Choosing Between Bonus and Performance Pay in IT: Can You Share Your Insights?

Dear All, It's very urgent... Please help me out. Can anyone assist me with deciding between the payment of a bonus or payment of performance pay in other companies? I am new to this process and need some guidelines.

Regards,
Archana R.
HR Executive

Dear Archana,

First of all, let me welcome you to this knowledge-sharing forum. Here, you can seek guidance as well as guide others.

Payment of Bonus Act

You have to follow the Payment of Bonus Act for deciding about the Bonus Payment. The eligibility is one must work for 30 working days in the financial year, and their salary should not be more than ₹10,000/-. The maximum salary limit for calculating the Bonus is ₹3,500/-, and the company must pay a minimum of 8.33% of Bonus and a maximum of 20%. The bonus must invariably be paid whether your company earned a profit or not, or if allocable surplus is available or not.

Performance Pay

The performance pay will be given by the company according to the profit earned by the company. It will be fixed for the employee based on their performance and the ratings given by the immediate superior. The moderation committee will finalize the ratings altogether and decide on fixing the performance pay for each individual staff member. For this pay, there are no specific criteria available, but the company will have its own policy.

Regards,

Hi Bhaskar, I am happy to be here to meet you guys. Apart from the explanation given to Archana, I just want to know if there is any specific experience required to be eligible for a bonus.

For example: If an employee has newly joined the organization three months before the bonus period, are they eligible to receive it?

Thank you.

Understanding the Payment of Bonus Act - 1965

According to the Payment of Bonus Act - 1965, every employee of an establishment covered under the Act is entitled to a bonus from their employer in an accounting year, provided they have worked in that establishment for not less than 30 working days in the year on a salary less than Rs. 10,000 per month (Section 2(13) read with Section 8).

If you want, kindly refer to the attachment.

Regards,
Archana R.

Dear Archana, I have also mentioned the same in my reply to that query. However, for calculating the bonus, it must be calculated for Rs. 3,500. You do not need to show the amount Rs. 3,500 in case the employee earns more than Rs. 3,500 but less than Rs. 10,000.

Hi Bhaskar, I feel happy to be here to meet you guys. Apart from the above explanation given to Archana, I just want to know if there is any specific experience required to receive a bonus.

For example, if an employee has newly joined the organization 3 months before the bonus period, are they eligible to receive it?

If the employee worked for three months in the financial year, it means that they will surely receive the bonus. The calculation for the bonus eligibility would be Rs. 3500 X 3 months X the percentage of the bonus being declared, and not their salary X 3 months X the percentage of the bonus declared.

I hope you understand the concept of calculating the bonus.

If you are planning to move towards “Variable Performance Pay,” then please ensure that you pay Variable Performance Pay as per your company policy. In case you come across a situation where performance was zero and you are not paying any bonus to the employee, please ensure that the person is not covered under the Bonus Act. Otherwise, you must pay the minimum bonus as per the Bonus Act. The Bonus Act supersedes the company Variable Performance Pay Policy.

Regards,
BrainLight HR Solutions