Is It Fair to Deduct Bonuses for Earned Leave and Holidays? Seeking Insights and Proof

Query on Bonus Deduction Due to Earned Leave

One of our colleagues has faced a problem. He received a low bonus from his company due to taking Earned Leave. The question is, is there any provision to reduce the bonus amount from the total calculation days? The company’s HR department said it would not consider the Earned Leave and National festival holidays for 11 days' payment. Consequently, they deducted his bonus amount against his taken Earned Leave and National holidays. If there is any provision available, please share with proof. As per my knowledge, there is no provision to reduce the bonus amount.

Regards,
Shivananda VD

Understanding Bonus Calculation with Earned Leave

Earned leave is equivalent to worked days, the same way national holidays are paid holidays. Therefore, a bonus cannot be reduced; it has to be calculated based on the number of working days, as per my best knowledge. However, I recommend waiting for advice from other seniors on this matter.

Regards

As per the Payment of Bonus Act, the amount of bonus payable ranges from 8.33% to 20% of the emoluments, calculated based on the reckoned wage of Rs. 3,500, irrespective of the emoluments exceeding Rs. 3,500 per month. This means 8.33% to 20% of the total emoluments per annum. Hence, I don't think there will be any issue with 11 days of Earned Leave (EL), considering the very high salaries.

Secondly, National Holidays and paid EL are not considered as absence, and hence the question of deduction thereof does not arise at all. However, if the employer deducts for such authorized EL and National Holidays, you may approach the authorities under the Payment of Bonus Act with your grievance, and they will help you to recover the money.

Regards

Dear Shivananda,

Understanding Bonus Calculations

Bonus is based on the productivity contributed by members of the organization. Contribution is, again, based on the number of days worked for productivity. How can anyone expect to receive a bonus for days where no contribution was made to productivity due to being on leave or absent? Please reflect on this.

Regards,
Sreedharan PV

Bonus Calculation in Pvt Co's

With regards to Pvt Co's, the bonus is calculated based on productivity, profit, and appraisal (being in the good graces of your boss). Productivity is measured as the achievement relative to fixed early targets. A certain percentage is allocated to the bonus according to the company's profit-sharing policy. Even if you are a non-achiever, you may still receive a bonus if you are in the boss's good books. However, NH and EL are mandatory to be considered as working days, and full wages must be paid as per Section 3 of the Industrial Establishments (National and Festival Holidays) Act 1958.

Regards

Bonus Entitlement for Employees

Every employee receiving a salary or wages up to Rs. 10,000 per month and engaged in any kind of work, whether skilled, unskilled, managerial, supervisory, etc., is entitled to a bonus for every accounting year if they have worked for at least 30 working days in that year.

Permissible Deductions from Bonus

An employer has the right to make permissible deductions from the bonus payable to an employee, such as festival/interim bonus paid and financial loss caused by misconduct of the employee.

I hope this clarifies the issue.

Based on my knowledge and experience, no company can deduct Earned Leave (EL) or National Leave (NL) from your bonus amount. In any case, if your salary (Basic + DA) is less than ₹10,000, you are eligible for a minimum of 8.33% of the salary taken during the respective period. This is regarding the days you have spent for the productivity of the organization.

Thanks

After reading your query, the point here to be addressed is whether earned leave availed by an employee should not be considered for arriving at the total number of days worked for the purposes of computing the statutory bonus payment.

Provisions Under the Payment of Bonus Act, 1965

The answer is given in Section 14 of the Payment of Bonus Act, 1965, for the purposes of Section 13 of the said Act, which lays down the following provisions:

Section 13: Proportionate Reduction in Bonus in Certain Cases

For those days on which an employee wouldn't have worked, the bonus can be paid on a pro-rata basis.

Section 14: Computation of the Number of Working Days

An employee shall be deemed to have worked in an establishment in any accounting year also on the days on which he has been:

- Laid off
- On leave with salary or wage
- Absent due to temporary disablement caused by an accident arising out of and in the course of his employment
- On maternity leave with salary or wage

Assuming the establishment you are referring to is not a seasonal one, the answer is that earned leave availed shall also be taken into account for the computation of the bonus actually payable.

The reason given by the fellow HR professional to you needs re-thinking.

Hope I have addressed your query with crystal clarity.

Regards,
Sharath Mahendra Kumar

The explanation by Mr. Sharath Mahendra Kumar is in line with the provisions of the Payment of Bonus Act and rightly addresses your query. I hope this explanation is sufficient. If you still have doubts, please revert with your remarks.

Thank you,

AK Sharma

If the bonus payable is not based on the Payment of Bonus (POB) Act, then the management need not consider the days of leaves.

Regards,
Varghese Mathew

Short Payment of Bonus Query

Regarding your query on the short payment of the bonus, I believe that Mr. Sarath's response to you is accurate. Leaves and national holidays are also considered in the calculation of the bonus.

Thanks & Regards,
V R RAO PULIPAKA