Understanding Your Rights: Can You Claim Your Full Bonus When Resigning?

Hi all, Please help me in this regard. My appointment letter shows a component of an Annual Bonus that was to be paid to me after serving the company for a year. I am a confirmed employee with the company and am required to give two months' notice or two months' worth of basic salary upon resigning.

Please help me understand if the company is obligated to pay the bonus amount in full or if they can make deductions from it. (There is no mention of this in my offer/appointment letter.)

Additionally, if I leave the company without proper notice, can I claim the remaining bonus amount after deducting two months of my basic salary from the bonus amount in my Full and Final settlement?

Thank you,
Anurag Gera

I think you must be referring to a performance bonus, not a statutory bonus. In my view, the company is entitled to deduct the notice pay in case of your default from the bonus in terms of the employer's right of lien, provided you become entitled to it as per your contract.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai

Hi Sasi, how is it possible for him to ask for a bonus without giving proper notice period? What he did is not acceptable. In this situation, he doesn't have any rights to claim his outstanding amount except his salary. I think I'm right. What do you say?

If it is a statutory bonus, it's compulsory; otherwise, it depends on the company. They may or may not pay this amount.

Thank you.

Clarification on Annual Bonus and Retention Time

The bonus amount is related to my retention time with the company, i.e., one year, and not the PLI, but it is mentioned as an Annual Bonus. Please suggest what could be done if the company tries to negotiate on this amount.

Thanks

As per the terms of the contract of employment as explained by Anurag, the bonus is linked to his retention in the service of the company for one year, and thus he becomes eligible for the annual bonus on completing one year in the company. The contract does not say that the bonus stands forfeited on not giving two months' notice. Therefore, his right to the annual bonus remains unaffected even by his default to give two months' notice. However, Anurag has to give either two months' notice or two months' salary in lieu thereof, in terms of the contract, if he wants to quit the service. Thus, the options open to both Mr. Anurag and the company, in my view, are as follows:

For Anurag:

1. He can pay two months' salary in lieu of notice; or
2. Request the company to deduct notice pay from the bonus payable to him and pay him the balance.

For the company:

1. The company may insist on the payment of two months' notice pay and pay him the bonus fully; or
2. Can deduct two months' notice pay from the bonus, irrespective of the request of Anurag, in exercise of the employer's right of general lien.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai

Appreciating Mr. Saikumar's reply, I would just like to add that if you receive your salary for the period, whatever you mention, the salary includes what it is supposed to include. If you receive your full pay, the bonus will also be included for that month (not the performance bonus, only the legal one). The amount you pay will determine the bonus that is included.

If the company pays a statutory bonus, i.e., a minimum of 8.3% or a maximum of 20%, will it also pay an additional productivity-linked bonus or performance-linked bonus for the employees? Please advise in this regard.

Regards,
Raju

I would disagree with the opinion stated by my fellow members. The bonus mentioned would not be covered under the Payment of Bonus Act. It's ex gratia, which means it is at the option of the company. They can very well refuse to pay it.

Contractual Obligations

In case the offer letter or appointment letter specifically mentions a bonus, you can probably consider that as a contract and therefore enforceable. However, by leaving without notice (which is also stated in the appointment letter), you have breached the contract, and therefore the company is not bound to honor it either.

Statutory Bonus Coverage

If you are covered under statutory bonus, then it's 8.33% or 20% of Rs. 6500 per month. I don't think your notice pay pending will exceed that.

I am working in the Hotel Industry and would like to learn more about the Bonus Act. When is an employee eligible for a bonus?

Our owner says we don't have to provide bonuses for the first three years. As an HR Manager, I am a bit confused. Please advise.

Regards,
Stanley Devdas
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Understanding the Payment of Bonus Act 1965

The Payment of Bonus Act 1965 covers an employee whose wages are Rs. 10,000/- per month or less. Therefore, you should be within the said wage bracket to claim a bonus. If your hotel is new and is not making a profit, it is exempted from paying a bonus for a period of five years. Therefore, everything depends on the facts, and there cannot be a general reply.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai

I fully agree with Mr. Saswata Banerjee and would further like to add that the payment of the bonus as per the contract will depend on the wording of the contract. If it is payable annually only and there is no mention of prorated payment, and you want to leave the services without completing the year, it may be refused by the employer. Thus, the wording of the specific clause is very important in your case. If you can let us know the clause, it may be advised properly.

Regards,
pkjain

Is there a ceiling for the payment of bonuses similar to PF & ESI? Are all employees eligible for receiving a bonus, or can we exclude any based on their salary? Please clear my doubts.

Under the Payment of Bonus Act, 1965, as per sec. 2(13), every employee drawing a salary up to Rs. 10,000/- is covered under the Act. This means that every employee drawing a salary up to 10K is entitled to a bonus, provided they have worked at least 30 working days in a year (as per sec. 8).

The Act further provides the method of calculation under sec. 12, which states that when the salary/wages of an employee exceed Rs. 3,500/- per month, the bonus to an employee shall be calculated as if the salary/wages were Rs. 3,500/- only.

Sec. 10 of the Act specifies that the minimum bonus shall be 8.33%, and sec. 11 provides the maximum bonus limit up to 20%.

However, if the employer wishes, they can pay a bonus to their employees not covered under the Act without any restrictions.

Regards,
pkjain