Is My Understanding of Bonus Reduction Under the Payment of Bonus Act Correct?

Proportionate Reduction in Bonus: Understanding the Payment of Bonus Act

The relevant section in the Payment of Bonus Act for proportionate reduction in bonus is as follows:

"13. Proportionate reduction in bonus in certain cases - Where an employee has not worked for all the working days in an accounting year, the minimum bonus of one hundred rupees or, as the case may be, of sixty rupees, if such bonus is higher than 8.33 percent of his salary or wage for the days he has worked in that accounting year, shall be proportionately reduced."

Is my interpretation of the above section correct?

Suppose an employee works for only 200 days, and his daily wages are Rs. 100 per day, and the bonus rate is 10 percent. Then, he is entitled to a bonus of 200 x 100 * (10/100) = 2000. For example, the total working days in the factory in which the employee is working are 240 days. In such a case, the bonus payable would be:

Actual bonus payable - (minimum bonus payable / number of days worked)

i.e., 2000 - (100 / 200)

Is this correct?

Understanding Bonus Calculation

You have already calculated the bonus based on the number of days the employee was present. Further reducing the amount is not correct. If a person works on all working days, they will receive a minimum of 8.33% (Rs. 3500/-) and a maximum of 20% (Rs. 8400/-). If you declare a 10% bonus, the minimum bonus eligible is Rs. 4200/-. You can proportionately deduct by using Rs. 4200/- divided by the number of working days, multiplied by the number of days worked by the worker.

This subject has been discussed many times in this forum. You can get the details by simply typing the keywords in the Find Information Bar and clicking on the Research Tab, which is available at the top of this page.

Hope you understood.

Regards,

The calculation you made in your query is not correct. Reading Section 13 of the POB Act alone will not help solve your question. This section must be read with Section 10 of the Act. Section 10 prescribes the payment of a Minimum Bonus at a rate of 8.33% of the salary or wage, or Rs. 100, whichever is higher. In the case of an employee below 15 years of age, the minimum amount will be Rs. 60. In this context, if we read the section quoted by you, it provides us with a logical meaning.

Understanding Section 10 and Section 13

Section 10 tells us the minimum percentage of Bonus and also the Minimum amount of Bonus. As far as the percentage of Bonus is concerned, there is no ambiguity in the calculation. However, a problem arises when a person has not earned even the minimum amount of Bonus due to their low earnings. For example, if a person's salary is Rs. 50 per month and they have worked for 11 months, then their bonus at 8.33% will be about Rs. 46. However, because the minimum amount of bonus is prescribed, you will have to pay Rs. 100 as a bonus. This discrepancy is addressed by Section 13 as referred to by you: "if such bonus (i.e., Min. Bonus Amt. i.e., 100 or 60) is higher than 8.33 percent of salary,..., it shall be proportionately reduced."

Therefore, the calculations you have made are not correct. The provision of Section 13 has become redundant in today's scenario, as currently, nobody has a salary below Rs. 100 a month.

I hope you got the answer.

Regards,

You have to compute 8.33% of the actual wages earned for the period for which you are computing the bonus. For example, if your bonus computation period is April to March of the succeeding year, sum up the wages earned during the period and multiply it by 8.33%. This is the bonus payable to the employee.

In case the wages earned by the employee are beyond Rs. 3500/-, then the wages for the purpose of computation of the bonus shall be restricted to Rs. 3500/-. In such a case, the eligible wages for the month (if the employee works for the whole month) shall be Rs. 3500/- for the purpose of computing the bonus. However, if the employee was on loss of pay for 3 days, then the bonus wages shall be reduced proportionately.

Regards,
M.V. Kannan

Anybody can help me? Suppose X worked for 15 days at $300 per day every month. Suppose Y worked for 24 days at $300 per day every month. How will we calculate the bonus under the Payment of Bonus (POB) Act, where the minimum bonus is 8.33%?

Regards,
Sovan