Understanding Bonus Payments: Should Companies Pay Back Bonuses from 2006 to 2010?

Hi,

I just want to check if a company has not paid bonuses since 2006 and just came to know about the bonus act, which states that a minimum bonus shall be bound to be paid to employees. Therefore, should the bonus be paid for each year since 2006 until 2010 or what is the minimum number of years of bonuses to be covered and paid to the employees.

Regards,
Jane - Malaysia

Hi Mr. Hari & Joseph,

FYI, the company started in 2000, and bonuses were paid in 2005. However, the company has not been profitable until now. Recently, I heard that even if the company is not profitable, they are still required to pay bonuses to staff. We are a construction-based company with 19 staff members scattered throughout the sites and offices.

We are currently looking into the requirements as per the Payment of Bonus Act 1965. Do we need to pay bonuses since 2006, or can we pay only for the past 3 years? What about ex-gratia? How is it practiced in India? If we pay ex-gratia, do we still need to pay bonuses?

I hope you could give me some advice on this matter.

Regards,
Jane - Malaysia

Hi Jane,

According to India's Payment of Bonus Act, any establishment which has completed its 5 years of operation in the country is bound to pay the minimum bonus (compulsory) to its employees. The company may or may not earn a profit at the time, and the number of employees working in the company is irrelevant in this situation.

Secondly, the compulsory bonus amount is to be given to those employees whose salary is less than Rs. 10,000 per month. Salary in this case means Basic Salary + Dearness Allowance.

The minimum amount of bonus a company should provide to an employee is 8.33% of Yearly Salary (Basic + DA) or Rs. 3500, whichever is higher. The maximum amount of bonus a company should provide to an employee is 20% of Yearly Salary (Basic + DA).

Your liability for paying bonus starts when you complete 5 years of operation in India, and it is not due since you commenced your operation.

There is no specific act for ex-gratia; it is a voluntary contribution by companies, mostly given to employees who are not covered under the bonus act, i.e., those whose salary (Basic + DA) is more than Rs. 10,000 per month.

Thanks,
Naina