How Does the New Bonus Ceiling Impact Your Wages? Let's Discuss the Changes

Dear Dignitaries,

The bonus ceiling limit has been amended for Basic Wages from 10,000 Rs to 21,000 Rs. Please refer to the enclosed Gazette notification for details.

With regards,

Nanjegowda
9945282846

Is there a second page to the attachment? There is a reference to a proviso/explanation at the end of the section....

Dear Leaders,

Attached is the full version of the Bonus notification for your reference.

Thank you.

Dear Sir,

Thank you so much for your assistance. I have a query regarding the recent notification.

Currently, my client company pays a maximum bonus of 20% on Rs. 3500 per month. However, post the recent amendment, my client is now required to pay 8.33% on Rs. 7000 per month. My question is whether my client needs to make any additional payment or if the bonus amount already paid is sufficient, provided it meets the minimum requirement of 8.33%.

Thank you for your help.

Mukundh
Advocate
9840503630

Mukund,

There is some confusion here. Two things have changed:

1. Eligibility for the bonus was for those who had a salary of up to ₹10,000 per month, now it's for all those with a salary of up to ₹21,000 per month.

2. The bonus was computed on a salary of up to ₹3,500 per month, now it is computed on ₹7,000 per month.

So, if your company was paying 20% of 3500 x 12, now it will have to pay 20% of 7000 x 12. The bonus rate is subject to the availability of enough profit (eligible surplus).

There are two concepts in the Bonus Act, namely 'allocable surplus' and 'available surplus.' The act provides a method to calculate these surpluses. The bonus is to be paid at a rate (percentage of salary) determined by the allocable surplus and any carry forward. In the event of a lack of allocable surplus, a minimum bonus of 8.33% must be paid. It is essential to study the act thoroughly or seek guidance from professionals such as accountants or auditors.

Dear Advocatemukundh, there should not be any confusion. If you have declared that you are going to pay your employees a 20% bonus, i.e., the maximum bonus admissible, then obviously you have to pay them double the amount (less than what has already been paid).

In case you have not declared anything in percentage terms but just an amount, in that case, you have already paid more than the new minimum statutory requirement. It totally depends on how the agreement was worded. As a lawyer, you must be aware of the importance of the wordings and terms used in any legal document.

Warm regards.

As per my knowledge, to see the notification, Bonus is calculated on the minimum wage of the state or $7000, whichever is higher. However, some people are confusing, and I am not convinced with them. Therefore, I want to clear some queries:

1. Suppose in 2014, the minimum wage in Haryana was $5348. How is the bonus calculated, either on $5348 or $7000?
2. Suppose in 2014, the minimum wage in Delhi was $8903. How is the bonus calculated, either on $8903 or $7000?

I need expert advice.

Dear Mr. Mukund,

Your company has already paid a 20% bonus. If there is still a surplus calculated as per the provisions under the Payment of Bonus Act, you only need to make payment of the differential amount. If it turns out to be 8.33%, then nothing further is payable. However, if the calculations indicate that an additional bonus amount is available, then the actual percentage should be paid.

I want to emphasize that although you have paid 20%, it is not mandatory to maintain the same rate.

Regards,
RDS Yadav
Labour Law Adviser

In Haryana, the bonus will be calculated on actuals or 7000, whichever is lower.

In Delhi, the bonus will be calculated on 8903.

It is 7000 or minimum wages (as on financial year close date, i.e., March 31st, 2014/105), whichever is higher. If companies have multiple locations, the bonus varies for each location employee.

Regards,
Keshav Reddy.

What will be the last date for paying Bonus for the FY 2014-15? Since the last date, i.e., November 2015, has already passed, have any rules or notifications been framed by the Ministry regarding it.

You will need to pay it in arrears in the next payroll you process. No rules are framed, but they will allow reasonable time to pay the arrears. I think a maximum of 2 months would be allowed.

I suggest you recalculate the percentage of bonus payable by your company as per the Bonus Act, considering your 'allocable surplus' and the provisions of the Bonus Act. Based on this percentage, you can determine the correct bonus amount that should have been paid by you in accordance with the revised provisions of the Bonus Act. Then, subtract the bonus already paid. Any shortfall will need to be rectified by you.

Eligibility for Bonus for Software Engineers

Since the wage limit for the bonus is now Rs. 21,000, and wages include only Basic + VDA, many Software Engineers will also be eligible for the bonus. The bonus is now payable on the minimum wages for the scheduled employment or Rs. 7,000, whichever is higher. I would like to know the minimum wages for Software Engineers in Karnataka.

In the Karnataka minimum wages for Shops and Commercial Establishments (see attachment), the class of employment closest to "Software Engineer" that I found is "Computer Operator." Is that the correct class of employment to use to determine minimum wages for Software Engineers?

Thanks for your guidance.

Dear BP,

In the 1st scenario, the bonus will be calculated on 7000/-, and in the 2nd scenario, it will remain at 8903/-.

Thank you.

It is my understanding that according to the amendment, the maximum earned wages on which a bonus is payable is Rs. 7,000/- or the minimum wages, whichever is higher. Since the bonus is paid on the earned wages, if the earned wages are less than Rs. 7,000, the bonus is payable only on the earned wages.

Examples of Bonus Calculations

Scenario 1:
Minimum wages: Rs. 5348
Earned wages: Rs. 5348
Then the bonus will be calculated on Rs. 5348.

Scenario 2:
Minimum wages: Rs. 5348
Earned wages: Rs. 6800
Then the bonus will be calculated on Rs. 6800.

Scenario 3:
Minimum wages: Rs. 5348
Earned wages: Rs. 7200
Then the bonus will be calculated on Rs. 7000.

Scenario 4:
Minimum wages: Rs. 7500
Earned wages: Rs. 7500
Then the bonus will be calculated on Rs. 7500.

Scenario 5:
Minimum wages: Rs. 7500
Earned wages: Rs. 12000
Then the bonus will be calculated on Rs. 7500.

If you believe this is incorrect, please let me know why. Thanks.

In the scenario 1 and 2 according to the act we have to calculate the earned wages or the ceiling amount of Rs.7,000/- ‘‘seven thousand rupees or the minimum wage for the
scheduled employment, as fixed by the appropriate Government, whichever is higher"
Reply pls
Regards
Shiva - 9241729276

Dear Mr. Shiva,

It is my understanding that a bonus is payable on earned wages. The higher of Rs. 7,000 or the minimum wages is just the maximum earned wages on which the bonus is payable; that is NOT the minimum amount on which the bonus is payable. Hence, if earned wages are less than Rs. 7,000, the bonus is payable only on the earned wages.

To put it in the form of a formula in Excel, here is how I would represent this:
=MIN(EarnedWagesForTheMonth, MAX(MinimumWages, 7000))

Concerns About the Bonus Amendment

I do not find any sense in the amendment. First, the concept of Rs 7000 or minimum wages, whichever is higher, is wrong. To take an example, if the earned wage is Rs 7500 and the minimum wage fixed is Rs 8000, then we have to calculate the bonus on Rs 8000 as we are bound to take minimum wages for the calculation of the bonus. If, on the other hand, the earned wage is Rs 6800 and the minimum wage is Rs 6500, then we will have to calculate the bonus on Rs 7000, whereas the actual earned wage is only Rs 6800. This is because the bonus is to be calculated on Rs 7000 or minimum wages, whichever is higher, and in this case, Rs 7000 is higher than the minimum wages and hence we take it as the base for the calculation of the bonus. But how can we pay a bonus at the rate of Rs 7000 when we are paying only less than that (i.e., Rs 6800) or when we are bound to pay only less than that, i.e., Rs 6500, the minimum wages?

Retrospective Effect of the Amendment

Now the amendment suggests a retrospective effect to the new system. Needless to say, a bonus decision is taken after lengthy processes involving trade unions and spending a lot of time in negotiations. It is horrible to reopen everything and redo it. Now let us analyze the apprehension of Advocatemukundh: if he has been paying at the rate of 20% on Rs 3500, whether he would have to retain the percentage of 20% and based on it pay a bonus at 20% of Rs 7000 or can have a percentage lesser than 20%. This should be addressed now because the rate percentage of the bonus is decided after considering allocable surplus and it will be different at different amounts allocated for payment of the bonus. When a smaller amount is allocated for payment of the bonus, the remaining amount of profit will be readily available for distribution as a bonus and the same will be repeated over the years. But when it is calculated on Rs 7000, more amounts would be required for payment of the bonus and this would certainly reduce the profits available and the rate of bonus for the coming years.

That means the entire process will have to be reopened and the rate of bonus based on Rs 7000 or minimum wages, whichever is higher, will have to be decided considering the allocable and available surpluses. In such cases, where the trade unions were involved, I do not think that this would be an easy task. Therefore, I feel that the amendment lacks sanctity. It is good that more people are brought under the bonus cover and it is also good that the amount of bonus would also be good. But the inclusion of "whichever is high" and its retrospective effect should be reconsidered.

Regards,
Madhu.T.K

In your post above, you mention, "If, on the other hand, the earned wage is Rs 6800 and the minimum wage is Rs 6500, then we will have to calculate the bonus on Rs 7000, whereas the actual earned wages is only 6800." My understanding is different from this. According to the (amended) Act, section 12 will be something like this: Where the salary or wage of an employee exceeds seven thousand rupees or the minimum wage, whichever is higher per mensem, the bonus payable to such employee under section 10 or, as the case may be, under section 11, shall be calculated as if his salary or wage were seven thousand rupees or the minimum wage, whichever is higher per mensem. Please observe that it says "WHERE the salary or wage of an employee EXCEEDS." So if the salary/wages are less than the maximum limit (higher of 7000 or minimum wage), only actual wages should be taken. So in this case on 6800. In case there is anything wrong in this interpretation, please let me know.

Yes, you are right. In the case of employees whose wages are less than Rs 7000, the actual wage will be the base for calculation. Let us write the new section 12 as follows for the sake of understanding how it works.

Section 12: Calculation of Bonus with Respect to Certain Employees

Where the salary or wage of an employee exceeds seven thousand rupees or the minimum wage for the scheduled employment, as fixed by the appropriate Government, whichever is higher per mensem, the bonus payable to such employee under section 10 or, as the case may be, under section 11, shall be calculated as if his salary or wage were seven thousand rupees or the minimum wage for the scheduled employment, as fixed by the appropriate Government, whichever is higher per mensem.

Regards, Madhu.T.K

I would like to return to my earlier question on this thread, which remains unresolved.

Since the wage limit for the bonus is now Rs. 21,000, and wages include only Basic + VDA, many Software Engineers will also be eligible for the bonus. The bonus is now payable on the minimum wages for the scheduled employment or Rs. 7,000, whichever is higher. Therefore, I would like to know the minimum wages for Software Engineers in Karnataka.

Mr. Saswata Banerjee mentioned, "I do not think software development is in a scheduled employment. So the residual category will be shop and establishment (offices), and software engineers will be skilled or highly skilled."

However, in Karnataka, minimum wages for Shops and Commercial Establishments (see attached) show no category for Skilled and Highly Skilled. The class of employment is categorized from Group I to Group V and then Office Staff. Therefore, for the purpose of minimum wages for Software Engineers, I am wondering if Group IV - General Workers (item 9) will apply or if Office Staff - Computer Operator (item 5) will be relevant.

Any guidance on this would be appreciated.

Minimum Wage Notifications for IT and ITES Industries

The attachment pertains to shops, commercial establishments, and spinning mills. However, in most states like Kerala, separate minimum wage notifications have been issued for IT and ITES industries. This means that IT is considered a scheduled employment. If no separate minimum wage is fixed for IT companies, then the applicability of 21,000 and 7,000 still applies to them. If software engineers are receiving a Basic (+DA) pay of less than 21,000, they would fall under the bonus bracket. Historically, small IT companies have calculated bonuses based on the 10,000 ceiling.

Regards, Madhu.T.K

I think the closest term is computer operator, not general worker. I would suggest you refer the matter to the GLC for clarification. It makes no sense to get into trouble for a minor amount. Also, remember there are separate limits for managers, who will, therefore, get a higher bonus.

In the absence of any statutory minimum wages, the maximum salary for the calculation of bonus would be Rs 7000.

Madhu.T.K

Please note that as per the Payment of Bonus (Amendment) Act 2015, the following rules apply:

1. If the minimum wage is 5000, in that case, the bonus will be calculated based on 7000.
2. If the minimum wage is 7500, it will be calculated on 7500, not on 7000.

However, it will vary from state to state and skill to skill according to the minimum wage notifications.

If the minimum wage is Rs 5000 and the wage that you pay is also the same, Rs 5000, why should you calculate a bonus on Rs 7000? You can pay it based on 5000. The matter of minimum wages comes only when the wage is more than 7000.

Madhu.T.K

Dear All,

Kindly inform me about what criteria can be used for increments of employees in our poultry industry where the increase is only Rs. 500 to Rs. 1500 yearly per employee. Please guide me and reply to jayjadhav77@gmail.com.

Thank you.

Please note that there is also a stay order on the payment of bonus act from the Tamil Nadu High Court. Parliament has not considered the Payment of Wages Act for revising the Bonus Act.

Yes, I read the same about the amendments online in other articles, and as per CA Hitesh, the limit for coverage of employees and the limit for calculation of bonuses have been increased under the act. But I am still confused about when these amendments were implemented. Is it retrospective, or from 2015/16?

Retrospective implementation has been stayed by the high courts. Therefore, at the moment, pay a higher bonus for the current year. Once the court decides on retrospective implementation, you need to act accordingly.

Minimum wages are for 26 days, while for calculating Statutory Bonus (as per the Payment of Bonus Act), I think we are required to do calculations based on 30 days per month. Does this mean that I should take the monthly minimum wage as per the latest notification of my state, divide by 26, and then multiply by 30 to arrive at the minimum wage that should be used for Bonus calculation?

Bonus is computed not based on 39 days but on a percentage of the salary cap earned for the previous year. So, the computation of 26 days and 30 days does not matter.

Bonus Calculation Request for Software Developer

In that case, Banerjee ji, will you please show me the calculation of the bonus for a person (software developer) earning Rs 19,000/- as Basic Salary per month in Rajasthan, where the minimum wage as of today is Rs 271/- per day or Rs 7046 per month for the highly skilled category? These minimum wages are quoted from the notification of the Rajasthan Government. I have not performed any calculation here.

For more information, you can see the notification on http://labour.rajasthan.gov.in/Notification.aspx. The last item on this page (point 25) has the notification in Hindi. Go to page 11 of 12 of this notification to see the minimum wages of a highly skilled worker. As you can see, Rs 7046 is actually Rs 271 * 26 days. Thanks, awaiting your reply.

Forgot to mention, the bonus has to be calculated at 20% in the case of our company. So, please do your calculation based on 20%. Will it be 20% of Rs 7,046, 20% of Rs 7,000, 20% of Rs 8,130 (which is 7,046 * 30/26), or 20% of Rs 8,401 (7,046 * 31/26 if the month has 31 days)?