Is a Company Required to Pay Bonuses After 5 Years Even If It's Losing Money?

Hi,

I want to know if any establishment is liable to pay a bonus after completing 5 years, even if it is suffering from a loss. However, any establishment has to pay a bonus if it is in profit, even in the first year of opening the establishment (calculation of bonus after the financial year). My question is, what is the minimum profit on which an establishment has to pay a bonus? For example, if an industry has 120 employees and the profit is just 1 lakh Rs.

After the infancy period of five years, it is mandatory that the company should pay at least the statutory minimum bonus of 8.33%, irrespective of profitability.

Regards,
Madhu.T.K

Hi Madhu,

I know about that, and I also know that any establishment has to pay a bonus if it is in profit, regardless of whether it has completed its first year. My question is, what is the minimum profit on which an establishment has to pay a bonus? I am not asking about the percentage; I know that it ranges from 8.33% to 20%. For example, if an industry has 120 employees and a profit of just 1 lakh Rs, is the establishment liable to pay a bonus on 1 lakh Rs profit? If not, then what is the minimum profit in Rs or whatever is the same.

Thank you.

After five years of operation, it is not the amount of profit that guides the rate of bonus; even if the company is in loss, the bonus must still be paid. Therefore, if the amount of bonus calculated at 8.33% of wages paid to all employees exceeds Rs 1 lakh, the company is obligated to pay it out as a bonus.

Regards,
Madhu.T.K

It is for your kind information that if any establishment earns a profit in its first year immediately after its opening, that particular establishment falls under the Payment of Bonus Act. However, every establishment has to pay a bonus whether it is in continuous loss after completing 5 years.

Thank you.

Alright, I understand that after 5 years, it is the percentage that matters, not the amount of profit. However, in the case that there is any profit before completing the 5 years, does the amount of profit matter for determining the rate of the bonus? If so, what is the minimum profit required to trigger the bonus calculation?

The company is liable to pay compensation if it makes a profit even in the first year of its operation. However, the profit should be sufficient to pay at least the minimum bonus at 8.33%. If it falls short, then the amount of profit shall be carried forward to the next year. In the next year, if the company makes a profit, it shall be clubbed together with the amount carried forward from the previous year to make it available for the payment of the bonus.

Regards, Madhu.T.K