Is It Fair to Pay Resigned Employees a Lower Bonus Rate? Seeking Advice on Company Practices

I have a doubt regarding the payment of bonuses. My company declared a bonus to employees at the rate of 18%, but management decided to pay 8.33% to resigned employees. Is it a correct practice? Please advise me on this matter.

With regards,
Sree

Uniform Bonus Payment Under the Payment of Bonus Act

The percentage of bonus payment under the Payment of Bonus Act should be uniform for both current and ex-employees. Differentiating between the two is certainly not the right practice.

Regards,
Kamal

The Payment of Bonus Act requires that anyone eligible to be covered under the act should be in employment for at least 30 days during the year for which the bonus is declared.

In this regard, the law does not differentiate between ex-employees and employees on the payroll when the bonus is declared. In your case, if ex-employees were paid less bonus than what was declared for the company, either your company is receiving incorrect advice or is blatantly committing an illegal act!

Before you take the matter to any forum, please ensure:

- That the affected employees were eligible employees under the act.
- That these employees indeed served for more than 30 days during the year for which the bonus is declared. If they were on the payroll during that year, then there is no reason they should be denied the bonus, at least on a pro-rata basis for the period of their employment during that year.

Is the issue clarified?

Regards,
Samvedan

It is necessary to find out whether the ex-employee falls under the purview of the Bonus Act based on the salary ceiling. If his salary exceeds the ceiling amount, he is not eligible to claim the bonus.

Regards,
Alphonse

According to the Payment of Bonus Act, only eligible employees (who have completed more than 30 days of service) can claim a bonus. However, management cannot consider those who exceed the ceiling limit. Additionally, as per the act, a minimum of 8.33% is the right of eligible employees. If your ex-employees claim that they have received less bonus compared to current employees, I request them to first check whether they fulfill all conditions such as termination, discontinuation from services, proper relieving, etc.

Regards,
Santosh K

The bonus is to be paid within 8 months from the close of the accounting year. It is being paid for the previous year. Bonuses for the accounting year are generally declared later on. Meanwhile, there might be some employees who have retired before they could be paid the bonus for the period they were eligible. In my considered view, such employees are called ex-employees. Any amount not paid during their service period is called unpaid accumulations if they are not paid within the next period of two years.

Thanks and regards,

Regards,
RL Dhingra
Advocate & Labour Law Consultant, Delhi
[Phone Number Removed For Privacy Reasons] / Email: [Email Removed For Privacy Reasons]

Understanding the Bonus Act of 1961

Under the Bonus Act of 1961, there is no differentiation between current and ex-employees. The bonus percentage is declared by the company after calculating the relocation of surplus. As per the Bonus Act, if an employee completes 30 days, they are eligible for a bonus. If management makes a differentiation between current and ex-employees, that would be considered a wrong practice.

Regards,
Lakhan

Bonus is to be paid at an equal rate to all eligible employees, regardless of whether they are current or former employees. If any former employee does not fall within the definition of "employee" under the Act, then management may decide whether to pay the bonus or not at all.

Regards,
Lokender Kumar Manesar, Gurgaon

There are no specific rules regarding the maximum percentage for providing a bonus. If a company decides to pay more than the minimum rate of interest, i.e., 8.33%, there should be no objection. However, it should not be less than 8.33%.

Regards

Understanding the Bonus Act of 1961

Under the Bonus Act of 1961, there is no differentiation or definition between current and ex-employees. The bonus percentage is declared by the company after calculating the relocation of surplus. According to the Bonus Act, if an employee completes 30 days, they are eligible for a bonus.

If management makes a differentiation between current and ex-employees, that would be considered a wrong practice.

Regards,
Lakhan

Understanding the Payment of Bonus Act 1965

Hello JayantaHR, I am sorry, but I have not understood your post.

We all know that a bonus, as a profit-sharing mechanism, provides a formula in the Payment of Bonus Act 1965. The formula specifies the percentage of the bonus that should be paid to all eligible employees (past or present is not the question when the person has qualified under the act to receive a bonus).

The law has provided for a minimum bonus at 8.33% of the bonusable salary/wage, and it has also set 20% as the maximum bonus under the act.

Furthermore, the law has established a mechanism of "set on" and "set off" so that eligible employees will generally receive the maximum possible bonus.

I am afraid your understanding that "there are no rules to provide a bonus of the maximum percentage" is not supported by the law. The law states that a maximum of 20% bonus could be paid if the calculation, as provided under the act (of available and allocable surplus), shows such a figure. However, no employer can pay a bonus exceeding 20% of the bonusable salary/wage as a bonus under the act. There are more stipulations under the act, but more about these later as the occasion arises.

Maybe you would like to revisit the Payment of Bonus Act 1965 provisions to satisfy yourself!

Regards,
Samvedan

September 18, 2011

As per the Payment of Bonus Act, the minimum bonus is 8.33% and the maximum bonus is 20%. If all eligible employees (in terms of salary ceiling and a minimum of 30 days of employment criteria) are paid bonuses within the upper and lower limits, I don't think it's illegal to pay different bonuses to current and ex-employees.

Regards,
Peonka

Payment of Bonuses: Existing vs. Former Employees

Payment of bonuses must be the same for existing and former employees, there is no doubt. However, there is a mechanism to differentiate between the two.

1. 8.33% (or any other higher percentage) must be the declared bonus for all eligible employees.
2. Management may differentiate in paying ex-gratia to current employees, which is not necessary to extend to resigned employees. Ex-gratia payment is at the discretion of management, and there is no rule that mandates uniformity for resigned and current employees.
3. This approach ensures compliance with the law by maintaining the same percentage of bonuses across the board.

Regards,
Balaji