Understanding Bonus Calculation: Which City's Minimum Wage Applies and What Do New Limits Mean?

Respected Sir(s),

I have a few queries regarding Bonus calculation:

1) The minimum wage rate that will be applicable for calculating Bonus will be:
(a) The city in which the employee is working or (b) The city where the Head Office of the company is located.

2) As per the new amendment, the maximum limit of Bonus is Rs. 20,000/- and the minimum is Rs. 7,500/-. What does this mean in relation to wages consideration?

Regards,
Yogesh

Place of Employment and Salary Determination

The place of employment is the most important determinant factor for the fixation of basic salary/wages and other allowances payable to the employee. Based on this, other derivative compensations of employment, like bonuses, are computed. Even in the case of employment disputes, only the place of employment determines jurisdiction. Therefore, the place of the head office has no relevance in such matters unless the employee is employed in the head office itself. If the questioner focuses on the basics of the fixation of minimum wages under the Minimum Wages Act, 1948, they would understand that the same is done with respect to scheduled employments by the Appropriate Governments only on a regional basis across the states or the entire country, as the case may be.

Clarification on Bonus Amendments

I am not able to find the particulars relating to the maximum bonus and minimum bonus mentioned in the query in the Gazette of India notification no. 6 dated 01-01-2016 bringing the new amendment into force. So, let the questioner elucidate their point.

Regards

Place of business must be determined for the rate of minimum wage. The maximum bonus is 20%, and wages should not exceed 7000 or the minimum wage should be taken into account.

Thank you.

Dear sir,

As per the new amendment in bonuses, amounting to 7000 and minimum wages, whichever is higher, we calculate the bonus based on that amount. If you provide the bonus to an individual whose salary is more than 20000, determine the category they belong to. Obviously, they belong to the high-skilled category. Therefore, check your state's minimum wage. If it's greater than 7000, calculate the bonus based on the minimum wage. If it's less than 7000, calculate it based on 7000.

Recent Notification of Bonus Act only focuses on a few key points as follows:

Eligibility Criteria & Coverage: Employees earning a salary up to 21,000/- per month are covered under this revision.

Bonus Calculation Criteria: The calculation will be based on either 7,000/- or the minimum wages for a particular category of employment, whichever is the higher value. Calculations will be done on a monthly basis and will be based on the employee's earnings in that month.

Impact of Recent Amendment on Employer's Liability for Statutory Bonus

Let me elaborate on the impact on the liability of employers to pay the statutory bonus consequent to the recent amendment as follows:

1) Revision of Wage-Threshold for Eligibility [Sec.2(13)]
Earlier Rs.10,000/= raised to Rs.21,000/=

2) Revision of Wage/Salary Ceiling for Calculation Purpose (Sec.12)
Earlier Rs.3,500/= raised to Rs.7,000/= OR minimum wages, whichever is higher

3) Retrospective Effect from 01-04-2014

Now, coming to the query:

a) Since the raise in the threshold wages to claim a bonus, more employees earning up to Rs.21,000/= become eligible for a bonus.

b) Revision of the salary/wage ceiling for calculation purposes increases the liability of employers because of the caveat of the "whichever is higher" clause introduced in the amended provision. It implies that in cases where the industry wages are more than the minimum wages but less than the notional wages of Rs.7,000/=, the bonus has to be calculated on the basis of 8.33% to 20% of the notional higher wages only and NOT on the actually earned wages. The logic is that when the actual wages received at the rate of MW are less than the notional wages, the employee should get a higher bonus based on the higher notional wages.

Similarly, in cases where the employee crosses both the statutory ceiling of Rs.7,000/= as well as the MW fixed for his employment, for calculation purposes, his notional wages should be Rs.7,000/= only because it is higher than the relevant MW. The logic here is that but for the amendment of Sec.12, he would have received a lesser bonus at Rs.3,500/= only, depending on the actual percentage of bonus decided between 8.33% and 20%.

I am working in a public limited company. If my gross salary is 30,000 per month and I have been in the system for 4 years, what would be my bonus for the year 2015-2016 as per the new policy?

According to the current notification, an employee is entitled to a bonus if they are receiving wages up to Rs. 21,000, with a limit of Rs. 7,000. Within the salary framework, an employee is entitled only if they have worked for 30 days.

Understanding the Revised Bonus Act

Hi everyone, since this is my first article in the forum, I do not agree with Mr. Umakanthan53. What I understood from the revised Bonus Act is as follows:

1. If the minimum wage (MW) is less than ₹7,000 per month, it is considered as ₹7,000 for bonus calculation, and ₹7,000 is to be paid as the minimum bonus.

2. If MW is up to ₹21,000 per month, calculate the bonus at 8.33% of MW.

3. If anyone draws MW greater than or equal to ₹21,000 per month, then he/she is not entitled to a bonus.

However, the entire matter is pending with the Honorable High Courts of different states to decide from which date the above revised bonus is applicable. On June 13, 2016, the Honorable Bombay High Court granted a stay throughout India against WPL No.1548-16. Kindly update if the above stay is vacated and a specific direction is given on the issue.

Mr. Umakanthan53, if you do not agree with me, please correct me. Regards to every participant on the subject.

I have also confirmed and understood as you narrated on the given points (mentioned in your submission):

1) This is okay and meaningful/justified under the provisions of the New Revision as construed. (Rs. 7000 is to be paid as a minimum bonus).

2) The threshold limit of Rs. 21,000 salary is defined, but the percentage of paying the bonus is not defined as you suggested. It is at the management's discretion to declare, and the calculation will be based on earnings of a particular month. It is not binding on the Minimum Wage or Rs. 7000/-. One can try to escape from liability only through calculation on Minimum Wage/Rs. 7000.

3) If any person's gross earnings are equivalent to Rs. 21,000, they are entitled to a bonus. If exceeding Rs. 21,000, they are not entitled and may not claim from the employer legally.

4) Stay is only granted for the effective date of FY 2014-15. We have to pay it for FY 2015-16.

Thank you.

Understanding the Bonus Calculation Amendment

If you look at section 3.(i) of the Gazette Notification for the Payment of Bonus (Amendment) Act, 2015 (No. 6 of 2016) dated 1.1.2016 by the Ministry of Law & Justice, it states:

Quote:
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."
Unquote

When we talk about minimum wages, it includes Basic + DA + regular cash allowances (in any form). So, if anybody's earnings in the above form are less than Rs. 7000 per month, then it is to be construed as Rs. 7000 per month for the purpose of calculating the bonus.

Court Stay on Retrospective Application

Now, regarding the period, the court stay is for section 1, sub-clause (2) of the Act. The Hon. High Court also ruled that "In the meantime, retrospective application of the said act is stayed, and no coercive steps shall be taken against the ... for recovery of the amounts due prior to '31st March 2016'."

This virtually puts a stay till 31.3.2016.

Waiting for the Hon. Courts to pass a ruling.