment next month.)

Additionally, would this policy apply if the number of employees is fewer than twenty?

Secondly, does the company need to be profitable to make this payout?

Dear Ms. Shefali,

If you increase his basic by more than 10k, then he will not be eligible for a bonus, but he will still receive a bonus as long as his basic was less than 10k.

This rule will apply if the number of employees is 20 or more in the preceding 12 months, and once implemented, it will remain in effect.

There is an infancy period of five years for newly set up establishments, but if a company becomes profitable before five years, it must pay a minimum bonus starting from the sixth year onwards. Bonuses must be paid regardless of whether there is a profit or not.

Thank you,
J. S. Malik

Dear All,

Now, what is the present minimum basic pay? As far as my knowledge is concerned, basic pay should not be less than Rs. 3,500/-. Am I correct? Kindly clarify for me.

Regards, Murali
Email: murali_uma2003@yahoo.com

Dear All,

Nowadays, all classifications of employees (i.e., Permanent, Temporary, Casual, Probationary, etc.) are eligible to have the benefit of PF, etc. However, some employees' salaries under these classifications will be fixed at a consolidated amount of (i.e., Rs. 5,000, 6,000, 8,000, etc.). In this situation, how should the Basic pay be fixed at these amounts to calculate PF, etc.?

Kindly clarify this for me.

Regards,
Murali
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Dear all,

The minimum bonus is 8.33%. If it is 12% or more, I give the bonus amount to the employees. Is the excess amount taxable or not? Please guide me on tax exemption in the case of bonuses.

Regards,

Respected all,

The minimum bonus is 8.33%. If the bonus is 12% or more, the bonus amount given to the employees exceeding that threshold will be taxable.

Please guide me regarding tax exemption in the case of bonuses.

Regards

Dear Sir,

Please tell me how to calculate the bonus if the basic salary is Rs. 2100 for the 1st month and Rs. 3100 for the 2nd month. Do we have to calculate the total basic wages and then multiply by the number of years at 8.33%? Please clarify.

Regards,
Lizy

Dear Sir,

Can anybody clear my doubt? If an employee has not worked for a complete year, what is the basis to calculate his bonus? For instance, if an employee has worked for 4 months and his salary is Rs. 5000/- per month, how can we calculate the bonus?

Additionally, if an employee has taken leave without pay, how will the calculation regarding the bonus be affected?

Regards,
Arihant

I actually want to know if my basic salary is Rs. 8500.00 per month and I am absent for 2 days in that month, what will be the method to calculate the bonus?