Should Our 1.5-Year-Old Company Start Paying Bonuses to Our 30 Employees?

Our company, which was formed 1.5 years ago, currently has 30 employees from the inception date. I am inquiring about the necessity of paying bonuses at this stage, considering the company is still in its early phases. Your guidance on this matter would be greatly appreciated.

Thank you,

Ravi

Your company is in the infancy period. If you are making profits during this stage, then you are required to pay a bonus; otherwise, you are not.

I appreciate your quick response. Thank you. I'd like to know if the Act states that it is not mandatory to pay a bonus if the company has not completed 5 years from the date of formation. Is that correct? Please guide.

Thanks,

Ravi

Special Provisions with Respect to Certain Newly Set Up Establishments

In the case of newly set up establishments, the following provisions have been made under Section 16 for the payment of bonuses:

1. Where an establishment is newly set up, whether before or after the commencement of this Act, the employees of such an establishment shall be entitled to be paid a bonus under this Act in accordance with the provisions of sub-sections (1-A), (1-B), and (1-C).

(1-A) In the first five accounting years following the accounting year in which the employer sells the goods produced or manufactured by him or renders services, as the case may be, from such establishment, a bonus shall be payable only in respect of the accounting year in which the employer derives a profit from such establishment. Such bonus shall be calculated in accordance with the provisions of this Act in relation to that year but without applying the provisions of Section 15.

(1-B) For the sixth and seventh accounting year in which the employer sells the goods produced or manufactured by him or renders services, as the case may be, from such establishment.

For more details, you can visit: https://www.citehr.com/368728-bonus-...mentation.html

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Payment of Bonus Act for Newly Formed Companies

As per the Payment of Bonus Act, a newly formed company is exempted from paying bonuses to its employees for the first five years. However, if the company generates profits during these five years, it becomes the company's liability to pay a bonus (minimum 8.33%) to its employees.

Consider the following scenario:

A company in its 2nd year with 50 employees. Its profit is Rs. 50,000. If 8.33% of wages equals Rs. 100,000, will the company distribute the Rs. 50,000 as a bonus? If yes, then is the bonus less than 8.33% (minimum)? What happens in this scenario?