Monthly Bonus vs. Yearly Bonus: Is Including Bonuses in Monthly Salary Slips Common Practice?

I have seen a couple of salary slips incorporating Bonus and LWW (Leave with Wages) paid for the month. Is it an acceptable practice? We pay Bonus on a yearly basis. Thus, on a month-to-month basis, the take-home salary is lower than a person who gets their Bonus on a monthly basis. Appreciate replies.

The Practice of Showing Bonus in Monthly Payslip

The practice of showing a bonus in the monthly payslip is wrong and will invite serious problems in the future. A bonus is expected to be calculated and paid according to the profitability of the establishment. It is not possible to fix the amount available for the payment of the bonus in advance. In the absence of that, only the statutory bonus (at the rate of 8.33% of the salary) shall be paid as a bonus, and once the bonus amount is determined at the end of the year, the entire exercise will have to be reworked.

Bonus Payment as per the Payment of Bonus Act

Bonus, as per the Payment of Bonus Act, is to be paid within eight months of the close of the financial year. Therefore, it cannot be paid in installments of twelve.

Implications of Monthly Bonus Payments

Any amount paid at intervals of not more than two months shall be treated as salary/wages for the purpose of coverage or contribution to ESI. That means monthly paid bonuses will attract ESI contributions. Similarly, an amount paid as per fixed terms and along with the monthly salary may be deemed to be part of the salary for the purpose of other statutory payments.

Please follow the link also.

http://madhu-t-k.blogspot.com/2010/02/ctc-vs-btc.html

Regards,
Madhu.T.K

Only for "the entire exercise of calculation of Bonus will have to be reworked," is it wrong, or does it have some legal binding? Request to clarify under which section of the Payment of Bonus Act it states that you will not be paid in monthly salary. Please reply.

Regards,
Nandkumar

The original query made by our colleague has been adequately answered by Madhu. Can we refrain from making such irrelevant queries as attempted below by our friend Nand Kumar? (No offense meant or intended, please) since this has already been very correctly addressed by Madhu. Let us treat this matter as closed/resolved and move ahead.

Best Wishes,
Vasant Nair

If bonuses are paid on a monthly basis, it could pose a significant problem for both small firms and large multinational corporations. Let's maintain the current system as it is working well at the moment.

Thank you.

Bonus Payment Guidelines under the Payment of Bonus Act

Section 19(b) of the Payment of Bonus Act makes it clear that the bonus should be paid within eight months of the financial year. It is to be calculated in the following year, and even the calculation of the bonus on a half-yearly basis is not permissible as per the Act. Please refer to Binny Ltd vs Their Workmen [(1974) 3 SCC 27: AIR 1973 SC 353].

Regards,
Madhu.T.K

In recent times, many service sector companies have started paying monthly advance bonuses and leave encashment amounts along with their employees' salaries, as employees are not considering these jobs as a career. Whatever the contractor bills the principal employer under these heads is being disbursed to employees immediately. Employees are happy that they do not need to wait for their bonus or leave encashment when leaving their jobs. Many principal employers and labor authorities are welcoming this trend since the risk for the principal employer becomes negligible.

Any comments are welcome.

Regards,
R. Gunashekaran
Lawyer