How Are Bonus Deductions Calculated? Understanding the Factors and Process

Understanding Bonus Benefits

Thank you for your question about bonus benefits and the calculation process for bonus deductions. Bonuses are typically calculated based on various factors such as individual performance, company performance, or a combination of both. The specific criteria for bonus calculations can vary between companies and may be outlined in your employment contract or company policies. It's essential to refer to your HR department or employee handbook for detailed information on how bonuses are determined and deducted. If you have any further questions or need clarification, feel free to ask.

Regards

As per the Payment of Bonus Act, 1965, the applicability of the Act (Section 1) includes every factory where 10 or more persons are employed with the aid of electricity or an establishment in which 20 or more persons are employed without the aid of power on any day during an accounting year. The limit states that any employee who draws a salary/wage (Basic+DA) less than Rs. 10,000/- is to be covered as an employee under the Payment of Bonus Act, 1965 (revised in 2007 from Rs. 3,500/- per month [Basic+DA]).

Eligibility for Bonus

Regarding the eligibility of bonus (Section 8), an employee will be entitled only when he has worked for 30 working days in that year. The payment of minimum and maximum bonus is set at 8.33% and 20% of the salary, respectively.

Regards,
Narayan

Dear Narayan,
Thanks for your support! Can you explain through an example when the bonus amount will be provided to the employee? If one employee joins the company but leaves after 4 months and rejoins after 2 months, how will the bonus be calculated, and how should we maintain the bonus register?

With regards,
Rashmi

I am clarifying your query. The eligibility has already been explained by our friend, Mr. Narayan. Any employee who works in the establishment for a minimum of 30 days in the financial year is entitled to receive the bonus. The bonus computation shall be based on the actual earnings by the employee, i.e., Basic and DA only. You can calculate his earnings in the financial year and total them at the end of the FY. He shall be entitled to a minimum bonus of 8.33% on the gross amount or on the total amount of his earnings.

Regarding your other query about whether he would still be eligible if he joins, works for 4 months, leaves, and then rejoins after two months, even then he will be eligible. If there is a gap between the two service periods, he will not be eligible for the intermittent period, and you can treat this as zero for that period he will not be entitled. If you wish, you can make two entries in the Form C Bonus pay sheet, or you can combine them; it doesn't matter. However, he must receive the bonus as per the provisions of the Payment of Bonus Act. The bonus payment will be made within eight months from the date of the closure of the financial year. It can be disbursed at any time before 30th November every year. After disbursing the bonus to the eligible employees, you have to submit an Annual Return to the concerned Labour Officer.

Regards,
Adoni Suguresh

Sr. Executive (Pers, Admin, and Ind. Rels) Rtd.
Labour Laws Consultant

Hi Rashmi, Please find below 14 points to remember under the Bonus Act-1965:

Bonus Act-1965 Key Points

1. **No. of employees (Maharashtra):** 10 No
2. **No. of employees (Other):** 20 No
3. **Salary component:** Basic + DA (Special Allowance)
4. **Minimum Physical working days in accounting year:** 30 Days
5. **Minimum amount to be paid as bonus:** Rs.100/-
6. **Max. salary (Basic + DA) considered for Bonus calculation:** Rs.3500/-
7. **Max. salary (Basic + DA) considered for Bonus eligibility:** Rs.10000/-
8. **Percentage:** 8.33% to 20%
9. **Max. Amount that can be paid as Bonus:** Rs.8400/-
10. **Bonus calculation period:** April to March
11. **Last Date of bonus paid:** 30th Nov
12. **Last Date of bonus paid (Dispute):** Within 1 month
13. **Final liability of bonus payable if contractor fails to pay:** Principal Employer
14. **Exemption for newly born organization (Loss-making year):** 5 years

I hope this information is helpful. Let me know if you need any further clarification.

Regards

Dear Nandkumar ji, Thanks for contributing. Make it 17 points. The 15th one is: Once making a profit in any year during the first 5 years, a bonus is payable even if there is a loss during subsequent years. The 16th one is: Even if there is a loss (i.e., no allocable surplus), the minimum bonus payable is 8.33%. And the 17th one is: In Maharashtra (other states not known), bonuses are given by cheque and not by cash.

Kerala High Court Judgment on Bonus and Gratuity

There is a Kerala High Court judgment where it is stated that Bonus and Gratuity are NOT the responsibility of the Principal Employer. The gist of the case law is that, while defining the term wages, the Industrial Disputes Act and Payment of Wages Act specifically exclude bonus and gratuity from their purview. Therefore, it is not a liability of the Principal Employer in respect of the contractor's employees.

Regards

Dear Sir, can you explain the 14th point? If a company is newly established, then for 5 years they are not liable to pay bonuses to their employees.

If you read the thread carefully, you will get the answer. In a new company, for the first 5 years, employees are not eligible to receive a bonus until the year when there is no profit. Once the company starts making a profit, bonuses are payable even during subsequent years when there is a loss.