Are Monthly Bonus Payments Really Beneficial? Let's Discuss Their Impact and Regulations

Dear all,

I have noticed that many companies offer bonuses as either a one-time payment or as a monthly component in their employees' pay structure. Is this a beneficial practice? How does it impact the actual bonus payment in accordance with the relevant regulations? I would appreciate it if you could shed some light on this.

Thanks!
Saunee

There is nothing wrong in showing the bonus in the monthly package provided its payment is made annually. Bonus is an annual payment and is expected to be paid within 8 months of closing the financial year, and as such, you cannot pay it monthly. But in order to show what costs the company by employing you, the company can show it in your offer as monthly as well as annual components of remuneration.

Madhu.T.K

Thank you, Mr. Madhu T.K.

What about the scenario where a bonus is part of the monthly structure and is being paid monthly as part of the salary? Is that okay?

Please read what I have written. I have stated that payment should not be made monthly, whereas you can show it in the salary structure or CTC.

Madhu.T.K

I believe what Saunee wants to know is the effect of not only reflecting statutory bonus as a monthly component but also its actual proportionate monthly disbursement along with the regular salary throughout the accounting year. Bonus under the Payment of Bonus Act, 1965 is determined based on the performance of the industrial establishment in the accounting year and is calculated as a percentage of the total earnings of eligible employees in that year. While the monthly payment of bonus may rely on estimations, I personally don't consider it inappropriate or legally incorrect. It could be termed as either an interim bonus or a bonus advance that can be adjusted later against the bonus determined and paid after the accounting year ends. This approach may ease the burden of a one-time bulk payment for the employer, as they are obligated to pay the minimum bonus even in case of losses, while also supplementing the monthly earnings of employees.

However, this practice may be more convenient if there exists a standing settlement, whether bilateral or tripartite, allowing for the predetermined annual bonus strictly in adherence to the Act's provisions concerning minimum or maximum bonuses based solely on performance during its term. Additionally, it could serve as a strategic move by the employer to gain an advantage in the collective bargaining process for wage revision or to evade the annual demand for bonus. Success in this approach hinges on several positive factors such as the employer's confidence in the stability and profitability of their operations, strict compliance with the provisions of set-on and set-off, and most importantly, the employer's commitment to fulfilling their promise despite the possibility of unforeseen business downturns beyond their control.

Furthermore, the bonus amount paid monthly with the salary or wage should not constitute a component of the wage or salary structure, except for the purpose of CTC.

Best regards,
[Your Name]

I agree with Mr. Umakanthan. The bonus element, whether it is accounted and paid monthly or annually at once, is one and the same, as long as the parameter is maintained and properly recorded.

Thanks everyone

Monthly Bonus Payments: A Risky Practice

Any amount paid monthly is counted as part of the salary or wages of the employee. As such, any bonus paid monthly is considered part of the salary and not a bonus at all. The bonus again becomes payable at the end of the year (or more correctly, 8 months after the end of the financial year). The argument of "setting off customary bonus or preliminary bonus" is also not applicable, as monthly bonus payment is not considered.

In the end, it's a bad and risky practice as the company is open to the risk of being asked to pay the same again. Lawyers may argue the matter in different ways in court, but are you willing to take the risk to see if your lawyer's point of view prevails?

The payment of bonuses, particularly the percentage, is linked to the profitability of the company. This is why an eight-month period from the closing of the financial year is allowed for its disbursement. There is nothing wrong with paying the bonus on a monthly, quarterly, or half-yearly basis, which is called an "interim bonus." At the end of the year, when the bonus is calculated, the interim bonus disbursed during the year can be adjusted, and the remaining amount is released.

If you go through the contents of Form C (disbursement register), it allows deductions from the payable bonus on account of "interim bonus or bonus paid in advance," "amount of income tax deducted," and "deduction on account of financial loss caused by misconduct of the employee."

Regards, P K Sharma

Dear Sir,

If the bonus is paid monthly, it will attract ESIC, or employees will miss out on benefits if the limit is exceeded. Moreover, monthly payments will impact the company's profitability, and the percentage of bonus to be declared annually will be affected.

The above points need consideration as well.

Thanks,
V K Gupta

Dear All,

Kindly let me know if bonus calculation is based only on (basic + DA) or should it include gross salary (HRA + Travel Allowance + Medical Allowance, etc).

Dear All,

Kindly let me know if the bonus calculation is based only on (basic + DA) or if it should include the gross salary (HRA + Travel Allowance + Medical Allowance, etc).

Thank you.

Components of Salary for Bonus Calculation

Salary for the purpose of calculating a bonus should include all components agreed upon as part of the remuneration. There has been a practice of considering only the Basic and DA (Dearness Allowance) for the calculation of bonuses. If you do not pay DA, only the Basic salary is considered. Therefore, if traveling allowance, house rent allowance, and medical allowance are fixed components paid without any conditions, they should also form part of the salary.

The same treatment should be applied when deciding eligibility for a bonus. If you use the gross salary for calculating the amount of bonus payable, the same should be the salary for deciding whether the employee is eligible for a bonus or not.

Regards, Madhu.T.K