Are We Required to Pay Bonuses to Employees in a New Budget Hotel? Seeking Clarity on Bonus Act Eligibility

I am working in the hotel industry. We are in the budget category of hotels and are new to the market. The company was incorporated in March 2006 but started its operations only in January 2012. We have employees earning less than or equal to 10K per month. Kindly let me know if we are eligible to pay bonuses to the employees. As I have come to know, any new company (less than 5 years old) is not eligible under the Bonus Act.

Regards

You are right, unless the company stabilizes, you need not pay a bonus to your employees. However, I'm not sure if it's 5 years or 1 year. I'm certain that the first year you are exempted.

Regards,
Bharghavi

As per statute, any new establishment has an exemption from paying bonuses for the first 3 years. In case of losses, then 6 years (first 3 years + an extended 3 years due to loss). Even if the company is in loss after 6 years, then a minimum of 8.33% of the Basic needs to be paid.

Regards,
Karthik

Yes, it is true. According to the Bonus Act, the minimum bonus should be calculated on a basic salary of 3,500, and 8.33% of this amount is the minimum bonus.

Query on Bonus Act Exemption for Newly Established Organizations

The query is related to the number of years for exemption under the Bonus Act for a newly established organization. From the 6th year, the Bonus Act is applicable for the purpose of payment of bonuses.

Section 16: Special Provisions with Respect to Certain Establishments

(1) Where an establishment is newly set up, whether before or after the commencement of this Act, the employees of such an establishment shall be entitled to be paid a bonus under this Act in accordance with the provisions of sub-sections (1-A), (1-B), and (1-C).

(1-A) In the first five accounting years following the accounting year in which the employer sells the goods produced or manufactured by him or renders services, as the case may be, from such establishment, a bonus shall be payable only in respect of the accounting year in which the employer derives profit from such establishment. Such a bonus shall be calculated in accordance with the provisions of this Act in relation to that year, but without applying the provisions of Section 15.

Dear Loveneet and others, please appreciate that 3500 is the maximum, not the minimum. Okay Loveneet, please correct it.