How Does a Monthly Statutory Bonus Affect Gross Salary and ESIC for Contract Employees?

If a company pays a statutory bonus of Rs 292 on a monthly basis to all contract employees at the skilled level, would that statutory bonus be added to the Gross Salary and subsequently attract ESIC at 4.75% on the same? Or will it not be added to the gross? How will it be reflected in the Salary Slip if it is paid monthly by the principal employer?

Second Query: If the statutory bonus is paid yearly, when does it have to be paid, and how will it reflect in the salary slip in terms of Gross & ESIC?

With Regards,
Virag Shah
[Phone Number Removed For Privacy Reasons]

Subsidiary Bonus

Query No. 1: Statutory bonus paid annually does not count for contribution since it does not form part of the definition of wages under Sec. 2(22) of the SSI Act as it is paid annually, i.e., at an interval of more than two months.

Query No. 2: As per Sec 19 of the Payment of Bonus Act 1965, statutory bonus shall be paid within 8 months from the date of closing of the accounting year unless the Government extends the time limit.

Regards,
B. Saikumar
HR & Labour Law Consultant
Chipinbiz Consultancy Pvt. Ltd
Mumbai
Tel: [Phone Number Removed For Privacy Reasons]

Basically, it is a typical question, and everyone will give their interpretation in a different way. If the annual statutory bonus is paid on a monthly basis, will it attract ESIC contribution?

In my view, yes, it will attract ESIC contribution, but it is a question of interpretation. However, if it is paid on a quarterly basis, no contribution will be paid on this payment.

I want to summarize that if the statutory bonus is paid monthly, it will be added to the Gross Salary and subsequently attract ESIC. However, if the bonus is paid quarterly, it will not attract ESIC. If it is paid yearly, as suggested by Sai Sir, it would not be counted as a contribution since it does not form part of the definition of wages under Sec. 2(22) of the SSI Act as it is paid annually.

Thank you, Sir.

With Regards,
Virag Shah
[Phone Number Removed For Privacy Reasons]

Basically, the motive of the Payment of Bonus Act is to share a part of the profit earned during the accounting year with employees. Naturally, it will be decided after the end of the accounting year whether the company has earned a profit or not. So, if you try to calculate this on a monthly basis, how does it work out to determine the company's profit?

Secondly, the payment of bonus or the same amount does not need to be accumulated with the gross earnings of the employee. You have to make this bonus payment through FORM C, which includes yearly days, wages, etc.

Regarding ESI, it doesn't attract contributions under ESI when paid annually. However, what Mr. Malik said is absolutely correct; if it is converted into a monthly payment, it definitely falls within the purview of the ESI Act.

Regards,
KIRAN KALE

1st Query: If a company pays a statutory bonus of Rs 292/- on a monthly basis to all skilled level contract employees, would that Statutory Bonus be added to the Gross Salary and subsequently attract ESIC @4.75% on the same? Or will it not be added to the gross? How will it be reflected on the Salary Slip if it is paid monthly by the principal employer?

Answer: It has to be added to the gross salary. Please visit the below site for better understanding. Any payment, including bonus, that is paid for more than 2 months is covered under the ESI Act.

2nd Query: If the Statutory Bonus is paid yearly, when does it have to be paid and how will it reflect on the salary slip in terms of Gross & ESIC?

As per the Payment of Bonus Act, the bonus shall be paid within 8 months from the date of closing of the accounting year. Probably, you can give it during Diwali/Dussehra (if your financial year is April - March).

Since you are paying yearly, you can give the employees a bonus/Ex-gratia slip or show it separately on the payslip. (It should not be added to the gross, and no ESI will be deducted.)

ESIC-Chinta Se Mukti <link updated to site home> (Search On Cite | Search On Google)

Ensure there is a single line break between paragraphs.

Regards

Can you tell me if the bonus deduction from CTC every month, given to employees at the end of the year, is mandatory for employees or not?

I am at my wit's end trying to understand how the statutory bonus under the Payment of Bonus Act can be paid on a monthly basis. If you review the provisions regarding computing the bonus, a decision to determine the amount of bonus can only be made during the preparation of the balance sheet for the accounting year, which occurs at the year's end. This is because the company must calculate the gross profits and the available and allocable surplus during the annual closing. If this is what the Act mandates, it raises the question of how the statutory bonus can be paid every month. This implies that the company must calculate the profit and loss every month and pay the bonus, which would contravene the provisions of the Bonus Act.

Assuming that the bonus is calculated annually as per the Act but is paid in 12 equal monthly installments, this would also contradict Section 19 of the Bonus Act, which stipulates that the employer must pay the bonus within 8 months from the close of the accounting year. The Act provides the employer with 8 months to settle the entire bonus amount owed to an employee but does not explicitly state that the bonus can be paid in equal monthly installments. This is the primary issue that needs consideration, without even delving into whether it affects ESI contributions.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai
[Phone Number Removed For Privacy Reasons]

I have a similar query relating to ESI on Bonus paid, please guide me.

In my company, there are 15 employees, so we are covered under ESIC but not in the Payment of Bonus Act as the number of employees is less than 20. Do we need to pay ESI contribution on Bonus paid to employees? Bonus paid to employees is technically not a statutory bonus as the number of employees is less than 20, and it is not mandatory for us to pay the bonus.

Thanks and Regards

Sir,

I have one query regarding bonus payment. I resigned in June 2017, but our company did not pay the bonus for the year 2016-17. They mentioned that they will not pay as the employee is leaving the company. Where should I file a complaint and send it to the previous company?

Regards,

NS Rao
Hyderabad

Hi,

Kindly let me know if we have to deduct the ESIC contribution for bonus calculation.

Shanthi.S