Understanding Bonus vs. Ex-gratia: Is Ex-gratia a Must for Small Businesses?

I want to know the difference between Bonus and Ex-gratia. Is Ex-gratia mandatory to provide? Our company is a small-scale industry with 110 employees.

The Payment of Bonus Act

The Payment of Bonus Act provides for the payment of a bonus to persons employed in certain establishments on the basis of profits, production, or productivity. It extends to the whole of India and is applicable to every factory and every other establishment where there are 20 or more workmen employed on any day during an accounting year.

Eligibility for Bonus

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, or supervisory, is entitled to a bonus for every accounting year if they have worked for a minimum of 30 working days in that particular year.

Ex gratia is a voluntary payment by the employer to the employee.

The payment of bonus, excluding the bonus payable under the Payment of Bonus Act, is an ex gratia payment, and an employer cannot be forced to make such a payment. However, where an ex gratia payment is being made to every employee, the employer cannot deny the same to a particular employee at their wish and fancy.

For more information, please refer to: https://www.citehr.com/19262-ex-grat...-download.html

Dear Durga,

Bonus is statutory under the Payment of Bonus Act for a salary up to Rs. 10,000. The maximum bonus is 20% per annum. If the employer pays over and above 20%, it is called Ex-gratia. Also, if the employer pays an amount in lieu of bonus to employees with a salary above Rs. 10,000, it is also called Ex-gratia.

In a nutshell, Bonus is statutory, and Ex-gratia is optional. Bonus is within the limit of the Bonus Act, and Ex-gratia is above coverage.

Abbas.P.S

Understanding 'Ex-gratia in lieu of Bonus'

The concept of 'Ex-gratia in lieu of Bonus' was introduced to disburse amounts to those who are not covered under the Payment of Bonus Act. The general term 'ex-gratia' itself does not connote 'bonus'. The general meaning of 'ex-gratia' explains 'as a gift where there is no obligation to pay'. When it's paid, it can be called or assumes the name to which it is linked. When it's linked to bonus season, it's 'ex-gratia in lieu of bonus', and on other occasions like compensation, it's also called 'ex-gratia'. In industries, employees are paid as such when the employer decides to pay not out of compulsion or obligation but possibly due to conventions or voluntary decisions, which may be based on demands or requests from the employees' forum.

We have seen government employees, PSUs like in Railways, and companies in non-competitive sectors being paid ex-gratia either on an 8.33% or certain days of salary basis. However, for this purpose, establishments follow guidelines provided in the Bonus Act, which again is merely an administrative arrangement. Many employee unions demand ex-gratia, citing conventions and past practices followed in the establishment, to push their demands and negotiate the amount and timing of such payments like the Diwali bonus. Simultaneously, establishments restrict eligibility based on certain norms like pay scale levels, which are typically not open to challenge.

It is correct that payment of Ex gratia is non-statutory. However, while making payment of Ex gratia, the management can stipulate that the payment would be made upon fulfillment of certain conditions such as achieving norms of productivity, attendance, discipline, and loyalty to the organization. If the conditions are not fulfilled, those persons are not eligible to receive payment of Ex gratia.

M Venkatraghavan