Can We Pay the Mandatory 8.33% Bonus Monthly and Deduct It from Year-End Surplus? Seeking Guidance

Dear All, I have gone through the act but I am unable to find that:

Minimum Bonus Payment

As per sec. 10, a minimum bonus of 8.33% is mandatory. Can this mandatory bonus be paid on a monthly basis? If yes, can this monthly bonus be deducted from the bonus calculated on allocable surplus? If yes, should the return be submitted on a monthly basis or on a yearly basis? The employee who has left the services in the middle of the financial year is entitled to get a bonus more than 8.33% based on allocable surplus. Seniors are requested to guide on the matter.

I have never heard of paying a bonus on a monthly basis. What advantages do you get in disbursing monthly?

Regards,
Pon

I had never heard about monthly statutory bonus payments. There is no hard and fast rule that it cannot be paid. We have to pay a certain amount, which is 8.33% for the financial year. Even if an employee has left, they can still claim that.

I would like an expert to share their view.

Bonus Disbursement Timeline

Once the amount of bonus is calculated, it is to be disbursed within eight months of the end of the financial year. That means the bonus for the financial year 2010-11 should be paid before 30th November 2011. Therefore, you can pay it in eight installments provided the employees agree to it.

Bonus as Part of CTC

Regarding the bonus as part of CTC, it is only an adjustment whereby the total remuneration is boosted to attract employees and nothing else. It has no legal sanctity.

Impact on ESI

Moreover, if you predetermine the bonus and pay it on a monthly basis along with the monthly salary (as it is as per CTC), then it will attract ESI because any payment made other than reimbursements in an interval of not more than two months shall be treated as wages for the purpose of ESI.

Regards,
Madhu.T.K

Thank you to all for the valuable guidance. By providing a monthly bonus, employees will receive more take-home pay each month. Please also provide guidance on my other queries related to return submission and bonuses exceeding 8.33% for departing employees.

With Regards,
Bhanu

Bonus Liability for Group Branches

Branches of a group can be clubbed together for determining bonus liability. However, if each unit has separate registration and each unit prepares separate Financial Statements (P&L A/C and Balance Sheet) and files separate tax returns, then each will be taken separately for bonus payment.

Bonus Payment Obligations

An establishment, once it has paid a bonus, cannot abstain from it due to the reason that it is running at a loss, but it has to pay at least the statutory minimum bonus of 8.33%. If the declared bonus is above 8.33%, then that should be paid to the remaining employees as well. This is because a bonus within the limits of the Payment of Bonus Act is considered as deferred wages.

Regards,
Madhu.T.K

Dear Bhanu, As per the provisions of the Payment of Bonus Act, bonus payments need to be done after the finalization of the balance sheet of the company. You will agree with me that no company makes a balance sheet on a monthly basis. Hence, the computation of allocable surplus cannot be done as provided in the Act, and accordingly, there is no requirement to provide monthly bonuses.

Regards,
Raj Kumar Rai

I think if the employees give an undertaking that they need the bonus to be paid along with the monthly salary, it can be paid. This trend is very popular in the case of contractual support staff these days.

If you pay a bonus from the previous financial year in the present financial year, this will be calculated in your monthly wages, and this will attract PF and ESIC.

Regards,
Vikas P. Seth

Dear Friend, Please note the following comments I read from the ESI website, which may either assist you or confuse you a little more:

ANNUAL BONUS (for ESI purpose):

Bonus paid to the employees could not be treated as wage for the purpose of charging of contribution under Sec. 2(22), provided the periodicity of the payment is more than 2 months. The said issue was also considered in the meeting of the ESI Corporation held on 19.12.1968, and the Corporation agreed to the recommendations of the Standing Committee that bonus may not be treated as wage. Hence, no contribution is payable on annual Bonus. (Earlier instructions were issued vide memo No. Ins.III/2(2)-2/67 dt. 8.2.1967).

Whatever may be your purpose of this monthly idea, I am personally not convinced of the idea for monthly payment. As the term itself is called "Annual Bonus" under the Bonus Act and in the event 'The allocable surplus' not permitting you to declare a higher bonus, you are paying the 'Minimum bonus' @ 8.33%, which is to be determined at the end of the year when your books are closed and final figures are available. Moreover, it is prudent from the point of your company's IT and personal IT as well.

Please let us know what you did ultimately.

Regards, Kumar

You can pay a bonus monthly instead of yearly, along with the salary, with an added bonus on the gross salary of 44%*8.33%. You can implement this and further discuss it with the management. You can do it on a monthly basis.

Please let me know if you need any further assistance or clarification.

Very few organizations follow the 8.33% bonus paid monthly. I have worked for one that does, similar to the Central government contractual system which uses this methodology. Contract workers were paid their bonus monthly.

The calculation is on the gross basic, DA * 44% * 8.33%.

You can try this method; hopefully, it might give you some ideas. Good luck!

As per the Bonus Act, there is no provision for a monthly bonus. Bonuses can be paid after the completion of the financial year. I agree with TK, sir, that if the bonus is paid on a monthly basis, it will attract ESI provisions because, in that case, the amount paid under the bonus head will be calculated within the definition of gross wage.

Another point I would like to share is that the Cabinet of the Government of India has decided to enhance the wage limit for bonuses. To implement the same, they either have to issue an ordinance or make changes in the Bonus Act in Parliament. Only after such an amendment will the provisions of the Bonus Act be applicable.

Regards,
V. Acharya

Eligibility for Bonus Under the Payment of Bonus Act 1965

As per the Payment of Bonus Act 1965, an employee is eligible for a bonus upon completion of 30 days in a year, with eligibility for the bonus amount of that financial year. Since it is a statutory bonus that is not deducted from the employee's salary, the fund is allotted by the company based on their profit declaration, fixing their bonus percentage either at 8.33% to 20%, depending on the year.

If any employee's basic salary is less than 10,000 INR, they are eligible for a statutory bonus of a minimum of 8.33% on 3,500 INR, as per current labor laws.

Proposed Amendments to the Bonus Act

There is a proposal from the parliamentary committee, along with the labor ministry, to make amendments to the Bonus Act by changing the eligibility ceiling to 21,000 INR with a minimum of 8.33% on 7,000 INR. This proposal is currently in the processing stage with ongoing legal proceedings, and it has not been amended in the act.

Why We Should Not Pay Monthly Bonus

This is to inform you that the Payment of Bonus Act doesn't provide any provision for paying bonuses monthly. If we process monthly, it will be:

Consequences Under The Payment of Wages Act, 1965

The breach of Section 19(b) of the said Act expresses that all amounts payable to an employee by way of bonus under this Act shall be paid within a period of eight months from the close of the accounting year.

It will also create a difference when the company files its return under Rule 5. Every employer shall send a return in Form D within 30 days after paying a bonus under the provisions of its Rules, within a period of eight months from the close of the accounting year.

Due to points 1 & 2, we will have to face the penalty under Section 28(b), which mentions imprisonment for a term that may extend to six months, or a fine that may extend to one thousand rupees, or both, and other consequences under Section 29.

If We Pay Monthly Bonus

When we start paying bonuses monthly, it will become part of wages, which will hinder the objective of the Payment of Bonus Act, 1956, and will attract contributions under the ESI Act.

Under Section 2(22), it's expressed that any remuneration paid to an employee within a two-month interval will be the wages for the said Act.

Due to this, an employee will never receive the actual bonus for that financial year, which the employer had paid.

Thus, for the benefit of both employer and employee and from a legislative point of view, we must pay the bonus within 8 months. However, under Section 17, there is a provision for the adjustment of customary or interim bonus against the bonus payable. According to this section, we can release any part of the bonus and adjust the rest of the bonus.

I trust my points will completely elucidate the reason why we should not pay bonuses monthly. However, I further welcome your query in case the above-mentioned points aren't lucid.

Please do write back to us for any further elucidation.

Regards,

Team Compliance

Street HR & Associates Pvt. Ltd

One small query from me is: Can a bonus be paid in advance (monthly, I am not sure) because in Register C, you can observe the 10th column "Interim Bonus or Bonus paid in advance."

Need your suggestions...

Hi seniors, In my current organization, we pay a bonus of 8.33% on Basic + DA on a monthly basis for contractual staff. Are there any legal complications for paying bonuses on a monthly basis for contract employees? The salary for contract employees includes statutory bonus and ESIC deductions. Is this the correct method?

Salary Breakdown

Basic: 12140
DA + Conveyance + bonus = 19000
Statutory bonus: 1200 + attendance bonus + 1000
Incentive: +1000
The total earned salary is 22200. In this case, how much should be deducted for ESIC contribution?

Kindly suggest.

Murali

Dear Seniors, Our company is paying a statutory bonus of 8.33% on a monthly basis along with the salary for contract staff. Is there any legal complication by paying on a monthly basis, and is this the right method to pay because ESIC deducts the total salary from the employee's salary?

Salary Breakdown

Basic: 12140
DA: 878
Con: 656
Other allowances: 2000
Bonus: 1084
Gross: 16758
Attendance bonus: 1000
Incentive: 4000
Total earned: 21758

Kindly suggest to me for which amount ESIC should deduct because every month there are changes in paying incentive and attendance bonus.

Kindly suggest.

Regards,
Murali T P

Bonus Calculation on Paid Holidays in West Bengal

Is a bonus mandatory on paid holidays in West Bengal? Suppose the attendance is 10 and there are 2 days of festival/national holidays. The basic wage is Rs 100 per day, so the monthly basic wage is Rs 1200, and the DA is Rs 1. Therefore, should the bonus be calculated as 1000 * 8.33% or 1200 * 8.33%? Which calculation is correct?

Calculation of Bonus

The bonus is to be calculated by considering the earnings for weekly holidays and festivals. Therefore, it is Rs. 1200 * 8.33%.

Bonus Calculation on Actual Amount Paid

The bonus is to be calculated on the actual amount paid to the worker. If you have paid wages for 12 days, that will qualify for a bonus as well. Certainly, if you have not paid holiday wages, don't consider it for the bonus.