How Do I Calculate Employee Bonuses at 8.33%? Seeking Guidance for Different Salary Scenarios

Bonus Calculation Query

Please let me know how to calculate the bonus. We have decided to give a bonus to employees of 8.33%. For the following conditions, how should we calculate it?

1. "A" Employee: Basic Rs. 2,500 and DA Rs. 500 = Total Rs. 3,000
2. "B" Employee: Basic Rs. 4,000 and DA Rs. 3,000 = Total Rs. 7,000
3. "C" Employee: Basic Rs. 12,000 and DA Rs. 3,000 = Total Rs. 15,000

Regards

Bonus Calculation According to the Bonus Act

As per the Bonus Act, the minimum bonus is 8.33% of the bonus salary limit, i.e., ₹3,500. For Employee A, you have to give a bonus of ₹3,000 * 8.33% = ₹249.90 * 12 months or actual working months (minimum of 30 days working in a year). For Employees B & C, the bonus will be ₹3,500 * 8.33% = ₹291.55 * 12 months or actual working months (minimum of 30 days working in a year).

Regards,
Mahesh

One correction in my previous post is that "C" is not eligible for a bonus. The maximum bonus salary limit is Rs. 10,000. You mentioned that the salary for "C" is more than Rs. 10,000; hence, he is not eligible for a bonus. You may provide them with an explanation.

Regards,
Mahesh

Ensure that the calculation is based on the earned wages and not on fixed salaries. Many companies are paying bonuses to all employees, including managerial staff, regardless of their salary bracket. Therefore, ensure that the distribution of bonuses does not create any issues among the employees who are not eligible.

Thank you.

Understanding the Payment of Bonus Act

The Payment of Bonus Act is normative legislation. This means you cannot go below the established norms, such as the minimum percentage and minimum quantum. If an employer chooses to pay a bonus to employees earning more than Rs. 10,000 per month or decides to pay a bonus at the actual percentage (and not merely Rs. 3,500), it will not be illegal.

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In reference to your query, I wish to bring to your knowledge that the upper limit of Rs. 3500/- for the coverage of employees under the Payment of Bonus Act, 1965 has been enhanced to Rs. 10,000/-. As such, the definition of 'employee' stands amended as under:

Section 2 (13) "Employee" means any person (other than an apprentice) employed on a salary or wage not exceeding [ten thousand rupees] per mensem in any industry to do any skilled or unskilled manual, supervisory, managerial, administrative, technical, or clerical work for hire or reward, whether the terms of employment be express or implied.

Similarly, Section 12 of the Act is also amended to read Rs. 2500/- to Rs. 3500/- for the purpose of calculation of the bonus, which reads as under:

Section 12. Calculation of Bonus with Respect to Certain Employees - Where the salary or wages of an employee exceed (three thousand and five hundred rupees per mensem, the bonus payable to such employee under section 10 or, as the case may be, under section 11, shall be calculated as if his salary or wages were [three thousand and five hundred rupees] per mensem.

A copy of the notification is attached herewith.

Regards,
BS Kalsi

Discussion on Set Off and Set On

I wanted to discuss the concept of "set off" and "set on." Can we calculate based on the formula provided? Let's explore this further.

Regards

I need to know about Bonus Act amendments and whether it should be part of CTC or not. Should we pay this on a monthly basis, quarterly, or yearly?

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Dear All,

I have a query regarding whether the bonus should be paid on Fixed Basic or Earned basic. Additionally, if the basic has been revised in the middle of the year, which basic should be considered for the calculation, the revised amount, or the monthly paid amount?

Please assist me with this query at your earliest convenience.

Regards,
Suresh

You can't decide the percentage of bonus. It is dependent on figures that appear in the company's Form A and Form B. If the organization's profit is from service charges, then it can probably declare a bonus of 8.33%.

There are 2 conditions for the calculation of a bonus:

1. 7000
2. Minimum wages

I have two questions pertaining to the calculation of the bonus:
1. If the minimum wages are more than 7000/-
a. Should the minimum wages be considered as of which date? 31st March or another date?
b. Should the average of every month's minimum wage be considered?

Please advise.

Thanks & Regards,
Amit
Vadodara, Gujarat.

Bonus is to be calculated on monthly earned wages, i.e., Basic + DA. Month on month, the wages have to be compared with the minimum wages declared by authorities.

Dear Amit,

In reference to your query, in my opinion, as we take the average of the monthly salary drawn by the employees in the accounting year, similarly, the average of the minimum wages drawn by the employee should be the basis of the calculation of the bonus provided his minimum wages are higher than Rs 7000/-.

BS Kalsi
Member since August 2011

Is payment of a bonus to contractual labor compulsory? If yes, how do you calculate the bonus amount?

The Payment of Bonus Act, 1965 does not differentiate between a contract worker and other workers except Apprentices. The only condition is that one should have put in not less than 30 days in that year. It casts responsibility on all employers covered by the Act to make payment of bonus to their employees subject to conditions mentioned in the Act. The contractor who engages the contract labor has to make payment of bonus, if applicable.

In reference to your second query, it is mentioned here that there is no difference in calculations of bonus. It is the same as done for the regular employees.

Regards, BS Kalsi

Dear All,

Is the bonus amount taxable or not?

Calculating Bonus: An Example

I want to know how to calculate a bonus through this example. Someone's gross salary is Rs. 25,000, and his salary structure is as follows: Basic Allowance - 12,500, HRA Allowance - 6,250, Medical Allowance - 1,250, T.A. - 1,600, Other Allowance - 3,400. He has been working for 6 months in a state where the minimum wage is Rs. 13,000. Please resolve my query.

1. Is the bonus calculated on (Basic + DA) or the gross earned salary?
2. Is he eligible or not according to the wage ceiling limit of Rs. 7,000 to Rs. 21,000?
3. Is his bonus calculated on which basic amount - Rs. 12,500 or Rs. 13,000?

Thank you.

Monthly Bonus and ESI Deduction

Will the ESI be deducted from the monthly bonus?

Determining Bonus Percentage

First of all, the percentage of bonus for any organization has to be determined as per the Bonus Schedule applicable from the Gross Profit from the P&L Account, available surplus, allocable surplus, Set On, and Set Off.

Calculating Bonus for Eligible Individuals

Now, for calculating the bonus for eligible individuals, it will be based on the basic salary and dearness allowance of ₹7000 or the minimum wages, whichever is higher. If the basic salary and dearness allowance of any employee are less than ₹7000, then it will be based on the actual basic and dearness allowance.

Bonus is a deferred wage, and any employee who had a basic salary and dearness allowance of up to ₹21,000 in the previous year would be eligible for a bonus in the current year.

Ad Hoc Bonus Payments

Many organizations are paying bonuses on an ad hoc basis of 8.33% without calculating the actual percentage of the bonus as per the Payment of Bonus Act. In the wage code, it is now crystal clear that any organization may pay a customary bonus, but it has to be calculated based on the Wage Code as mentioned above. If there is any shortfall, the same has to be paid again.

Therefore, it is now a must for all organizations to calculate bonuses as per the Wage Code.

S K Bandyopadhyay (WB, HOWRAH)