Are Employers Legally Required to Give Bonuses? Understanding Bonus Calculations

Is there a law that mandates giving bonuses to employees? Please guide me in the calculation of bonuses.

Dear Friend,

To my knowledge, bonuses have to be given to all employees under the Payment of Bonus Act of 1965. According to the act, the minimum bonus is 8.33%, and the maximum bonus is 20%.

Regards,
S. Achuthananda

Bonus is payable under the Bonus Act. Books on the act are available in the market; you can go and buy them for in-depth details.

As far as factory work is concerned, the bonus is applicable if your agreement with the union states so; otherwise, it is as per the company policy.

The bonus is calculated on gross profit, with a minimum bonus payable of 8.33% and a maximum of 20% of the Basic and DA.

Again, the bonus is applicable only to those who are drawing a salary of 3500/- (Basic + DA) or below. The calculation formula is 2500 x 12 = x * 20%. 2500 is the bottom line as per the act; you cannot calculate below this figure.

Regards,
Shakila

Hi,

If you look at a statutory point of view, a bonus is to be paid under the Payment of Bonus Act, 1965, and the act states that employees whose gross salary is below Rs. 3,500/- should be paid a bonus. The bonus is to be paid at 8.33% of the annual gross salary of such employees. The maximum bonus that can be paid to an employee is 20% of the annual gross salary.

However, nowadays, all companies are giving bonuses to their employees as a goodwill gesture and motivational factor. I believe no company pays a salary below Rs. 3,500/- to their employees, so the statutory obligation never really comes into question.

Regards,
Srihari Rao

Dear Shilpa,

To my knowledge, a bonus is calculated based on the Payment of Bonus Act 1965, not on performance.

As per your description, it is applicable to individual performance appraisal.

Regards,
S. Achuthananda

Hi Achuthananda,

Thank you for your information. Up to this point, I have not calculated any bonuses for anyone. I simply had the information, so I shared it. Regardless, thank you.

Regards,
Shilpa

Dear HR Friends,

Another point is that the employee should complete 30 days of work to receive a bonus.

Regards,
M. Alphonse 😊😊😊

I still have a confusion. If a person's salary is 9504 basic + 7776 DA, how should I proceed with a minimum of 8.33%?

Regards

Dear Shilpa, Shakila & Shrihari Rao, if you have no clear knowledge, please do not misguide others. From the financial year 2006-07 onwards, the salary ceiling limit for bonus coverage is Rs. 10,000, and the ceiling limit for the calculation of bonus payment is Rs. 3,500.

Dear Spreethik, for bonus calculation, first, you have to arrive at the available surplus. To arrive at this, you have to deduct depreciation, tax, developmental rebate, etc., from the gross profit. (It will be better to consult an expert in this regard). Find allocable surplus, which is equal to 60% of available surplus, in the case of Banking Organizations. But for Companies, this is 67%.

Distribute this amount among the employees subject to a lower ceiling of 8.33% and an upper ceiling of 20%. Even though the actual falls below/beyond these limits, payment of Bonus should be restricted as stated above. If it is below 8.33%, the balance can be adjusted from the preceding 4 years, which is called Set Off. If it is above 20%, the excess up to another 20% can be carried forward to the preceding 4 years, called Set On. After 4 years, both Set Off and Set On will be lapsed.

Dear Anitha Elizabeth, in the above case, the salary is Rs. 17,280. Bonus is statutory only up to a salary of Rs. 10,000. But the employer can pay ex-gratia according to company policy.

Regards, Abbas.P.S

I am an employer. I have configured the employee salary structure as follows:

Salary Structure Configuration

- Basic: 50% of CTC
- DA: 15% of CTC
- HRA: 25% of CTC
- Medical: 10% of CTC

Is it right? Also, for bonuses, I have configured it as 65% of CTC (Basic + DA) for all office staff.

Is that correct? Please advise.