How Do You Calculate Employee Bonuses? Seeking Advice to Revamp Our System

Hey, guys,

Can anyone guide me on how bonuses are calculated for employees? Specifically:
1. Does the calculation have to be based on the financial year (April - March)?
2. How do you calculate bonuses for employees who have recently joined the company?
3. For employees who have completed one month, should one month of the basic salary be paid?
4. What is the formula for calculating bonuses?

Please help me, guys, because I want to change the current system that exists in my company.

Dear Nalini,

Yes, the calculation is based on the financial year. However, the maximum time limit is 8 months after the completion of the financial year, which will be 30th November.

Those who have 30 days attendance in a financial year are eligible for a bonus for that year. However, this is to be paid on a pro-rata basis.

For one month's attendance, the bonus amount will be 1/12th of the entitled amount for one year.

First, arrive at the available surplus by deducting Tax, Depreciation, Developmental Rebate, etc. (Better consult an expert in this regard). Calculate the allocable surplus. For companies, this is 67% of the available surplus, but for banking institutions, it is 60%.

Distribute the allocable surplus among the eligible employees, subject to a minimum of 8.33% and a maximum of 20%. If the maximum is above 20%, the balance, subject to another maximum of 20%, can be carried forward for the next 4 years, which is called Set On. Similarly, if the allocable surplus is below 8.33%, it will be adjusted for the next 4 years, which is called Set Off. Please note that 8.33% is the percentage form of 1/12 and is equal to one month's salary. Accordingly, 20% is 2.4 times one month's salary, but subject to a ceiling of Rs. 3,500.

Abbas.P.S