Is an Employee Joining Mid-Year Eligible for a Bonus? Seeking Your Advice

Dear All, Please help. If an employee joins our company on the date 18/03/2013, is he eligible for a bonus during that financial year? Thank you.

Those who have completed one month in the organization are eligible for a bonus.

A bonus is eligible to an employee as per the Payment of Bonus Act, upon completion of 30 days in a previous year. The bonus is usually paid as 11% to 20% of the allocable surplus (the allocable surplus is a portion of profit taken out by the company). The percentage distributed to the employees is at the management's discretion.

Regards

[QUOTE=satishsorout;2038588] Please help if an employee joins our company on the date 18/03/2013. Is he eligible for a bonus during that financial year?

Dear satishsorout, The simple answer to your question is - No. The employee joined on 18.03.2013. During the accounting year 2012-13, his working days are less than 30 days. Therefore, he is not eligible for a bonus for 2012-13.

Dear Madam Sharmila Ji, I am not convinced with your response, and I am sure professionals like me will agree with me. With due respect to you, Madam, I submit this.

Clarification on Bonus Act

You haven't read my post clearly, have you? Well, the Bonus Act ensures a payment of 8.33% as a minimum. Depending on the surplus or the profit earned by any organization, many companies pay at 11% at its minimum, which depends on the management. Although professionals or myself would definitely go by the books of law.

Regards.

The eligibility criteria as per the Payment of Bonus Act is that an employee has to work in the organization for 30 days during the financial year. Since he joined on 18.03.2013, he is not entitled to a bonus legally. However, it is management's discretion if they want to pay a bonus; the same can be disbursed.

Regards,
Sudhakar

I did not understand your posting that "Bonus is eligible to an employee as per the Payment of Bonus Act, completed 30 days in a previous year."

Clarification on Bonus Eligibility

Eligibility is decided on the basis of days worked in the current financial year and not the previous year. Well, a bonus can be paid in the next 8 months from the closing of that particular financial year.

Regards,
Kamal

Can you clarify the eligibility of a bonus in the current fiscal year? What does that mean? Are you saying that an employee who has worked for 30 days in that fiscal year will be paid a bonus in that year itself?

Clarification on Bonus Payment Timeline

You mentioned, "Bonus can be paid in the next 8 months from the closing of that particular financial year." I did not understand this. Could you please explain?

Note: An employee who has worked for 30 days in the current fiscal year 2012-13 will not be eligible for a bonus in that accounting year. "Previous" refers to the previous fiscal year.

Regards,
Sharmila Das

Being eligible for a bonus and the bonus actually paid are different terms. Eligibility is always decided in the current accounting year (i.e., eligibility for a bonus for the accounting year 2012-2013 has to be decided in March 2013, and provision of bonus payment has to be made in the balance sheet). However, the bonus is actually paid within 8 months from March 2013, which would be November 2014. That's what I mean.

When we refer to the annual year, it means January to December and not April to March. So, when discussing the Payment of Bonus Act, the term "annual year" should not be used. I hope I explained what I mean.

Regards,
Kamal

Let me put it this way - Mr. Prasoon, provided that the computation of the bonus for that year is calculated as an accounting year and a separate balance sheet & profit and loss accounts are prepared and maintained in respect of any such undertaking, wherein the payment of bonus to a person who is employed (worked at least 30 days in a year) is ascertained to the establishment on the basis of profits engaged in any position, is entitled to that accounting year.

Though the minimum to be paid by the employer to the employee is at 8.33%, even if there is no allocable surplus during the accounting year; and if in an accounting year, the allocable surplus, calculated after taking into account the amount set on or set off, exceeds the minimum bonus, the employer should pay the bonus proportionate to the salaries earned by the employees in that accounting year subject to a maximum of 20%, which is paid in cash within 8 months from the closing of the accounting year or within one month from the date of enforcement of the award.

Hope this clarifies the accounting year for payment of bonus.

Thanks!

I completely agree with Mr. Keshav Korgaonkarji. There has been no amendment in the Payment of Bonus Act in the recent past. The minimum bonus payable is 8.33%, and the maximum is 20%. In the case referred to, since the individual has not worked for 30 days during the accounting year, the employee is not entitled to a bonus.

Regards,
Satishkumar

Discussions in this thread by some of the eminent members compel me to give features of the POB Act 1965 as under:

* This Act applies to every factory & establishment having 20 or more employees on any day during the accounting year.
* Employees drawing salary/wages up to Rs. 10,000 per month are covered under this Act.
* Employees who work for a minimum of 30 days during the accounting year are eligible for a bonus for that accounting year.
* Bonus is calculated on a maximum salary/wages of Rs. 3500 per month. This means there is a ceiling on the bonus for salary/wages of Rs. 3500 per month.
* Minimum Bonus is 8.33% and Maximum is 20%, depending upon allocable surplus. Even if there is no allocable surplus in a particular accounting year, a Minimum Bonus of 8.33% is payable.
* Bonus is payable within 8 months from the close of the accounting year.
* In Maharashtra, the bonus is to be paid by cheque.

One needs to understand what is allocable surplus, available surplus, set-off, set-on, and its computation while declaring the Bonus.

The above are the main features. Apart from these, there are other provisions in the Act, such as the bar of disqualification for bonus, adjustment of customary or interim bonus, and deduction towards misconduct causing financial loss, etc.

Hope there remains no ambiguity on this topic now.

Under the Payment of Bonus Act, every employee who serves for a minimum period of 30 days in an accounting year is eligible for a bonus of a minimum of 8.33% to a maximum of 20%, irrespective of the company making a profit. The accounting year varies for companies - such as Jan-Dec, April-March, July-June, etc. Depending on your company's accounting year, decide on eligibility.

Regards

If the wages (Basic + DA) are below 3500, for example, 2500, the bonus is calculated on 2500. If the wages (Basic + DA) are 3500, the bonus shall be calculated on 3500. If the wages (Basic + DA) are more than 3500, for example, 3600, the bonus shall be calculated on 3500 only.

Dear Sir, please tell us how to calculate allocable surplus, available surplus, set off, and set on.

As per the Payment of Bonus Act, a minimum of 30 days should have been completed after joining to be eligible for the bonus.

Regards

Eligibility for Bonus During Financial Losses

The eligibility of giving a bonus is correct, but here the question is: if the company is making losses, what does the law say, and what provisions can be made? Suggestions would be appreciated.

Regards,
Jaithacker

Dear Mr. Jaithacker,

Bonus Allocation and Legal Provisions

Bonus allocation to employees is a discretionary decision. However, even if the company is facing losses, a minimum of 8.33% should be paid as a statutory liability. This provision is stipulated solely in the terms of appointment, and any such bonus should be entitled at its minimum, even in the case of the company running at a loss.

Regards,

Dear Madam Sharmila ji,

My company is only 4 years old and running into losses. Is the company liable to pay me a bonus? If there is no stipulation in the appointment letter or no appointment letter is issued to me, then what? Kindly enlighten us on it.

Regards.