Is It Fair to Deduct Monthly Salary for a Year-End Bonus? Seeking Your Thoughts

In our organization, management has decided to frame a new policy where there would be a deduction from the monthly salary (Gross monthly salary/12), and this entire accumulated amount would be paid as a bonus at the end of the year. Can there be any policy like this? Is this considered a bonus? I need your suggestions.

First of all, this cannot be called a bonus (Statutory Bonus, which falls under the Bonus Act), as a bonus is paid based on the profits and losses of the company and must be paid in the minimum amount as specified in the said act.

Secondly, deducting the bonus amount from the gross on a monthly basis and repaying it yearly is an unauthorized deduction, cheating, or misleading the employee by presenting it as a bonus, as well as being unlawful.

Regards,
Tushar Swar

Bonus Declaration and Payment Guidelines

Strictly speaking, as per the law, if an establishment incurs a loss, even at that point in time, the employer is liable to declare a minimum bonus and disburse the bonus amount to all employees who have worked for at least 30 days.

If the company reaps a profit, management can declare a maximum bonus or a percentage at the discretion of management. Bonuses cannot be paid as an accumulated amount of money that is deducted monthly from the salaries of employees.

Please review the Payment of Bonus Act and highlight relevant sections to your company management.

Thanks,

Regards,
R K Nair

When you raise a query, you need to mention all the particulars of the organization, including the location, the nature of work performed, the number of persons employed including contract labor, casual, etc., and many more. Your query is about the Payment of Bonus Act, 1965. You need to answer the following facts before a proper clarification is given to your query:

Key Questions for Clarification

(i) Whether your organization has twenty employees?
(ii) Whether your organization is a banking or non-banking company?
(iii) Whether Section 16 of the Payment of Bonus Act, 1965 has application in your case?
(iv) Whether all the employees are employed on a salary less than Rs 10,000?

I agree with the advice of Sh. R. K. Nair that you go through the Payment of Bonus Act thoroughly. I am sure many of your doubts will be cleared.

Regards,
BS Kalsi
Member since Aug 2011