Navigating Bonus Payments: How Do New Companies Handle Employee Bonuses?

Define Bonus Payment to an Employee

1. Define bonus payment to an employee.

Bonus Applicability for New or One-Year-Old Companies

2. Is a bonus applicable for a new or one-year-old company? Is the number of employees a requirement? If so, how many? Are temporary employees entitled to a bonus?

Bonus Applicability During Company Loss

3. If a company is making a loss in the first year or first four years, would a bonus become applicable? If yes, what percentage?

Accounting Year and Bonus Payment Date

4. In which accounting year must a bonus be paid, and by what date?

Range of Bonus Amount

5. What is the range of the bonus amount, from the minimum to the maximum?

Eligibility for Bonus Payment Based on Salary

6. Would a salary of more than $10,000 or $15,000 per month be eligible for a bonus payment?

Ex-Gratia Payment for High Earners

7. For those earning over $10,000 per month, is it mandatory to be paid as ex-gratia instead of a bonus?

Inclusion of Bonus in CTC

8. Can a bonus be included in the employee's CTC and paid in the employee's monthly salary, with a minimum of 8.33%?

Bonus Adjustment in Case of Employee Misconduct

9. In the event of employee misconduct, can a bonus be held back or adjusted in the employee's dues in their full and final settlement?

Appreciate your response against each of these questions.

Regards,
Chandrasekar
Regional Manager - India

Overview of the Bonus Act 1965

An Act to provide for the payment of bonuses to persons employed in certain establishments on the basis of profits, production, or productivity, and for matters connected therewith.

Bonus Distribution Timing

As per the Bonus Act 1965, the bonus is always distributed for the previous year. If your company has just finished one accounting year, it means that the payment of the bonus will be distributed in the next accounting year, hence not applicable immediately. The minimum requirement is 20 employees. It depends on the contract or if you are included in the payroll; otherwise, it is not applicable.

Bonus Distribution in Case of Losses

If a company incurs losses for up to 5 years, there is no requirement to distribute a bonus. After five years, if the company is still under losses, the Board for Industrial and Financial Reconstruction (BIFR) will audit the company to determine if it is sick or not. If deemed sick, the company must pay a bonus after selling some part of the company's property. The bonus for the last year is paid 8 months after the end of the accounting year.

Bonus Percentages

The bonus percentages are as follows:
- Minimum: 8.33%
- Maximum: 20%

Ex-Gratia Payments

For amounts exceeding 10,000, you have to pay Ex-Gratia. Yes, you are free to do this. It depends on you, but the employee is entitled to the bonus. According to the act, if the employee has worked for 30 days in the previous accounting year, they are entitled to a bonus.

Regards

The first 5 years are considered to be the infancy period; hence, payment of a bonus is not necessary. Once it is paid, even in the case of a loss, you have to pay a minimum of 8.33%, with a maximum of 3500 per annum.

Above a salary of 10000, the employee is considered non-eligible, and payment is not statutory or mandatory. If you wish, you can pay as ex-gratia.

Thank you,

Amar Abrar