Confused About Bonus Calculation: Can You Help Clarify This Scenario?

I have a confusion regarding bonus calculation. Suppose an employee has a basic salary of Rs 8000, can we consider Rs 3500 as the maximum amount and calculate 8.33% of Rs 3500 as the bonus? That would be Rs 3500 * 12 * 8.33 / 100 = Rs 3499. Please guide me.

Regards

Components of Bonus Calculation

There are two components with respect to the calculation of the bonus:

1. **Eligible Limit:** An employee who draws a basic salary of Rs. 10,000/- is eligible to receive a bonus in the respective financial year.

2. **Applicable Limit:** For an employee, even if they draw a salary less than Rs. 10,000, the bonus is applicable only up to Rs. 3,500/-.

In your case, what you have calculated is correct.

Your above calculation is almost correct, but a small error occurred. 8.33% is the percentage conversion of 1/12. Accordingly, the calculation of the bonus is 3500 x 12 x 1/12 = 3500, not 3499.

Regards,
Abbas. P. S.

I need one more clarity regarding the basic wage criteria in the following cases:

1. If an employee has a basic wage of Rs 2400, will he be eligible for Rs 2500 for calculating the bonus?
2. If an employee has a basic wage of Rs 3800, will we consider Rs 3500 for calculating the bonus?

Please correct me if I am wrong.

Salary Calculation Ceiling

The salary for calculation will be actual, subject to a ceiling of Rs. 3500 per month. Accordingly, Rs. 2400 will be treated as Rs. 2400 itself, and Rs. 3800 will be treated as Rs. 3500.

Regards,
Abbas.P.S

Bonus Payment Guidelines

Bonuses are paid to employees who have worked for more than 30 days. Bonuses can be distributed based on the profitability of the company. If the company is making a good profit, bonuses can be paid accordingly. Generally, companies will pay one month's Basic + DA or one month's Gross (usually in IT companies).

As per statutory regulations, there is a ceiling for bonuses at ₹3,500 (Basic + DA), and 8.33% is paid on this amount. Even if Basic + DA exceeds ₹3,500 but is less than ₹10,000, employees can be paid based on the ₹3,500 ceiling. However, those who draw Basic + DA exceeding ₹10,000 are not eligible for a bonus.

That means up to 3500 (i.e., up to 3499, we will calculate the bonus on 3499*8.33%*12), and above 3500, we will lock in 3500.

Can anyone explain to me about Allocable Surplus? I am eagerly waiting for a valuable reply.

With regards,
Amit Trada

Understanding Allocable Surplus for Bonus Calculation

After applying (or deducting) direct taxes, depreciation, developmental rebate, etc., on gross profit, the available surplus will be arrived at.

For companies other than banking institutions, the allocable surplus is 67% of the available surplus. For other establishments, it will be 60%.

Regards,
Abbas. P.S

Let's say you have 4 lakh rupees for bonus distribution, but the maximum total bonus that can be distributed is 380,000/-. Therefore, the remaining 20,000 is your allocable surplus, which you can use for bonus distribution in the coming year.

As I see it, you are asking if 8.33% is the maximum that you can achieve. The answer to that is no. You can receive a maximum of up to 20% of your base. There is no fixed way of calculation; however, if the calculation is done on a monthly basis, then the basic salary is generally considered. It all depends on the company's performance. If it's very good, you can also receive additional bonuses during your mid-year or annual appraisal.

Thanks & Regards,
Viv

Our company provides basic salaries ranging from Rs. 3,600 to Rs. 20,000. I would like to know how bonuses are calculated. Could you please clarify whether the basic salary is a part of the gross salary or is it the gross salary itself?

Thank you.

Regards

The ceiling is Rs 3500, which means up to 3500, we can consider the actual basic and DA for calculating the bonus. Please find the cases:

1. Employee with basic - 2000 and DA - 400, Number of years worked = 1.5
Basic = 2000
DA = 400
Number of years = 1.5
Therefore, Bonus = 2400 * 1.5 * 8.33% = 300

With Regards,
Vimal

I need to know if a staff member is earning a basic salary of less than Rs. 10,000 and the company pays a bonus of Rs. 8,000, can the full amount of Rs. 8,000 be shown as a bonus, or do you have to show Rs. 3,500 as a bonus and the remaining Rs. 5,000 as ex-gratia? Please clarify.

Thanks,

Eligibility for Bonus Calculation

In simple terms, any employee who earns wages up to or less than $10,000 is eligible to receive a bonus. Hence, for those who are eligible, their bonus shall be calculated on $3,500. However, if they earn less than $3,500 (for example, $2,400), then the bonus shall be based on that specific amount of $2,400.

Minimum and Maximum Bonus Calculation

If the minimum bonus is to be given, it shall be $3,500 * 12 * 8.33%. For the maximum bonus, it will be $3,500 * 12 * 20%.

Understanding Allocable Surplus

Allocable surplus, in very simple terms, refers to a particular amount set aside for the bonus from the available surplus or profit the company has, as per Section 10 of the Bonus Act. This amount is designated for providing the maximum bonus of 20%, and the remaining is carried forward for the next year.

Hope this information helps you.

Regards,
Indu Nair
Student HR

3500 is the ceiling for paying a bonus. If the amount exceeds this limit, can we pay by showing it as an ex gratia amount? If anyone could clarify.

Regards,
Firoz

I am aware that we can give more than Rs. 3500/- as a bonus, but when showing it in our books of accounts, can we show the full amount of Rs. 8000/- as a bonus, or do we have to show Rs. 3500/- as a bonus and Rs. 5000/- as ex-gratia?

Regards,

Bonus should be calculated on a monthly basis. If there is any leave without pay, it should be deducted when calculating the bonus. Please clarify.

With Regards,
Vimal

According to the Bonus Act, Allocable surplus is the 'surplus amount' on which the minimum or maximum bonus, i.e., the actual percentage of bonus to be paid, is calculated. If the allocable surplus exceeds the minimum bonus, then the maximum bonus is paid, i.e., 20% of Salary. If a company incurs a loss for a particular accounting year, i.e., less allocable surplus, then the minimum bonus at 8.33% of Salary is paid.

In the case of Foreign Companies, 67% of the Available Surplus is considered as Allocable Surplus, while in the case of other companies, 60% of the Available Surplus is considered as Allocable Surplus. Available Surplus is calculated as Gross Profit minus Deductions (under sec 6).

I hope your concept of Allocable surplus is now clear.

Thank you

Regards

Yes, Firoz, ₹3500 is the ceiling amount. That means up to ₹10,000, you are supposed to calculate based on ₹3500 only. If the person earns more than ₹10,000, then he will not get a bonus, but he shall be given ex gratia. Ex gratia is a term generally mentioned for upper-level employees earning more than ₹10,000.

Hope it is clear.

Regards,
Indu Nair
Student HR

Amendment to the Bonus Act of 1965

As per the Payment of Bonus (Amendment) Bill, 2010, i.e., Bill No. 15 of 2010 as published in the Gazette of India on 5-3-2010, Pt. II-S.II Ext. p.59(No.3), the Bonus Act of 1965 has been amended. The amendment specifies that starting from the year 2009, the minimum bonus will be 11%, and the maximum amount for bonus calculation has been increased from Rs. 3,500 to Rs. 5,000.

Brigadier (Retired) N. A. Subramanian, YSM

If any employee is receiving a basic salary of ₹11,000, how will the bonus be calculated?

Bonus Eligibility and Calculation

Q2. Is ₹3,500 considered as eligibility for the bonus amount?

Q3. What are the minimum and maximum limits for the bonus?

Please reply.

Thanks,
Parveen Kumar

Employee Wage Calculation Guidelines

Employees drawing wages up to Rs. 3500 per month or less will have Rs. 2500 per month considered as the maximum for calculation purposes, even if an employee is drawing up to Rs. 3500 per month.

Section 12 Note

The proposal to enhance the existing ceiling of Rs. 3500 is under active consideration by the government.

Mainly, two mistakes were made in the above posting. You mentioned that "if allocable surplus exceeds the minimum bonus, the maximum bonus is paid." This is not correct. If the allocable surplus is enough to pay 20%, then the maximum bonus has to be paid. Otherwise, it will vary from 8.33% to 20%.

Also, in the case of foreign companies, 67% of the available surplus being considered as allocable surplus is not correct. This should be changed to companies other than banking companies.

Abbas.P.S

Please clarify my doubt below:

If a staff member is drawing a basic salary of less than Rs.10,000/- and the company declares a bonus of more than Rs.3,500/-, for accounting purposes, can we show the full amount as a bonus, or do we have to show Rs.3,500/- as a bonus and the balance amount as ex-gratia?

Please clarify.

Thanks

Dear Sir, I have a confusion in bonus calculation. Suppose an employee has a basic salary of Rs 8000, can we take Rs 3500 as the maximum and calculate 8.33% of 3500 as the bonus, i.e., 3500*12*8.33/100 = Rs 3499? Please guide me. 8.33 is the percentage form of 1/12, i.e., 1x100/12 = 8.33. Hence, 8.33% is 3500x12x1/12 = 3500.