Employee Demands Higher Bonus: How Should I Handle This Dispute with Management?

Dear seniors,

One of my production employees is demanding an 11% bonus of his gross salary for the period 2009-10. His gross salary is Rs. 14500/-. However, management does not agree to pay him at this rate. Management is saying to pay him only Rs. 3500/-. The employee is claiming that there have been changes in the criteria for bonus payment, which I am aware of as well. However, management is not in agreement.

Now, what should I do?

Waiting for your reply.

Regards,
KSCC

Management is correct in this matter. The minimum bonus remains at 8.33%. The salary for bonus coverage is set at Rs. 10,000, and for bonus calculation, it is Rs. 3,500.

Regards,
Abbas.P.S

Dear Abbas, please go through the attachment and clarify, if possible.

Regards,
KSCC

According to the file attached, the salary for bonus coverage remains at Rs. 10,000, but the minimum bonus has been increased to 11% from 8.33%.

Dear KSCC & Ashutosh,

It is only a proposal but didn't get enacted. Kindly note the terms used "Be it enacted in Parliament.........", means it is not enacted. As per the existing Bonus Act, the minimum is still 8.33%, salary for coverage is Rs. 10,000, and salary for calculation is Rs. 3,500.

Abbas.P.S

Yes, the new bill is not yet approved; it is just a draft proposal. So, a maximum bonus of $3,500 is correct.

Dear KSCC and all,

1. The bonus payable is on the basic and not on the gross salary.
2. If the basic is not separated from the gross salary, then you have to take the gross salary for the computation of the bonus.
3. The percentage of bonus payable continues to be 8.33% only, and no amendment has taken place yet.
4. The maximum salary limit for bonus eligibility is Rs. 10,000.
5. If you are taking his salary of Rs. 14,500 as bonusable salary (i.e., gross salary), he is not eligible for a bonus.
6. If you have separated his basic and if it is Rs. 10,000 and below, you can pay a bonus at 8.33%.
7. Nobody can either deny or pay the bonus as this is statutory. So just follow the above guidelines as per the Bonus Act and comply.

Hope the matter is clear.

Regards,
K. Ramachandra
Bangalore

The new amendment of the Bonus Act is expected to be effective from mid-January 2011 to the end of February 2011. Please continue paying bonuses at the existing rates. The effective date for these changes would be from 01.04.2010 to 31.03.2011 (most probably).

Hope that this winter session of Parliament will have room for the Bonus amendment as it is already overburdened with scams!!

Pratik Vaidya
Karma Management Consultants

Yes, I too agree with Mr. Abbas. As per the act, we have to calculate on Rs. 3,500/- only.

Regards,
VENKAR
HR Manager

It was only proposed not to implement now. The industry will pay after receiving the Gazette Notification, which has not been issued by the government. So, you have to pay as per the old rate.

Regards,
Asif

Only the bill has been passed for amendment; the parliament has yet to approve it. The amendment has not been done yet in the bonus act; it is still 8.33%, not 11% yet.

I would like to understand the applicability of this act. Do we have to pay this statutory bonus in this financial year, and secondly, until when do we need to pay this bonus?

Also, we have a performance bonus payable in March 2011. Can we adjust this amount against that bonus?

Regards,
Manasi

Bonus Payment Guidelines

The new amendment has not yet been received. So, continue with 8.33% of the basic salary. The salary limit for bonus payment is Rs. 10,000. If an employee is withdrawing a salary of more than Rs. 10,000, then the final decision is up to management whether to give them a bonus or not.

Thank you.

Dear Manasi,

Bonus is payable for the financial year April to March. For example, now the bonus payable is for the period April 2009 to March 2010. This needs to be announced/paid by 30th November 2010. Performance Bonus cannot be linked with Bonus - Bonus is statutory and payable to all eligible employees. Performance bonus is up to the companies whether to pay or not.

Regards, K. Ramachandra

Dear Mr. Prakash Singh,

Thanks for your reply and noting the points.

Regards, K. Ramachandra

Bonus Computation Update

Now, the bonus is to be computed on the wage ceiling of Rs. 5000/-, which was amended on 27th October 2007.

Regards,
Basanta

There is no question of paying an 11% bonus since the draft of the amendment is yet to be converted into law.

Regards,
Ravi

Dear Basanta,

The bonus ceiling is Rs. 3500/- (i.e., the amount of bonus payable at 8.33%). The eligibility ceiling is Rs. 10000/-. There is no amendment for the wages ceiling to be Rs. 5000/-. Can you please clarify and send us the amendment that you speak of, which happened on 27th October 2007?

Regards,

K. Ramachandra
Bangalore

First and foremost, please understand that no employee can demand a bonus at a rate that he/she thinks is proper. The amount of the bonus to be disbursed is based on the company's performance and the funds allocated for the purpose. It is accordingly declared by the management after the completion of the balance sheet and finalization of accounts. There is no provision in the Payment of Bonus Act that mandates the payment of an 11% bonus.

Cheers!!! Vasant Nair

The bonus wage ceiling is Rs. 10,000/- and not Rs. 5,000/-. Can you please clarify which amendment you are referring to and provide the gazette notification or circular for everyone's information.

Regards,
K. Ramachandra

Demand for payment of bonus and the sum to be paid, also decided by the employee, is not a matter of the employee's right. Payment of bonus is decided and declared by the management every year and paid in accordance with the Payment of Bonus Act. In this case, the employee's demand is baseless, and he should be informed that the same cannot be entertained.

Dear Pallavi,

The Factories Act is a very comprehensive Act. If you have any specific questions on the Factories Act, the same can be addressed. However, please note, the Factories Act is applicable to a factory where:
- 10 or more individuals are working or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried out with the aid of power or is ordinarily carried out but does not include a mine.
- A manufacturing process means any process for making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating or adapting any article or substance with a view to its use, sale, transport, delivery, or disposal.

Regards,
K. Ramachandra
Bangalore

Worker drawing a salary/wages of Rs. 10,000 per month as the highest ceiling is eligible to receive a bonus. However, the calculating ceiling is Rs. 3,500 per month. Those who draw a salary/wages above Rs. 10,000 per month are not entitled to a bonus according to the provisions of the Payment of Bonus (as amended) Act, 1965.

The minimum bonus rate is 8.33%, while the maximum bonus rate is 20%. The maximum bonus amount is Rs. 8,300.

The amendment in 2010 of the Bonus Act for the enhancement in bonus from 8.33% to 11% has been done by the government. If done, please provide the information on the gazette of India in which it was published.