Confused About Bonus Calculations? Let's Discuss How Salaries Affect Your Bonus

Clarification on Bonus Calculation

Case 1 - If an employee's basic salary is Rs. 4000 and the gross salary is Rs. 7000, will the bonus be calculated on Rs. 4000 or Rs. 7000?

Case 2 - If an employee's basic salary is Rs. 5600 and the gross salary is Rs. 11000, will the bonus be calculated on Rs. 5600 or Rs. 7000?

Case 3 - If an employee's basic salary is Rs. 6995 and the gross salary is Rs. 13600, will the bonus be calculated on Rs. 6995 or Rs. 7000?

Case 4 - If an employee's basic salary is Rs. 11800 and the gross salary is Rs. 21000, does this employee come under the purview of the bonus act?

Case 5 - If an employee's basic salary is Rs. 12000 and the gross salary is Rs. 21200, does this employee come under the purview of the bonus act?

Case 6 - If an employee's basic salary is Rs. 21000 and the gross salary is Rs. 32000, does this employee come under the bonus act or not? If yes, what amount of bonus will be calculated?

Regards,
Nabarun Basu

Recent Amendments to Bonus Calculation

As per the recent amendment, we have to calculate the bonus on "seven thousand rupees or the minimum wage for the scheduled employment, as fixed by the appropriate Government, whichever is higher."

1. The eligibility limit for the payment of bonus has been increased from Rs. 10,000 to Rs. 21,000.
2. The calculation ceiling has been increased from Rs. 3,500 per month to Rs. 7,000 per month.

The amendments have been made effective retrospectively from 1st April 2014. Hence, we will have to work out the differential liability for 2014-15 and make payments accordingly.

Regards,
Ashish

Dear Nabarun Basu,

For your kind reference, I am attaching the amended sheet for Bonus Calculation. Please review it carefully. If you need any clarification, feel free to call me at the number provided below: +91 987 176 3456.

By the way, Mr. Ashish is clearly mentioned here, so I don't think you need further clarification.

Thank you.

Bonus is to be computed on basic and DA and has nothing to do with gross.

Further, if basic and DA are more than 7000 or minimum wages, whichever is higher, then the bonus will be paid on that ceiling amount and not on basic and DA.

Dear Mr. Nabarun,

For cases 1 to 3, the answer is 7000/-. Employees from cases 4 to 6 are eligible for a bonus.

Regards,
Pardeep Sharma

Dear sir,

Kindly clarify the difference or comparison between Rs 7000/- ceiling of BASIC DA and MINIMUM WAGES CEILING.

NANDHAGOPALAN.R

Hi Nandagopal,

The new act states that for the purpose of computing bonuses, you need to take 8.33% of the annual salary (or 20% of the annual salary). The salary will be the lower of the actual salary or ₹7000 per month. However, if the minimum wage is more than ₹7000 per month, then you should take the ceiling of the minimum wage instead of ₹7000.

Hope this is clear.

Dear Basu,

For points 1 to 3, the bonus will be calculated based on the actual basic salary.

For points 4 to 6, the bonus will be calculated on Rs. 7000 or the minimum wages as fixed by the government for that category of employment, whichever is higher. If the minimum wage is Rs. 7600, then the bonus will be calculated on Rs. 7600, not on Rs. 7000.

Regards,
Dinesh Kumar

Bonus Calculation Clarification

Reply to your queries:

Case 1: The bonus will be calculated on $4000 or the minimum wages if it is scheduled employment, whichever is higher.

Case 2: The bonus will be calculated on $5600 or the minimum wages if it is scheduled employment, whichever is higher.

Case 3: The bonus will be calculated on $6995 or the minimum wages if it is scheduled employment, whichever is higher.

Case 4: The bonus will be calculated on $7000 or the minimum wages if it is scheduled employment, whichever is higher. The employee is covered under the Bonus Act.

Case 5: The bonus will be calculated on $7000 or the minimum wages if it is scheduled employment, whichever is higher. The employee is covered under the Bonus Act.

Case 6: The bonus will be calculated on $7000 or the minimum wages if it is scheduled employment, whichever is higher. The employee is covered under the Bonus Act.

I trust the above information will address your queries.

Regards, S K Bandyopadhyay
USD HR Solutions
[Phone Number Removed For Privacy Reasons]

Case 1

If an employee's basic salary is Rs. 4000 and the gross salary is Rs. 7000, will the bonus be calculated on Rs. 4000 or Rs. 7000? Bonus will be calculated on Rs. 4000.

Case 2

If an employee's basic salary is Rs. 5600 and the gross salary is Rs. 11000, will the bonus be calculated on Rs. 5600 or Rs. 7000? Bonus will be calculated on Rs. 5600.

Case 3

If an employee's basic salary is Rs. 6995 and the gross salary is Rs. 13600, will the bonus be calculated on Rs. 6995 or Rs. 7000? Bonus will be calculated on Rs. 6995.

Case 4

If an employee's basic salary is Rs. 11800 and the gross salary is Rs. 21000, does this employee come under the purview of the Bonus Act? He will come under the Payment of Bonus Act. Because for the calculation of the bonus, if only the basic salary is considered, the same basic salary alone would qualify for deciding the eligibility of an employee to receive a bonus.

Case 5

If an employee's basic salary is Rs. 12000 and the gross salary is Rs. 21200, does this employee come under the purview of the Bonus Act? Same as in Case 4.

Case 6

If an employee's basic salary is Rs. 21000 and the gross salary is Rs. 32000, does this employee come under the Bonus Act or not? If yes, what amount of bonus will be calculated? He will come under the coverage of the Bonus Act because his basic salary is not more than Rs. 21000. According to the Payment of Bonus Act, an employee means any person employed on wages not exceeding Rs. 21000. Therefore, if his basic salary is Rs. 21001, then he will be out of the bonus coverage.

In the case of an employee whose salary is more than Rs. 7000, say Rs. 12000, his bonus will be calculated as if his salary is only Rs. 7000. At the same time, if he is employed in an industry for which the minimum wage has been notified by the government, then that statutory wage will be considered for deciding the bonus-qualifying salary. Accordingly, if the notified minimum wage is more than Rs. 7000, then that will be taken as the bonus-qualifying salary. Following the same example, if the minimum wage is Rs. 9000, then that wage will be the base for bonus calculation. Obviously, if the minimum wage is less than Rs. 7000, say, Rs. 6800, but the actual basic wage is Rs. 12000, then the bonus will be calculated considering that his wage is Rs. 7000 only.

Regards, Madhu.T.K

Understanding the Definition of Wages Under the Bonus Act

I have a query regarding the calculation of wages as defined under the Bonus Act. The definition of "salary or wage" includes all remuneration (except for overtime work) that can be expressed in monetary terms. This remuneration, if the terms of employment, whether express or implied, are fulfilled, would be payable to an employee for their employment or work done. It includes dearness allowance (all cash payments made to an employee due to a rise in the cost of living), but does not include:

(i) Any other allowance the employee is entitled to at the time;
(ii) The value of house accommodation, supply of light, water, medical attendance, or other amenities, or any concessional supply of food grains or other articles;
(iii) Any traveling concession;
(iv) Any bonus (including incentive, production, and attendance bonuses);
(v) Any contribution paid or payable by the employer to any pension or provident fund, or for the benefit of the employee under any law in force;
(vi) Any retrenchment compensation, gratuity, or other retirement benefits payable to the employee, or any ex gratia payment made to them;
(vii) Any commission payable to the employee.

In a private company, the components of a gross salary include basic salary, HRA, conveyance allowance, education allowance, hostel allowance, and special allowance. Please clarify how we need to calculate the wages in this context.

Regards,
[Username]

Understanding Salary Components and Bonus Eligibility

Wages/salary mean basic salary and dearness allowance. HRA is also a part of the salary if it is paid as per agreement or settlement. In private establishments, there is a practice of fixing a lump sum amount as salary and then dividing it into smaller parts under different heads, like Basic, HRA, Conveyance, etc. In such a situation, the total sum is the amount of remuneration agreed upon, and that will qualify for a bonus.

In a structured pay scale, there will be a basic pay scale, and all other allowances will be fixed or even variable according to grades. In such a situation, the allowances other than dearness allowance will qualify for a bonus. This is the treatment concerning layoff compensation, gratuity, retrenchment compensation, or wherever reference to wages is made.

Regards, Madhu.T.K

Thank you, Madhu, for the response. This means that we will calculate the bonus based on the gross salary since we declare all the components of the salary in the appointment letter. We only need to exclude the PF. Also, please clarify if the HRA should be included as, in all other compliances like PF, it is not included.

Consideration of HRA in Bonus Calculation

If HRA is a part of the salary, then it should also be considered. As already pointed out, under normal circumstances, only the Basic salary and DA will qualify for a bonus. If these are considered for the calculation of the bonus, then only these two components should be considered for deciding whether an employee is eligible for a bonus or not.

Therefore, if you pay a bonus only on Basic (+ DA, if any), then an employee whose basic (+DA) salary is not more than 21,000 will be entitled to a bonus even though their gross salary is more than 21,000. At the same time, if you give a bonus on a salary that includes basic, HRA, etc., then for deciding eligibility, you can also include all these components.

Regards,
Madhu.T.K

Bonus Amendment Details

Kindly find below the Bonus Amendment. It mentions that 7,000 or the minimum wage, whichever is higher, should not be less.

1. (1) This Act may be called the Payment of Bonus (Amendment) Act, 2015. (2) It shall be deemed to have come into force on the 1st day of April, 2014.

2. In section 2 of the Payment of Bonus Act, 1965 (hereinafter referred to as the principal Act), in clause (13), for the words "ten thousand rupees," the words "twenty-one thousand rupees" shall be substituted.

(i) For the words "three thousand and five hundred rupees" at both the places where they occur, the words "seven thousand rupees or the minimum wage for the scheduled employment, as fixed by the appropriate Government, whichever is higher" shall respectively be substituted.

Regards

Dear All,

Kindly let us know if the below Bonus Working is correct or incorrect:

Sr. No. Case Bonus Calculation Amt
1 If Gross Salary is Less than 7000 or 10000 (Minimum Wages) 7000
2 If Gross Salary is More than 7000 and Less than 10000 (Minimum Wages) Minimum Wages
3 If Gross Salary is More than 10000 (Minimum Wages) Minimum Wages

Thanks and Regards

1. If the minimum wage (basic+DA) is Rs. 333 per day, and the present full month has 26 days, then the wages will amount to Rs. 8658. Therefore, the bonus will be calculated on Rs. 8658.

2. If there is absenteeism in a certain month, with 24 working days, the wages will amount to Rs. 7992. The bonus will be calculated based on Rs. 7992 or Rs. 7000.

3. In the case of absenteeism in a certain month, with 12 working days, the wages will amount to Rs. 3996. The bonus will be calculated based on Rs. 3996 or Rs. 7000.

Please clarify.

Regards,
rkn

Bonus is to be calculated based on the wages earned. Therefore, if anybody has been on leave without pay and earned less than the normal monthly wages, they should receive a reduced bonus. Simply calculate the bonus according to the amount paid.

Madhu.T.K

Calculate the bonus as if the salary is Rs 7000 per month. In case the minimum wages applicable to him are more than Rs 7000, then take that minimum wage as the basis for calculating the bonus.

I think the answers given above (i.e., 20 posts) clarify everything, including the query in post No. 21. It is advisable that you go through the posts and post queries only if the posts do not satisfy you.

Madhu.T.K

Dear Madhu TK & All,

The confusion is about the 7000 ceiling limit. According to some members, it is the minimum wages limit, and according to some members, it is the minimum bonus limit. Actually, this kind of different replies given by seniors has let the querist to be confused. If the basic Plus DA is less than 7000, say 5600, then do we need to take the actual basic plus DA, i.e., 5600, for bonus calculation, or should we take 7000 for bonus calculation?

Please clarify this issue of the 7000 ceiling limit.

Clarification on Bonus Calculation

Please read my post (link 12) which clarifies your doubts. If the wages are below Rs 7000, take the actual salary; if it is more than 7000, then take 7000. In case the minimum wages are more than 7000, then take that minimum wage for the calculation of the bonus.

The most important thing to note regarding the amended section is that minimum wages will come into the picture only if your bonus qualifying salary is more than Rs 7000. That means if you are paying less than 7000, say Rs 6000, and the minimum wages are more than 7000, say Rs 8000, then you need not calculate and pay the bonus on minimum wages but just pay it based on the actual wages paid, i.e., 6000. At the same time, if your salary is more than 7000, say 10000, then you have to pay a bonus on 7000 or minimum wages, whichever is higher, i.e., Rs 8000.

Regards, Madhu.T.K

Dear Madhu TK sir,

I have read your post No. 12 in this thread wherein you mentioned that if the Basic plus DA is less than 7000, for example, 6000, then the bonus will be calculated based on 6000. However, if the Basic plus DA exceeds 7000, for instance, 12000, then the bonus will be calculated based on either 7000 or the state minimum wages for scheduled employment, whichever is higher.

I would like to know in which section of the Bonus Act it is written that if the Basic plus DA is less than 7000, the actual Basic plus DA will be considered for bonus calculation.

I am an employee of a private company with a salary of 13,000 per month in the financial year 2015-16. The company started on 1st September 2015, and I joined on 1st October 2015. Am I eligible for a bonus? If so, how is the bonus calculated? Does it have to be for the full financial year or not?

Calculation of Minimum Bonus

1. 13,000 x 8.33% x 12 or
2. 13,000 x 8.33% x 6

Calculation of Maximum Bonus

1. 13,000 x 20% x 12
2. 13,000 x 20% x 6

The company has fixed the bonus amount at 10,000. Please suggest how much amount I can receive.

Bonus Payment Guidelines

A company is exempt from paying a bonus for the first five years unless it has actually made profits. So, if the company has incurred a loss, you won't receive any bonus. If the company has made a profit, then compute the allocable surplus as described in the act and compare that with the salary paid for the year (also explained in the act). Based on that, you need to decide the percentage of the bonus. It should be the percentage that will absorb the allocable surplus, subject to a maximum of 20%.

Of course, the company is not required to pay a bonus for 12 months if it only operated for six months, and you will only receive a bonus for five months if you joined in October.

Dear AMTGUP,

Please see Section 9 and Section 10, which state that the bonus is payable based on the actual salary.

Additionally, refer to Section 12, which specifies that those earning above the ceiling will receive payment at the ceiling rate.

Thank you.

Hello Sir,

What bonus earnings should be considered in the following scenario:

Actual Basic + DA of an employee (Sales Representative) = Rs. 7150 (greater than Rs. 7000)
Minimum wages for that employee category = Rs. 8350

Please clarify.

Thanks,

R. Venugopal

Dear Venugopal,

Since the basic plus DA exceeds the ceiling limit, i.e., 7000, and the concerned employee is covered under scheduled employment, as per Section 12 of the Payment of Bonus Act, 1965, which amount is higher, whether the ceiling limit or the state minimum wages? In your case, the state minimum wages are higher than the ceiling limit; therefore, state minimum wages, i.e., 8350, shall be taken for bonus calculation.

Thanks & Regards,
V. SHAKYA
HR & Labour Laws Advisor

Dear All,

If the minimum wage, including basic pay and DA, is 8500, in this case, as per the bonus amendment, the bonus is calculated on 7000 or the minimum wages, whichever is higher, meaning 8500/-. The bonus calculation is as follows: Minimum wage 8500 * 8.33% = 805 or slab limit 7000 * 8.33% = 583. This is for 8.33%. However, if the company wants to pay a bonus of 20%, in that case, we also have to calculate the bonus based on the slab limit (7000) or minimum wages (8500), whichever is higher.

Regards,
Shyam

If you strictly follow the Act, then you have to calculate it as 20% of 7000 or 20% of the minimum wages, whichever is higher.

Madhu.T.K

Can anyone please clarify if somebody joins the organization on 16 March 2017 and he is continuing to work with the company till date. How do we treat this employee for calculating his bonus for the FY 2016-17? Are we liable to pay him the bonus for 16 days for FY 2016-17? Though he will be eligible for the bonus for the FY 2017-18. Please clarify. Thanks.

Summary of Bonus Calculation Cases

1) First case - If the actual pay/earned wage per month received by the employee is less than Rs. 7000 per month, for example, Rs. 6000 per month, calculate the bonus on Rs. 6000 per month.

2) Second case - If the actual pay/earned wage per month received by the employee is more than Rs. 7000 per month, for example, Rs. 8500 per month, check the minimum wage of the workmen if it's covered under suitable schedule employment, which is, for example, Rs. 6000 per month, and calculate the bonus on Rs. 7000 per month.

3) Third case - If the actual pay/earned wage per month received by the employee is more than Rs. 7000 per month, for example, Rs. 8500 per month, check the minimum wage of the workmen if it's covered under suitable schedule employment, which is, for example, Rs. 9000 per month, and calculate the bonus on Rs. 9000 per month.

4) Fourth case - If the actual pay/earned wage per month received by the employee is more than Rs. 7000 per month, for example, Rs. 8500 per month, check the minimum wage of the workmen if it's covered under schedule employment, which is also, for example, Rs. 8500 per month, and calculate the bonus on Rs. 8500 per month based on the minimum wage.

Hope this makes it clear.

Dear Members,

Can you please clarify the following -

Case 1: IF Basic Salary = 10800 + DA = 7200 Total Salary = 18000 Actual Pay Per Month Salary Bonus will be calculated on Rs. 10800? Bonus will be calculated on Rs. 18000? Bonus will be calculated on Rs. 7000?

The answer to your query is available in this thread. It has been said that in the case of industries to which Minimum Wages have been notified, the bonus should be calculated based on that minimum wage. Otherwise, it can be restricted to Rs 7000. Therefore, if there is any statutory minimum wage applicable to you, calculate the bonus based on that amount; otherwise, calculate it considering the salary to be Rs 7000.