How to Calculate Employee Bonus for Partial Attendance When Basic + DA Exceeds 3500 Rs?

Dear All,

I want to know if the bonus limit is 3500 Rs. (Basic + DA), and if any employee works in our organization with attendance of 18 days but their basic + DA is more than 3500 Rs., how do we calculate the bonus? Do we calculate based on the number of days (i.e., if 3500 Rs. is for 30 days, how much for 18 days...) or do we calculate based on the limit? Please advise as soon as possible.

Regards,
Mahesh

Dear Mahesh,

There have been recent amendments in the Bonus Act 1965. According to the amendments, The Payment of Bonus Bill (2010) stipulates that the minimum bonus, which is 8.33%, shall be based on the maximum salary or wage of Rs. 3500. The existing provisions are deemed inadequate given the current scenario of rising inflation.

The calculation ceiling for bonus has been increased from Rs. 3500 to Rs. 5000, and the minimum bonus payable has been enhanced from 8.33% to 11% of the salary or wage earned by the employee during the financial year for which the bonus is being paid.

An employee who has completed 30 days (i.e. if Date of Joining is on or before 2nd March '10) in any Accounting Year (2009-10) is eligible for a bonus. Bonus calculations for such cases should adhere to the ceiling of the minimum bonus Basic+DA limit not exceeding 1.20 pa.

Regards,
Dinesh

As per the Payment of Bonus Act & Rule 1965, every employer has to submit the annual return in Form D within 30 days from the end of that particular accounting year. The accounting year runs from April to March.

Dear Dinesh,

I have some queries. I think the bill for Bonus Amendment 2010 is being considered in parliament, but it has not yet received approval from the ministry. It is currently under consideration. After approval, the act will be amended accordingly, and only then will it become effective with the declared date. As of now, it has not been declared.

If I am mistaken, please correct me.

Regards,
Atul

The coverage of an employee under the Payment of Bonus Act is Rs 10,000/- (Basic + DA). This means that those receiving Basic + DA < Rs 10,000/- shall be eligible for bonus payment. The calculation is always based on the actual Basic + DA, or if Basic + DA exceeds Rs 3500/-, the calculation will still be based on Rs 3500/-, i.e., 8.33% of Rs 3500/-.

In response to your question, if an employee has worked for 18 days in a particular month with a loss of pay for 12 days, receiving 18 days' salary, if this 18-day salary exceeds Rs 3500/-, in this case, it will be calculated on 3500/-. However, if the 18-day salary is less, then it will be based on the actual salary.

I hope this explanation satisfies your query.

Dear Mahesh,

The Bonus Amendment Act 2010, enhancing coverage limit to Rs. 15,000, payment limit to Rs. 5,000, and minimum to 11%, has not been enacted yet. As per the existing norms, the ceiling salary limit for bonus payment is Rs. 3,500. If an employee does not have full attendance, the bonus can be calculated on a pro-rata basis. For example, if someone has 6 months of attendance and is eligible for the minimum bonus, then 3,500 x 6/12 = 1,750 should be paid.

However, in a financial year, a minimum of 30 days attendance is required for statutory eligibility.

Abbas.P.S

Dear Professionals,

We don't encourage spoon-feeding. However, since these are days of bonuses and related issues, this time you are being assisted. Please read the Payment of Bonus Act, 1965. Under the title "Qualification for Bonus," it states that a worker is entitled to a bonus provided they have worked for at least 30 days during the relevant accounting year. Hence, in this case, they are not entitled to receive a bonus.

Dear All,

In response to Mr. Rao's query: The Bonus Act is a Central Act and is applicable throughout India.

In response to Mr. Mahesh's query: If the employee is drawing a salary exceeding Rs. 3500 but less than Rs. 10000, he is eligible to receive a bonus, but considering the wage limit as Rs. 3500. However, if the employee is on Loss of Pay, deduct the pay equivalent (LOP) from the Basic + DA. If this figure falls between Rs. 3500 and Rs. 10000, consider that he has earned Rs. 3500 (Wage ceiling). If the figure is lower than Rs. 3500, for example, Rs. 3400, then consider it as Rs. 3400. In other words, do not consider the wage ceiling (Rs. 3500) for computing the earned wages.

M.V. KANNAN

You are correct that the Bonus Act is applicable throughout India. The same act is also applicable in all states except Jammu & Kashmir.

Regards,
Amol Deokar

Dear All,

I am attaching a bonus calculator that has formulas in the Excel sheet. All you need to do is input the monthwise attendance and the actual salary details. The formulas will do their job. The formulas may need to be suitably changed with the new amendments coming into force. I hope you all find it useful.

P.R. Joshi

As per the Bonus Act, if the employee is not present for at least 30 days in a year, then he is not liable for the Bonus.

Regards,
Madhura.

To: Dear Mahesh and all others who have posted their replies,

There seems to be so much half-understanding on the Bonus issue:

Please note the following points:

1. Bonus is payable for the accounting year Apr to Mar. For 2010, bonus is payable for Apr '09 to Mar '10 before Nov '10.

2. Returns have to be submitted by 30th Dec '2010

3. 8.33% of the wages - Basic + DA earned by the employee during the financial year is payable as Bonus

4. All employees, whose basic + DA is Rs.10,000 and below are eligible for bonus

5. The maximum bonus payable is Rs.3500/-.

6. If an employee's wages (basic+DA) are more than Rs.3500/-, for calculating bonus only Rs.3500/- to be taken as wages (but eligibility for paying bonus is Rs.10,000/-)

7. Employees who have worked for a minimum of 30 days are eligible. If less than 30 days, they are not eligible for a bonus

8. Bonus Act is a central Government Act and is applicable all over India

9. There is no amendment to the Bonus Act to pay more than Rs.3500/- or more than 8.33% as of now

Regards

K. Ramachandra

Bangalore

Dear Friend,

As per the calculation of bonus, only those employees are covered who have worked for 30 days in an organization, and their salary (Basic+D.A) is less than 10000. According to the bonus policy, the minimum bonus payable is 8.33%, and the maximum is 20% of the Salary (Basic+D.A), i.e. on 3500/-

For the calculation of Bonus:

Suppose an employee joins an organization, and their salary (Basic+D.A) is less than 10000. Then, for bonus calculation, consider the salary (Basic+D.A) as Rs. 3500/-. Now, if the organization decides to give a 20% bonus, then for one month, the bonus is 3500*20% = 700.

If an employee works for 15 days in a month (July), then their calculation is:

3500 * 15 / (total days of the month) * 20% = Rs. 339.

For more details, please find the attachment.

Dear Mahesh,

First of all, you are not legally obligated to give a bonus as the employee has not worked for the whole month. If you choose to give a bonus, it should be based on earnings, i.e., 3500/30 X 18 = 2100. The percentage, as declared by management, will determine the bonus amount. For example, if the percentage is 10%, then the bonus amount will be 210/-.

Hope this explanation satisfies your query.

Regards,
Avinash

How do you calculate the bonus for an individual who has worked for 10 months in an organization and has a salary of Rs. 6000?

Could you please confirm which month corresponds to the tenth month in the financial year? If so, is the bonus calculated based on 8.33% of 3500 or 20% of the total for the ten months?

Regards,
Mahesh

Relax, guys. The proposed Bonus Amendment Bill is a private Bill No. 15 of 2010, introduced by an MP. Normally, MPs introduce private bills as their privilege. Such bills are usually withdrawn after the reply of the concerned Minister. I think in this case also, it is unlikely to become an act as of now.

C.P. Bhartia

Hi Mahesh,

The Bonus Amendment Act 2010, enhancing coverage limit to Rs. 15,000, payment limit to Rs. 5,000, and minimum to 11%, has not been implemented yet. According to the current norms, the ceiling salary limit for bonus payment is Rs. 3,500. If the employee does not have full attendance, the calculation can be done simply by multiplying 3,500 by basic salary and then by 8.33%. The employee must present at least a minimum of 10 days.

Thank you.

Dear Kannan,

The ceiling monthly salary for bonus coverage is Rs. 10,000, and for bonus payment, it is Rs. 3,500. Monthly salary is meant for one month, i.e., if the salary is between Rs. 3,500 and Rs. 10,000 and the attendance is below one month, the calculation will be on a pro-rata basis based on Rs. 3,500 only (not on the actual salary).

For example, an employee with a salary of Rs. 6,000 has worked for 15 days out of 30 days in a month. His entitled salary for bonus payment for that particular month is calculated as 3,500 x 15/30 = Rs. 1,750.

Abbas.P.S

Please let me know, if I want to pay a bonus, from which month to which month should I consider for the bonus payment and when should I make the payment?

Regards,
Venu

Dear Venu,

Bonus Payment Guidelines

The bonus is to be paid for wages earned by an employee during the accounting year as defined under Section 2(1) of the Payment of Bonus Act, 1965. This is to be disbursed within eight months from the close of the accounting year.

Regards,
R.N. Khola

(M) [Phone Number Removed For Privacy Reasons]

Dear All,

Please let me know, if I want to pay a bonus, from which month to which month I need to consider for the payment of the bonus, and when should I pay the bonus?

Regards,
Venu

Dear Seniors, I have come across some problems, please clarify them. An employee's salary is as follows:
- Gross salary: 12,000/-
- Basic: 5,500/-

He is working in staff. Will he be eligible to receive a bonus? If yes, please confirm what percentage and on which amount we should calculate the bonus.

Thank you.

Is it a statutory compliance to include a bonus in the CTC if the pay scale is more than 3500? Please clarify this point.

Regards

In my opinion, none of the enactments require us to include bonus payment in the CTC. Moreover, the bonus percentage is declared by the management after the close of the accounting year.

Regards,
R.N. Khola

I am not clear about this bonus act. If the employee's basic salary + DA is above Rs. 10,000, then what should we do? Is he not included in the act?

If our salary is less than 3500 and the basic is 3000, then should we calculate the bonus based on 3000 or 3500? Please reply to me.

Regards,
Vibs

Dear Member, Welcome to CiteHR. If the salary or wages of an employee exceed Rs. 10,000 per mensem as defined in section 2(21) of this Act, then this employee will not be covered under the definition of an employee as provided in sec. 2(13) for receiving any benefits under this Act. Hence, he is not eligible to receive a bonus from his employer under the Payment of Bonus Act of 1965.

Regards,
R.N. KHLOA | Sr. ASSOCIATE | LL&IR |

Welcome to CiteHR. If the salary or wage of an employee is up to Rs. 3500/- per month as defined by sec. 2(21) of this Act, then they will be eligible to receive a bonus from their employer based on their actual salary or wages as per this definition.

Regards,
R N KHOLA

The same Bonus Act is applicable all over India. There is no separate act for individual states. We need to keep the maximum amount at Rs. 3500/- as the ceiling while calculating the bonus. As such, there has been no new amendment passed by the government.

Regards,
Harsha Shetty

When I was being interviewed by the HR Manager of Intas Pharmaceutical Ltd, I was told that the bonus is to be paid by keeping allocable surplus in mind, and some companies follow different methods altogether. The bonus is paid on the basic salary, where 8.33% * 12 equals one month's salary, although it is only paid to those earning below 10,000/- P.M.

So, how do people earning 25,000/- get the bonus? Please explain this to me. You can send the details to the mentioned email id: [Email Removed For Privacy Reasons].

Thank you.

The Payment of Bonus Act, 1965

Objective of the Act: Until the Payment of Bonus Act was promulgated, bonuses were linked to profits, meaning that if an establishment did not make profits in a certain year, the employer was not liable to pay a bonus. However, the present Act makes the employer liable to pay a bonus to an employee as an annual statutory payment irrespective of the existence of profits.

Applicability of the Act

The Act includes all employees, factory workers, clerical staff, or executives drawing wages or salaries up to Ten Thousand rupees per month who perform any skilled, unskilled, manual, supervisory, managerial, administrative, technical, or clerical work.

Eligibility

To become eligible for a bonus, every employee must have worked in the establishment for not less than 30 working days in the relevant accounting year.

A bonus is not payable on subsistence allowance paid to an employee during the period of his suspension since such an employee did not actually perform any work. A bonus can be forfeited if dismissal is for riotous behavior.

How much Bonus is Payable

A minimum of 8.33% of wages actually earned during the accounting year, subject to a minimum of 100 Rs, is payable to each eligible employee irrespective of profit or loss. The minimum amount payable is limited to 20% of the wages.

What components of wages shall be considered for calculation of Bonus:

Wages/Salary are understood to be basic pay and VDA and exclude any other allowance.

When the salary or wage of an employee exceeds Rs.3500 per month, the bonus payable for such employees shall be calculated as if his salary or wage were only Rs.3500 pm (but eligibility for paying bonus is Rs.10,000).

When is Bonus Payable

The bonus is payable within a period of 8 months from the close of the accounting year. Where there is a dispute regarding the payment of bonus, it becomes payable within a month from the date that the award becomes enforceable or the settlement comes into operation.

Methods of Computation--First Step--Net Profit

Presumption of Accuracy: (Section 23) -- The accuracy of the balance sheet and profit and loss statement of the establishment is presumed under the Act if they are duly audited by qualified auditors. If, however, the Arbitrator or Tribunal hearing a dispute is not satisfied with the accuracy or if any trade union or employees being parties to the dispute demand clarification of accuracy, the employer shall comply with the demand.

If the authority requires auditing of accounts of an employer, not being a company, such as that of a proprietary concern or a partnership firm, such employer shall comply with the requirement within such time as directed, at his own expense.

Methods of Computation--Step Two--Gross Profit

The gross profits derived by an employer from an establishment in respect of any accounting year shall:

(a) in the case of a banking company be calculated in the manner specified in the first schedule;

(b) in any other case, be calculated in the manner specified in the Second Schedule.

Understanding Salary Components for 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 be payable to an employee if the terms of employment, express or implied, were fulfilled, in respect of his employment or work done in such employment, including DA, but does not include 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/- with the following breakup:
- Basic + DA: Rs. 10,000/-
- HRA: Rs. 5,000/-
- Conveyance: Rs. 800/-
- LTA: Rs. 833/-
- Medical: Rs. 833/-
- Special Allowance: Rs. 534/-

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

Thank you,

Siva Sankar

Lok Sabha Passes Bonus Bill; Benefits to Accrue from April 2014

The Lok Sabha on Tuesday passed a bill allowing the doubling of the wage ceiling for calculating bonuses to Rs 7,000 per month for factory workers in establishments with 20 or more workers, with the benefits being applicable retrospectively from April 2014.

The Payment of Bonus (Amendment) Bill, 2015, was passed by a voice vote, with some members objecting to raising the eligibility limit for payment of bonuses from a salary of Rs 10,000 per month to Rs 21,000.

Replying to a debate on the legislation, Labour Minister Bandaru Dattatreya said the Government has ensured that the interests of workers are protected, and there is no infringement on their rights. "Because of Bihar Elections, this bill got delayed... The Prime Minister spoke to me and asked why should the benefits of this Act accrue to workers from 2015. It should be made available from April 2014," he said while moving an official amendment to the Bill.

The official amendment provides that the benefits of the Act would be deemed to have come into force on April 1, 2014, instead of April 1, 2015. Dattatreya said the Ministry has held 21 tripartite meetings with all central trade unions while arriving at a decision.

The Bill provides for enhancing the monthly bonus calculation ceiling to Rs 7,000 per month from the existing Rs 3,500. It also seeks to enhance the eligibility limit for payment of bonuses from Rs 10,000 per month to Rs 21,000 per month.

"The Government's paramount intention is to safeguard the interest of workers... There is no infringement of workers' rights, and whatever the government does will be in the interest of workers," Dattatreya said.

After the bill was passed, Deputy Speaker M Thambidurai, who was in the Chair, said the government should be congratulated for bringing the measure as also for effecting the benefits retrospectively.

Terming the legislation as historic, Dattatreya said the outgo from government coffers would be about Rs 6,203 crore. The Minister said the Bill would benefit crores of organized sector workers. He said the unorganized sector constitutes 93 percent of the workforce or about 40 crore people.

Participating in the discussion, Mumtaz Sanghamita (TMC) said "it will benefit the vast majority of poor workers. Bonus is the thing that is extra and over regular pay." She, however, wanted to know whether the increase in the ceiling was commensurate with the inflation rate.

M Srinivas Rao (TDP) observed that labor laws in India were very weak, and the government should ensure safety and security for workers.

K Visheweshwar Reddy (TRS) said the sharp cut-off of Rs 21,000 per month was flawed and added that contractual workers in factories are overworked and underpaid.

Sankar Prasad Datta (CPI-M) too echoed similar views, saying that the Rs 21,000 per month ceiling should not be there. Jaiprakash Narayan Yadav (SP) said there should be a special provision for women workers while providing bonuses.

Prahlad Singh Patel (BJP) asked the government to fix a minimum ceiling and not the maximum one. "We can also think of linking it with the Pay Commission so that we do not have to come again and again to Parliament to make changes." He said the bonus should not be linked to profit or losses.

The Payment of Bonus Act, 1965, is applicable to every factory and other establishment in which 20 or more persons are employed on any day during an accounting year. The last amendment to the eligibility limit and the calculation ceiling was carried out in 2007 and made effective from April 1, 2006.

This amendment in the Act to increase the wage ceiling and bonus calculation ceiling was one of the assurances given by the Centre after 10-day central trade unions went on a one-day strike on September 2.