Understanding Bonus Eligibility: Why Some Companies Pay Despite Salary Limits and Other Common Questions

Sir,

1. If basic salary + DA exceeds 10,000, then no bonus should be paid as per the rules. Is this correct? If so, why do some companies still pay it?

2. When calculating leaves, should days of absence due to disablement, maternity leave, and being laid off (leave with wages) be included?

3. Which of the following are not entitled to a bonus:
- Apprentice
- Contract labor
- Temporary staff
- Seasonal staff
- Probationers

4. Can overtime be included in salary calculations when excluding an employee from receiving a bonus?

Thanks

Yes, you were right. The act clearly specifies that employees drawing a salary (Basic + DA) up to 10,000 are eligible for a bonus. However, if any organization wishes to give a bonus to their employees, they can do so because it is a management decision to share their profits with employees beyond the statutory limit.

Eligibility for Bonus

An employee is deemed to have worked in an organization if:
- He/she has been laid off under an agreement or as permitted by the Standing Orders Act-1946 or under the Industrial Disputes Act-1947.
- He has been on leave with wages.
- He has been absent due to temporary disablement caused by an accident arising out of and in the course of employment.
- The employee has been on maternity leave.

Exclusions from Bonus Entitlement

- Apprentices and Contract Laborers are not entitled to a bonus.

No.

With Regards,
Mr. Thumbs Up

Bonus Eligibility and Calculation Queries

1. If the basic salary plus DA exceeds 10,000, then no bonus should be paid as per the rule. Is this right? If it is right, then why do some companies still pay?

The current ceiling limit for bonus eligibility is 10,000. In cases where one's basic salary is more than 3,500 per month, the bonus will be calculated as if the basic salary was 3,500. If one exceeds the ceiling limit, it is not mandatory for an organization to make bonus payments in such cases.

Other than statutory obligations, a few reasons why companies make bonus payments irrespective of one's basic salary are:
- Uniformity in compensation structure across a particular cadre
- Motivation
- Settlement/agreement with the union

Leave Calculation and Bonus Entitlement

2. For the calculation of leaves, can days like absenteeism due to disablement, maternity leave, and being laid off (leave with wages) be counted?

I guess what you are trying to understand here is if an employee is entitled to a bonus in the case of the above-mentioned reasons. Yes, they are.

Bonus Entitlement for Different Employee Categories

3. Which among these are not entitled to a bonus?

The definition of an employee does not differentiate between daily wagers, casual, or permanent workmen. All employees falling within the ambit of the Payment of Wages Act are entitled to a bonus.

- Apprentice: Yes, excluding those covered under the Apprenticeship Act, 1961.
- Contract labor: Yes. However, the liability is not with the company but the contractor.
- Temporary staff: Assuming they are on the company's roll, yes, if they have worked for no less than 30 days in the previous financial year.
- Seasonal staff: Yes. (Please refer to "Shakkar Mills Mazdoor Sangh V. Gwalior Sugar Company Ltd., 1985 (50) FLR 320" – seasonal employees are entitled to the full minimum bonus guaranteed by Section 10 and not only the proportionate bonus as per Section 13.)
- Probationers: Yes, if they have worked for no less than 30 days in the previous financial year and are employed on monthly wages not exceeding 10,000.

Overtime and Bonus Calculation

4. Can we include overtime for the calculation of salary to exclude an employee from receiving a bonus?

Under Section 21(i), any other allowance which the employee is entitled to for the time being is excluded. Hence, overtime is not to be factored in for working out bonus eligibility.

Regards,
Chirag B.

Hi All,

I have a doubt. Will the standing order of the company be applicable to the contractor worker? Most of the time, if we see, the supervisor of the company has control over the contract worker.

Hi,

It depends on the standing order of an establishment. Some establishments may include provisions for contract workers, while others may not. Therefore, we have to check the respective establishment's standing order to make a decision.

With Regards,

Mr. Thumbs Up