How Should We Calculate Employee Bonuses After Changing Our Payment Method?

Dear All,

I am working as a Senior HR Executive in a Manufacturing Company. We used to pay the bonus in the monthly salary until March 2015. We added the same to the Annual Gross salary with effect from April 2015. Now, how should we calculate the bonus for employees? Shall we calculate it as Rs. 700 per month and pay it to the employees, or should we pay the same next year during Diwali?

Kindly guide and attach any supported documents if available.

Thanks,
Firoj Attar

Dear Firoj Attar, As per Section 19 of the Payment of Bonus Act, the bonus has to be paid within 8 months from the completion of the accounting year. Kindly go through the section as under.

Time-limit for Payment of Bonus

"19. Time-limit for payment of bonus. — [All amounts] payable to an employee by way of bonus under this Act shall be paid in cash by his employer — 1 Subs, by Act 23 of 1976, sec. 13, for “(1) Subject to the provisions of this section all amounts” (w.r.e.f. 25-9-1975).

Case Law

12(2) The Payment of Bonus Rules, 1975

(a) Where there is a dispute regarding payment of bonus pending before any authority under section 22, within a month from the date on which the award becomes enforceable or the settlement comes into operation, in respect of such dispute;

(b) In any other case, within a period of eight months from the close of the accounting year:

Provided that the appropriate Government or such authority as the appropriate Government may specify in this behalf may, upon an application made to it by the employer and for sufficient reasons, by order, extend the said period of eight months to such further period or periods as it thinks fit; so, however, that the total period so extended shall not in any case exceed two years."

Regards, Abbas.P.S

Dear Firoj,

Since you have already paid the bonus for the accounting year 2014-2015, the bonus for the FY 2014-15 is now due. You have to pay the bonus for FY 2015-2016, which will be due in the month of November 2016. So, there is no need to worry at present.

The calculation is still at present @ 3500/- PM basis, either a minimum of 8.33% or a maximum of 20%, at the discretion of management or as per what you have taken in CTC at the time of April 2015.

I hope you will be satisfied.

Thank you, Raj Sir and Abbas Sir. It is now clear to me.

One more question I have: what is the definition of a bonus in legal terms as it is not mentioned in the Bonus Act?

Thanks,
Firoj Attar