Bonus Shall Be Calculated On Basic + DA Only?

Dear all,

Though I have been a member of this forum since 2005, this is my first post.

I need some clarification on the Payment of Bonus Act 1965.

As per my knowledge and Section 2, serial number 21 of the Payment of Bonus Act 1965, the definition for "Salary or Wages" states that bonus should be calculated based on Earned Gross salary and not on Basic + DA.

(21) "salary or wage" means all remuneration (other than remuneration in respect of overtime work) capable of being expressed in terms of money, which would, if the terms of employment, express or implied, were fulfilled, be payable to an employee in respect of his employment or of work done in such employment and includes dearness allowance (that is to say, all cash payments, by whatever name called, paid to an employee on account of a rise in the cost of living), but does not include:

(i) any other allowance which the employee is for the time being entitled to;

(ii) the value of any house accommodation or of supply of light, water, medical attendance or other amenity or of any service or of any concessional supply of food grains or other articles;

(iii) any travelling concession;

(iv) any bonus (including incentive, production, and attendance bonus);

(v) any contribution paid or payable by the employer to any pension fund or provident fund or for the benefit of the employee under any law for the time being in force;

(vi) any retrenchment compensation or any gratuity or other retirement benefit payable to the employee or any ex gratia payment made to him;

(vii) any commission payable to the employee.

Explanation: Where an employee is given in lieu of the whole or part of the salary or wage payable to him, free food allowance or free food by his employer, such food allowance or the value of such food shall, for the purpose of this clause, be deemed to form part of the salary or wage of such an employee.

However, I have seen in this forum that a number of peers have expressed that bonus shall be calculated on Basic + DA only.

Can anyone clarify this?

I can clarify for you. But I need your salary structure. What are the components included in your salary structure?

In your question itself, you can see that they have shown, as per definition, the bonus to be calculated on all the components excluding (i) to (vii) in the salary structure.

In most salary structures, if you exclude (i) to (vii), the remaining will be Basic & DA in the salary structure. That's why they calculate the bonus on "Basic+DA".

Dear Mr. Saravan,

Our salary components are Basic, DA, HRA, Conveyance & Special allowance. I hope this is the normal structure followed by all companies. According to it, we could ignore HRA only.

Nowadays, all details and clarifications can be found on citehr. Hence, most of the owners search for it and act as intimated on citehr. They are not ready to go through the applicable acts.

Mr. Selvam,

You can even exclude conveyance and Special Allowance, which have been mentioned in the excluded list in points (iii) and (i) respectively.

As per the amendment to the Payment of Bonus Act 2015, is the ceiling of Rs. 7,000 applicable?

Thank you.

Mr. Mani,

It is the minimum ceiling. Bonus should satisfy all the below points:

1. 8.33% to 20% of (Basic + DA) X 12 (months), and that amount should not be less than Rs. 7,000; (if that amount is less than Rs. 7,000, then Rs. 7,000 has to be paid to those employees as a flat rate).
2. (Basic + DA) should not be less than minimum wages.
3. The maximum allowed (Basic + DA) is Rs. 20,000.

Dear Saravanan,

The special allowance is a permanent component paid out every month, not given temporarily. The conveyance allowance is a fixed component that provides an IT exemption. Since it is given to every employee regardless of their mode of transportation (walking, bus, own vehicle, etc.), I believe it should not be considered a travel concession akin to an honor bestowed upon renowned individuals.

Thank you.