How to Calculate Bonuses: Understanding Wages, Salary, and Employer Obligations

Dear Seniors,

Kindly guide me on the bonus for the queries below:

1. The minimum bonus ceiling is Rs 3500.
2. The bonus limit ranges from 8.33% to 20%.
3. Bonus eligibility is between Rs 3500 and Rs 10000.

Understanding Wages and Salary for Bonus Calculation

In section 10, it is mentioned that in wages and salary, the bonus should be 8.33%. What is considered wages and salary? Is it the minimum wage that a worker receives or the maximum of Rs 3500?

For example, if a person is receiving a salary of Rs 9000 per month, should the bonus be calculated at 8.33% of Rs 3500 or Rs 9000?

Bonus Calculation for Absenteeism

If a person is absent, for instance, if the total working days in a year are 312 but the worker only worked for 304 days, is the following calculation correct or incorrect:
Bonus at 20% - Rs 3500 * 20/100 = Rs 700 per month
Rs 700 / 26 * Present days

Employer Obligations and Bonus Percentage Calculation

Are employers obligated to pay 20%? And how should the percentage above 8.33 be calculated?

I am awaiting your kind response.

Thanks & Regards,
Jagdish

Bonus Calculation Guidelines

The ceiling limit for wages and salary is Rs. 3,500 to Rs. 10,000 (Basic + DA). If an employee has a salary of Rs. 7,000, then we need to calculate their bonus on Rs. 3,500, not on Rs. 7,000. On the other hand, if an employee has a salary of Rs. 11,000, then the employer is not bound to pay them a bonus.

Bonus Calculation Examples

- 8.33% = Rs. 3,500 as bonus
- 20% = Rs. 8,400 as bonus

If the company is paying a bonus at 8.33%, the calculation is as follows:
- 3,500 * 12 = 42,000
- 42,000 * 8.33% = Rs. 3,500 as bonus (Calculation is based on 100% payable days)

If the company is paying a bonus at 20%, the calculation is as follows:
- 3,500 * 12 = 42,000
- 42,000 * 20% = Rs. 8,400 as bonus (Calculation is based on 100% payable days)

I hope this resolves your issues. For further queries, please contact the undersigned.

Thanks,

Regards,
Sandeep Sharma
[Phone Number Removed For Privacy Reasons]

Dear Sandeep Ji,

Thank you for your kind reply. I would like to inquire whether it is permissible to deduct a bonus of Rs 8400 if an employee is absent from duty for 5-6 days in a year, especially when the employer is obligated to pay a 20% bonus.

Thanks and Regards,
Jagdish

Dear,

As I mentioned in my earlier email, the bonus is payable on days worked. Just imagine if an employee has only 340 payable days out of 365, and the company is paying a bonus based on a 20% calculation as mentioned below:

8400 / 365 * 340 = 7825/- as a bonus.

Regarding how to decide the bonus percentage (8.33% - 20%), it totally depends on the company's profit, which is described in Form A and B.

Thanks,
Sandeep

Yes, Sandeep is correct. The eligibility for getting a bonus is if you receive a salary of less than 10,000. If you satisfy the above condition, then the bonus will be calculated on 3,500 * 12 * (8.33% to a maximum of 20%). The bonus will be calculated based on the number of paid days, including leaves. It will also be calculated on the basis of the profitability (allocable surplus) of the company in the previous year, for which it is due to a maximum of 20%. The minimum bonus, which is 8.33%, must be paid even if there is no allocable surplus (except in the case of a new establishment). Salary or wages in this case include DA only and no other allowances, e.g., OT, HRA, and incentives and commissions.