Gratuity and Bonus Confusion: How Do Wage Ceilings and Service Years Affect Eligibility?

Queries on Gratuity Eligibility and Payment of Bonus

I have a few queries regarding gratuity eligibility and the payment of bonuses.

Firstly, regarding the bonus, the recent amendment has fixed the wage ceiling at Rs 7000 or the minimum wage, whichever is higher. For employees who earn a basic salary (including DA) less than the ceiling (Rs 7000) and whose basic salary is below the minimum wages fixed by the state for their skill category (as the bifurcation of minimum wages case is still pending with the apex court and the PF department has kept its enforcement circular in abeyance), which wages should be considered for bonus calculation: basic or state minimum wages? (i.e., Basic Rs 5000 and Minimum wages Rs 5750)

Secondly, gratuity eligibility requires continuous five years of service (240 days of work in 12 months to be counted as continuous service). If an employee has worked for 7 years in an organization but did not clock 240 days in the 4th year, will the employee still be eligible for gratuity?

I hope to hear your views and any legal clarification if available.

Thanking you,

S R Shivrayan

Dear S R Shivrayan,

The minimum bonus as per 8.33% will be Rs. 7000/-. Bonus percentage can be derived from Form A or B of the Bonus Act, and then you can determine the amount of bonus to be disbursed.

The Gratuity Act is applicable when an employee has completed 5 years of employment with attendance of 240 days in each year.

Thank you.

Sir,

Thank you for your prompt reply, but both of my queries remain unanswered.

For the bonus, my query is on wages and not on the percentage of the bonus. Regarding gratuity, although the employee has more than 5 years of service, there was a period of one year during which he did not achieve 240 days of attendance, and he also does not have continuous service of 5 years on either side. What is the eligibility in this case?

Thanks/Regards

Dear Shish Ram,

Please note that the minimum bonus as per the new notification is Rs. 7000/- or the minimum wage of the scheduled employment of the state concerned, whichever is higher.

Regarding Gratuity, if an individual has not completed 240 days in any year of their service, that particular year will be deducted from the total length of service.

P K Sharma

The bonus is computed on actual wages subject to a ceiling of ₹7000 or minimum wages, whichever is higher. Since in your case the amount is less than the ceiling, it will be paid on basic + DA.

Ensure there is a single line break between paragraphs.

In your case, you have to pay a bonus on the minimum wages of Rs. 5,750/- even though the basic wage is Rs. 5,000/-. This is due to the amendment in the Bonus Act that specifically indicates the bonus calculation as Rs. 7,000 or the minimum wages fixed by the Government in the scheduled employment, whichever is higher. Therefore, I am of the view that the bonus payment to the employees is to be paid on the Minimum Wages of scheduled employment irrespective of the components of wages. Experts may offer their views on this aspect, as this subject matter is relevant in the current scenario.

As for the Gratuity, he is entitled to gratuity payment.

Regards,

Please go through the amendment which is reproduced hereunder:

Amendment to Section 12 of the Principal Act

In section 12 of the principal Act, 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.

Keeping in view the above, your suggestion to pay a bonus on Rs. 5750/- is incorrect because Rs. 7000/- is higher.

As far as gratuity is concerned, if a person has not worked at least 240 days in a calendar year, that particular year is excluded from the total number of years for which gratuity is payable.

Regards,
P K Sharma

Dear all,

Before writing about continuous service, please read the definition as per section 2-A. One year of service for organizations working 6 days a week is 240 days, and for those working 5 days a week is 190 days. In a 6-month period, such an employee should have worked for 120 or 95 days for rounding of these months to a year. Please ensure that what you write does not misguide those who are looking to us for guidance.

When the actual monthly salary or minimum wage is less than Rs. 7,000/-, there is no need to consider the monthly salary as Rs. 7,000/-. Therefore, only the actual salary (which is not less than the minimum wages) should be taken into consideration for the payment of bonus. In the subject case, the actual minimum wage is only Rs. 5,750/-, and hence the bonus can be calculated according to the earned wages or minimum wages. Only when the monthly salary exceeds Rs. 7,000/- should it be limited to Rs. 7,000/- or to the extent of the minimum wages, whichever is higher, and that amount should be considered for the payment of bonus.

Regarding the payment of gratuity, I agree that in the case where a workman has not worked the required 240 days in a year, it can be treated as a break in service when calculating the gratuity working. However, this clause would only be applicable in the event of an order passed by the management in accordance with the standing orders, rules, or regulations governing the employees of the establishment. In the absence of such an order, the employee would be entitled to full gratuity for the service rendered by him continuously (refer to Section 2A of the Payment of Gratuity Act). Legal experts may certify if this is correct or offer further views.

Regards,

The ceiling of 'Rs 7000 or Minimum wages... whichever is higher' is applied to the upper wage ceiling and not for wages less than Rs 7K. As you may recall, earlier, those who were drawing less than Rs 3500 were being paid a bonus based on their Basic only.

As per my understanding, the Minimum wages clause was added because some states (like Delhi) had minimum wages higher than Rs 7000.

I would like other experts to enlighten us on the subject, as we have already received diverse views on the issue.

Regards, S R Shvrayan