Are Employees Earning Over Rs. 10,000 Really Ineligible for Bonuses? Seeking Guidance on Rights

My company does not pay a bonus to employees whose salary is more than Rs. 10,000. They argue that these employees are not eligible for a bonus as per the Bonus Act (ceiling limit Rs. 10,000). Please guide me on whether they can do this. If not, what should we do? So that we can get our rights.

Parduman Kumar

As per the Bonus Act, the ceiling limit amount of ₹10,000 applies only to the Basic salary, not the gross. Therefore, for those whose Basic salary exceeds ₹10,000, it is not compulsory to pay a bonus. If the company wishes to compensate these employees, it would be considered Ex gratia and not part of the basic salary.

Regards,
T. Sivakumar

If an employee's basic salary is less than 10,000, what percentage of bonus will be paid? Is it 20% of the basic pay? Please confirm.

Regards,
Priyanka

Dear Priyanka,

The ceiling salary for Bonus coverage is Rs. 10,000, and its general components are Basic+DA. However, for Bonus payment, the maximum salary is Rs. 3,500. The allocable surplus will be distributed among the eligible employees. If it is 20% or above, the statutory bonus will be 20%. If it is 8.33% or below, the bonus should be 8.33%. If it is between 8.33% and 20%, the actual percentage is to be paid.

Abbas.P.S

Can you please provide an example of the highlighted part calculation? That would be very kind of you. Looking forward to the calculation.

Hello Friends, My company is deducting the bonus from my CTC, which is 8.33% of my basic salary. When I asked our HR about this, they informed me that the bonus will be paid on Diwali. It seems that they are deducting the bonus from my salary initially and then paying it back to me on Diwali.

What is the Bonus Act?

Regards,

Dear All,

Bonus will be calculated based on earned Basic only.

Eligibility: If an individual is drawing a basic salary less than 10,000/-, they are eligible to receive the Bonus.

Percentage of bonus: Minimum 8.33% and maximum 20% (Employers have the right to pay any percentage between the minimum and maximum).

Calculation of Bonus:

The above criteria are eligible for Bonus. If anyone meets the eligibility criteria, the calculation is as follows:

Let us assume the Employer wants to pay 10%.

Case 1: If an employee's basic salary is less than 3500/-, then the bonus calculation is 10% of the total amount earned over 12 months.

For example, if the basic salary is 2500, then it would be (2500+2500+2215+2500+1820+...+2500)*10%.

Case 2: If an employee's Basic salary is greater than 3500/-, then the bonus calculation is 10% of 3500*12.

For example, with a basic salary of 4500, it would be (3500+3500+3500+...+3500)*10%.

Note: If the earned basic salary exceeds 3500/-, then consider the basic salary as 3500. If the basic salary is less than 3500/-, then consider the actual basic salary.

I hope you all understood with my examples; otherwise, feel free to reach out.

Regards,

Sriharsha Y

Hi all,

I tried to read from different sources, and this is what I understood as part of the calculation:

• If an employee earns more than Rs 10,000/- per month as a part of wages or salary, then he/she is not eligible for a bonus.

&bull; If the monthly wages are < Rs 10,000/-, then the bonus calculation can be done as follows:
◦ The first criterion is that every such employee should at least get 8.33% of his salary (basic + DA) earned around the year.
= (Basic per month + DA per month) * 8.33% * Number of months of service
** Basic + DA can be taken as a maximum of Rs 3,500/-

◦ If the employer wishes to give more than 8.33% of a bonus, then the maximum percentage that can be used is 20%. In such cases, the extra funds are allocated, and if they fall anywhere between 8.33% or 20%, then that amount is paid. If they are more than 20%, then the maximum limit is 20% only.

◦ In case the employer has fewer funds, then 8.33% of the bonus should still be paid.

Refer to the link icai.org

Bare Act - The Payment of Bonus Act, 1965 &lt;link updated to site home&gt; (Search On Cite | Search On Google)

The first source has various cases that make understanding clear, while the second one delves into the nitty-gritty details of the act.

I hope I understood it right. Kindly correct me if anything has been stated incorrectly.

Regards,

Neha

Hi Sriharsha,

It is OK for calculation purposes. Most of the time, if any organization declares a Bonus % (depending upon the allocable surplus), usually 8.33% which is the least limit taken for calculation. In the above case, management can also consider the change as follows: If 10% is the declared bonus, then 8.33% amount will be considered as the Bonus amount, and the remaining 1.67% will be the ex-gratia amount. After all, there will not be less in the total amount, but for compliance purposes, this may be more suitable. Because if 10% is purely declared as the Bonus %, then it may become the least percentage of the organization, and for the next year, the same 10% could be demanded or expected by employees.

It's just an opinion. Your views, please.

Regards,
Atul

Hi All,

As per the current Bonus Act, the employer's compulsory obligation to pay the bonus is limited to employees receiving basic + DA up to Rs. 10,000, and the maximum bonus amount is Rs. 3,500 for those earning a salary between Rs. 3,500 and Rs. 10,000. For employees earning less than Rs. 3,500, the bonus shall be actual.

However, the employer can choose to pay ex-gratia to employees earning more than Rs. 10,000 at their discretion.

All the best,
M. S. Rawat

A small correction, though it is very important. It is always Basic Salary + Dearness Allowance and not Basic alone.

Dear Neha,

For bonus distribution, first calculate the consolidated payment at the minimum for the entitled employees. If somebody does not have full attendance, pro-rata basis calculation should be done.

For example, 100 employees fall within a salary range of Rs. 3500 to Rs. 10,000 with full attendance. Their total amount at 8.33% will be 3500 x 100 = Rs. 3,50,000.

Then, 10 employees in the same category with 6 months of attendance would be calculated as 10 x 3500 x 6 / 12 = Rs. 17,500.

Furthermore, 30 employees with a salary of Rs. 3000 and full attendance would result in a total payment of 30 x 3000 = Rs. 90,000.

Similarly, 5 employees with a salary of Rs. 3000 and 6 months of attendance would receive a payment of 5 x 3000 x 6 / 12 = Rs. 7,500.

The consolidated payment for the above 145 employees at 8.33% is calculated as Rs. 4,65,000, which is the sum of individual calculations (1)+(2)+(3)+(4).

If the allocable surplus is Rs. 6,00,000, then the percentage of Bonus will be calculated as (600000/465000) x (100/12) = 10.75%.

Please note that 8.33% is the decimal form of 1/12 and is equivalent to 100/12. This explains the calculation above: Allocable Surplus divided by Consolidated bonus payment at 8.33% x (100/12).

Abbas P.S.

Dear friends,

Abbas has provided the method to calculate the percentage of bonus. Please remember that to determine the bonus percentage, you need to calculate based on the gross profit of the company for the accounting year. This calculation should be done according to sec. 4(a) for banking companies or sec. 4(b) for other companies. Once you have the gross profit for the year, deduct permissible expenses to find the available surplus. You should then calculate the amount of allocable surplus on the available surplus by either 60% or 67%, depending on the company's entity.

After determining the allocable surplus, follow the method outlined by Mr. Abbas to arrive at the correct bonus percentage. The percentage of bonus is primarily determined by analyzing the company's balance sheet and profit & loss account. Failure to follow these guidelines will result in the bonus percentage defaulting to the maximum of 20%. Conversely, if the company consistently operates at a loss, the bonus percentage will be set at the minimum of 8.33%.

KIRAN KALE

Dear All,

This is my first letter. My boss also acts as if he is very interested but cannot give a bonus because of the rules. Now, is there any other way he can give me extra money without either of us being taxed? Like ex gratia, incentive, or any other term. There are only 5 of them working in our company.

Kindly reply.

Naveen

After going through the discussion, one point was missing that needs clarification:

As per the provisions of the Bonus Act 1965, the eligibility condition is that one must have worked not less than 30 days in the year to be eligible for a bonus.

Points of Discussion

1. If a person has joined on 5.3.2012 (FY 2012-13), will he get the bonus for FY 2011-12 if the employee is still working in FY 12-13 or has left?
2. If the person left on 25.04.2013, will he get the bonus for FY 2013-14 in the Full and Final Settlement, considering the date of joining as 01.01.2010?

My concern is: In both conditions, the person has not completed a minimum of 30 days in a particular financial year, but the length of service is long, say 3+ years.

Note: I need a legal answer, not any practice of the organization.

Response awaited from all experts.

Best regards,
Arun Kumar

Understanding Salary Components and Bonus Eligibility

As per the Act, Section 2(21), salary or wage means all remuneration (other than overtime work) capable of being expressed in terms of money which would, if the terms of employment, express or implied, were fulfilled, be payable to an employee in respect of his employment or of work done in such employment, including DA but does not include (i) any other allowance to which the employee is entitled at the time.

Please let me know which allowances are not included in wage or salary, as it is unclear which allowances to exclude. For example, if an employee is drawing a salary of Rs. 18,000/- and the breakup is as follows: Basic + DA: 10,000/-, HRA: 5,000/-, Conveyance: 800/-, LTA: 833/-, Medical: 833/-, Special Allowance: 534/-.

For bonus eligibility, do we consider only basic + DA or the total gross salary? Please clarify this for me.

Thank you.