Is Our Bonus Calculation Method Correct for Employees Earning Over 40,000?

When the employee earns an annual income of more than 42,000/-, the bonus will be 3,500/-. However, if the employee earns an annual income of 40,000/-, then the bonus will be calculated as follows:
40,000 * 8.33% = 3,332/-

Is this calculation correct or incorrect? Please advise us as we have been calculating the bonus in this manner for the past 3 years.

Thank you,
Akhilesh

The employee receives a monthly salary of $4500 + $4500 + $4500 + $4500 + $4000 + $4500 + $5000 + $4000 + $4500 = $40000. After this, he leaves the job.

Bonus Calculation Query

Should the bonus be calculated based on the total salary or the monthly salary? Please advise us.

To keep it simple, it is better to understand the problem in the context of the provisions of the Act. If an employee's Basic + DA exceeds Rs. 3500/- per month, you should take only Rs. 3500/- per month for calculating the bonus. If his Basic + DA is less than Rs. 3500/- per month, you should take the actual wages drawn by the employee in that case. However, please note that the salary of an employee should not exceed Rs. 10000/- per month to be eligible for a bonus.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai

As per Section 12 of the Payment of Bonus Act, 1965, all employees drawing a salary or wages up to Rs. 10,000 per month or less are eligible for the payment of bonus. However, where the salary or wages of an employee exceed Rs. 3,500 per month, the bonus payable to such an employee shall be calculated as if their salary or wages were Rs. 3,500 per month.

In my opinion, your calculation seems to be in order.

Regards,
BS Kalsi
Member since Aug 2011

I would like to explain the method of Bonus Calculations. The bonus is calculated on Basic + DA. We have Payable Basic and Paid Basic every month. Paid Basic can change subject to the attendance of an employee each month. As per the act, the Minimum Bonus-able Salary or Wage is Rs. 3500/- per month.

Example Calculation

If A has a payable basic of Rs. 4000/-, B has a payable basic of Rs. 3500/-, and C has a payable basic of Rs. 3000/- per month during the financial year (April to March), and if A, B, & C are fully present and receive full paid Basic in the organization during the financial year, the Bonus-able wage for A is Rs. 42000/-, for B is Rs. 42000/-, and for C is Rs. 36000/-. Accordingly, you can calculate 8.33% or whatever bonus percentage is decided by the management on the Bonus-able Wage.

If A, B, & C are absent for 15 days, you must consider the month-wise absence details for calculating their Bonus-able wage. The formula for calculating Monthly Bonus-able wage is: if the payable bonus exceeds Rs. 3500/-: Rs. 3500/- (i.e., Min Bonus-able wage set by Act) / (Divided by) Number of days for the particular month (i.e., 30, 31, 28) * (Multiply by) Number of days present during the month = (Equal to) you will get the Bonus-able wage for that month.

By using this formula, you can calculate the month-wise Bonus-able wage for the year of an employee. You can calculate the Bonus on the Bonus-able wage.

I hope this will suffice your query.

Eligibility Criteria

One more thing: As per section 12 of the Payment of Bonus Act, 1965, the bonus is eligible for employees whose Basic + DA does not exceed Rs. 10,000/- (Sorry, but not on Salary or Wage exceeding Rs. 10000/-). In most organizations, the management also pays a bonus to such employees until they are in employment and not to resigned employees.

Sorry, I am just sharing my view and knowledge. Mr. Kalsi, please correct me if anything is wrong in the above.

Regards,
Madhav Kalele

[Phone Number Removed For Privacy Reasons]

I support the inputs of Mr. B. Sai Kumar, and the corrected Excel statement is attached herewith for your ready reference and necessary action. Please disregard the previous payment details and process the correct payments for this year.

Calculation Guidelines

For all calculations related to workmen, it should be based on 26 days, whereas for the salaries of management staff, it should be calculated based on the total days of a month. If there is no loss of pay throughout the 12 months, the total amount should be Rs. 3500/- per annum, regardless of their category (workmen/management staff). These details should be accurately recorded in the Bonus register and must be made available for inspection whenever a labor officer or any official visits the firm.

Please review the attached statement to understand the variance between absent workmen/staff and those who attend work regularly. The eligibility for bonus and the limit of basic pay would be a maximum of Rs. 10,000 per month, with the maximum bonus payable being Rs. 3500/- per annum at 8.33% as per the Act. Employees earning more than Rs. 10,001 are not entitled to bonus payment as per the Act.

Dear Seniors, please correct me if I am mistaken.

If you require further clarification, please feel free to contact me on my mobile.

Regards,
SRao
[Phone Number Removed For Privacy Reasons]

I am sorry, but I do not agree with your comment regarding the division by 26 for the calculation of the bonus. The bonus calculation should not be based on Gratuity or Leave Encashment as they are entirely different aspects.

Regards,
Madhav Kalele
[Phone Number Removed For Privacy Reasons]

I hope you realize that 8.33% is the minimum bonus that is required to be paid. You have to pay a bonus as per the act up to a maximum of 20% of annual wages (subject to the ceiling of 3500 per month).

Thank you.

Assuming that you are talking about statutory bonus under the Payment of Bonus Act (and not ex gratia bonus that is at the discretion of the company), you are eligible for a bonus between Rs. 3500 * 12 * 8.33% (minimum bonus) and Rs. 3500 * 12 * 20% (maximum bonus), depending on how much profit your company has made and a few other criteria specified in the act.

Oops! Sorry, since your salary is more than Rs. 10,000 per month, you are not eligible for a bonus under the Payment of Bonus Act.