Understanding Bonus, Ex-Gratia, and Superannuation: Can You Clarify the Differences?

Understanding Bonus and Ex-Gratia

Can you please explain the difference between Bonus and Ex-Gratia? Is there any linkage between Gratuity and Ex-Gratia?

Views on Superannuation

What are your views on Superannuation?

Regards,
Rahul

A bonus is an amount payable to workers, usually on the occasion of Diwali, under the Payment of Bonus Act. Workers with a salary up to Rs. 10,000/- can be eligible for a maximum bonus of Rs. 3,500/-. Workers with a salary exceeding Rs. 10,000/- are not eligible for a bonus.

Ex gratia is an amount paid to workers (having a salary exceeding Rs. 10,000/-) as a goodwill gesture on the occasion of Diwali. The employer is not obligated to pay ex gratia, but it is mandatory to pay the bonus.

Regards,
Jaipal

Good answer and strictly applying the legal entity. However, in other terms, a portion of the bonus is called ex-gratia and paid. This is done when management decides to pay a bonus over and above 8.33%. It is done considering certain uncertainties of profitability and to avert setting a precedent of paying a higher bonus in the future.

Regards,
Murugesan R

Understanding Bonus and Ex-Gratia

Bonus is a payment made beyond the salary and perks and is usually linked to productivity or performance. In the context of business, it literally means "Extra," which is more than the regular salary or wage. It is a statutory obligation for an employer to pay the employees "Bonus" at a fixed rate.

The minimum bonus amount must be at 8.33%, and the maximum must not go beyond 20% of an employee's wages.

Ex-gratia is given as a mark of compassion voluntarily. Usually, for the employees who are not covered under the Bonus Act, Ex-gratia is paid.

Non-profitable organizations such as hospitals, social work organizations, NGOs, etc., are not covered under the Bonus Act, 1965.

Although for the employees who come under the Bonus Act, if the employer wishes to pay beyond 20% of wages, it is given in the name of Ex-gratia.

Circumstances Where Ex-Gratia is Paid

- An employer may wish to pay some amount (as acknowledgment of the worker's contribution) out of the revenues of the firm in case the profits do not support paying the bonus.
- On completing a specific period of existence, executing a large export order, or any other event which marks significance, an employer may pay some amount as Ex-gratia.
- Any other reason that is NOT binding on the employer, but the employer "wishes" to make such a payment to employees.
- When the employer wishes to pay the employees an amount after paying the maximum bonus of 20% on wages.

Can Ex-Gratia be Included in Annual CTC?

Annual CTC means the total cost incurred on an employee in a year. From a management perspective, the employer may consider it for arriving at a cost to employ so many employees at any given point in time. It is purely at the discretion of the management.

When you consider the character of the payment (being ex-gratia), it should not be a part of CTC. It may be so in a particular year when it is paid. If it is going to recur every month/year, it loses the character of being Ex-gratia and can be called some other earning head, which can be included in CTC and paid regularly.

Regards

Please find the details below:

Bonus

- It is a compulsory amount that organizations have to pay to their employees every year regardless of profit and loss. As per labor law, 8.33% of the basic salary must be paid annually.

Ex Gratia

- It solely depends on management discretion whether to pay this amount to employees or not. It is typically given to employees based on profits, with no compulsion by labor law.

Gratuity

- Our labor law specifies that any employee who spends more than 5 years in an organization is entitled to gratuity from the employer. This payment is made at the time of the employee's Full & Final settlement and is calculated as: last basic drawn X 15 X number of years / 26.

Superannuation

- This is a retirement benefit provided to employees and is not a government obligation.

I hope this information is helpful.

Best regards,

Types of Superannuation

Superannuation can be of two types:

• **Defined Contribution** - Here, we can define the contribution rates (either of the Employer and Employee or Employer) accordingly. The Employee will get the benefits at the time of retirement.

• **Defined Benefits** - Here, we can choose the retirement benefits first, and accordingly, we need to pay contributions.