Confused About Bonus Act Compliance? How to Handle Different Bonus Percentages for Employees

Dear HR Fraternity,

My name is Rishi, and I am working as an HR executive in a firm. I have a query regarding the Bonus Act. Some companies give 1 basic salary to their employees as a bonus, whereas, as per the Act, it should be 8.33% (minimum) of Rs 3500 or a maximum of 20% of Rs 3500, i.e., the ceiling limit as per the act. How should they enter the entries in the Bonus register because the percentage that is calculated is different for different employees if you provide 1 basic salary as a bonus? To my knowledge, the percentage cannot be different for different employees.

Example Calculation

Employee 1: Wage = 5626 for 1 month, Eligible Wage = Rs 3500, Bonus (8.33%) = 292. But if you calculate 1 basic salary, the percentage comes out to be 13.40% of Rs 3500.

Employee 2: Wage = 5150 for 1 month, Eligible Wage = Rs 3500, Bonus (8.33%) = 292. But if you calculate 1 basic salary, the percentage comes out to be 12.25% of Rs 3500.

Therefore, the percentage is different for both employees.

Kindly help me with this matter.

Thanks and Regards,
Rishi Raj Mishra

Dear Rishi, I am not able to understand the calculation you've presented. The minimum bonus at 8.33% is approximately equal to one month's wage. When the salary or wage exceeds three thousand and five hundred rupees per month, it shall be restricted to Rs. 3500.00 only for the purpose of bonus calculation as per Section 12 of the Payment of Bonus Act, 1965. Logically, therefore, there cannot be any difference in the actual amount of bonus payable, whether at 8.33% or at any other higher rate, to all such employees drawing wages or salaries more than Rs. 3500.00 per month.

Understanding Bonus Calculation as per the Payment of Bonus Act

Bonus as per the Payment of Bonus Act has to be calculated first as per the schedule under the Act: Gross Profit, available surplus, allocable surplus, set off & set on if any. If any company pays a bonus as per the Payment of Bonus Act, it is essential to follow the above path. Otherwise, it is considered a customary bonus.

Now, as per your query, if the company is interested in paying a bonus of one month's gross salary, first of all, it is essential to calculate the bonus as per the Act, and the booking may be as follows:

Let the calculation show to pay the minimum bonus as per the Act, then book as a bonus - 3500/- and (5626-one month basic - 3500) = 2126 as ex-gratia. If the company continues to pay the bonus as one month's basic, ignoring the Act, it will be established as a customary bonus and will have no relation to the Payment of Bonus Act, irrespective of business profit or loss.

Thanks & regards,
S K Bandyopadhyay
[Phone Number Removed For Privacy Reasons]
[Email Removed For Privacy Reasons]

Thank you all for your wonderful replies. I got the answer to my question that if an employer wants to give 1 gross salary to their employees, it will come under customary Bonus.

Really, thanks to all of you for your guidance.

Thanks and Regards,

Rishi Raj Mishra