Can Management Delay Bonus Announcements and Deny It to Resigning Employees? Seeking Advice

Dear seniors, once again, I need your valuable suggestions. I have been working with a Bangalore-based IT company that is seven years old for 1.5 years. My joining date was 1st April 2015. According to the law, I am eligible to receive an annual bonus.

When I inquired about this with HR, she mentioned that the management has decided to announce the bonus during Diwali. My concern was whether an employee who resigns before Diwali would still be eligible for the bonus. She responded that they would not be eligible.

Authority to Announce Bonuses

My question is: Does the management have the authority to announce the bonus at any time they wish? What happens to employees who are relieved before the announcement?

Kindly provide your suggestions.

Thanks,
Neha

Dear Neha,

In general, the bonus for the last financial year (2015-2016) is being paid on Diwali or Dussehra. As your date of joining (DOJ) is 01 April 2015, you are eligible for a 1-year bonus even if you quit as part of FnF. You are eligible for 1 year as well as from 01 April 2016 until the last day you are employed. The bonus payable is as per the statutory and management is supposed to follow the Bonus Act.

Payment of Bonus Act, 1965: Time Limit for Payment

The time limit for the payment of bonuses has been established in the Payment of Bonus Act, 1965 itself. According to Section 20(b) of the PB Act, the bonus payable under the Act for an Accounting Year must be paid in cash to eligible employees within 8 months from the close of the accounts for that Accounting Year.

Since many companies adopt the Financial Year as their Accounting Year under the Act, the 8-month limitation typically ends on November 30. The festival of Deepavali often falls during October or November each year. Decisions regarding the quantum and disbursement of bonuses for the Accounting Year are made either unilaterally or collectively just before the festival. This timing is purely coincidental. Therefore, the declaration of a bonus on a particular date is not solely at the discretion of management; rather, the disbursement of the bonus before the expiration of the time limit is a statutory obligation of the employer.

Eligibility for Bonus Payment

The bonus for any Accounting Year is payable to all eligible employees who worked during that year, except for those dismissed for reasons mentioned in Section 9 of the Act. This applies regardless of whether they are in the service of the employer on the date of the declaration or disbursement of the bonus.

Umakanthan Sir,

You answered it correctly. In Maharashtra, payment of bonus is to be made by cheque.

"As per sec. 20(b) of the PB Act, normally the bonus payable under the Act pertaining to an Accounting Year shall be paid in cash to the eligible employees within 8 months from the date of close of the accounts of such Accounting Year."

Sir, why did you mention "normally" in the above statement?

Dear seniors,

Thank you. It means even if the management doesn't announce the bonus before Diwali, will the employee leaving before that still be eligible to get the bonus? Right?

Eligibility for Bonus Under the Bonus Act

Any staff member who has worked for at least one month is eligible for a bonus. Even if they are not working with the company during the time of bonus disbursement, they are still eligible.

Revised Bonus Slab

Previously, the bonus slab was Rs 3500/-, which has been revised to Rs 7000/- or the minimum wages, whichever is higher, in the year 2015. The bonus slab is for one year of service, and it can be reduced with reduced attendance/service.

In your case, Neha, you are eligible. If they do not pay, inform them that you will take legal action. Management can announce the bonus any time on or before November 30, and the maximum is up to management. The minimum is as per the slab.

Hope your query is addressed!

Before answering the query raised by our dear anonymous friend, I would like to thank them for giving me the opportunity to revisit my previous answer and correct an inadvertent mistake. The section prescribing the time limit for payment of bonus in the Payment of Bonus Act, 1965 is Section 19(b) and not 20(b).

Why I Used the Term "Normally"

The term "Accounting Year," as defined in Section 2(1) of the Payment of Bonus Act, 1965, relates to accounting years with different periods followed by different types of establishments according to their constitution, such as (i) Corporation, (ii) Company, and (iii) any other type, having its commencement from 1st April or having any date other than 31st March as the day of closing and balancing of its accounts.

Section 19 of the Act prescribes time limits for the payment of bonus in two situations: clause (a) concerns a dispute situation, and clause (b) pertains to any other case within a period of 8 months from the close of the accounting year.

That is why I used the qualifying term "normally" in my answer.

Umakanthan sir,

I have a doubt in bonus calculation. Suppose Mr. X has worked only 36 days, and his earned wages are 10800. After 36 days of working, he leaves the company. Please let me know how we will calculate the bonus, whether it is 10800*8.33 or 7000/26*36*8.33.

Please answer with an example if possible.

Thanks in advance.

Sir,

10800 is the earned wages of 36 days (basic plus DA). Hence, according to you, it will be paid out at 10800. However, section 12's ceiling limit states that the bonus shall be calculated based on 7000 or the minimum wages, whichever is higher.

To have the benefits of the Payment of Bonus Act as amended from 1-4-2014, one should first be covered under the definition of an employee, meaning their salary should be below Rs. 21,000 per month. Otherwise, the payment of bonus will be at the sole discretion of the management.

If eligible, the notional salary ceiling is Rs. 7,000 or the rate of minimum wages, whichever is higher, will be considered for the bonus.

No doubt that an amendment in the bonus has been made to pay a minimum of 7000/-, but it has been stayed by the Kerala High Court. Can anyone clarify whether the stay by the Kerala High Court or some other High Court has been vacated or is still in effect.

It is added here that a bonus is applicable to any person, applicable to a worker who has worked for a minimum of 30 days in the year and up to 21,000/- P.M. on Basic+D.A.