Salary and Bonus Dilemma: How to Calculate Bonus When Basic + DA is Under 7000?

If the basic salary plus dearness allowance (DA) is less than 7000/-, then how do we calculate the bonus?

If the bonus is less than $7,000, take the basic salary, whatever it may be. For example, if the basic salary is $6,500, consider it as the basic salary plus Dearness Allowance (DA).

But the bonus amendment stated that whichever is higher, either the minimum wage or 7000/-.

My understanding is 7000/-

Hemraj Yadav

Dear Manu Taneja,

In your case, since basic+DA is less than 7000, as per statutory obligation, you have to make a minimum of Rs. 7000/- as a bonus.

Hemraj,

Bonus is to be paid on the actual wages for the year (basic + DA paid each month for the entire financial year). The act provides a ceiling. The ceiling is that if the wages are higher than ₹7000 per month, or higher than the minimum wages where the minimum wage is more than ₹7000 per month, the bonus will be paid as if the employee had wages of ₹7000 (or the minimum wage rate, whichever is higher). I hope you are now clear about the distinction between the two of them.

Dear Saswata ji,

Ceiling and actual wage words are not mentioned nor used in the bonus act anywhere. It is written in the act to calculate bonus on actual wages for those earning less than 7000/-. This is an individual understanding and is clearly written in the amendment as 7000/- or minimum wage, whichever is higher.

Please check.

Regards,
Hemraj

Dear D. Srihari,

Kindly go through the amendment once again and then comment on the issue, please. Your interpretation is contrary to the amendment.

P. K. Sharma

Understanding Bonus Calculation with Ceiling Limits

The objective of the ceiling limit of 7000 is to reduce the burden on the employer and to provide a reasonable bonus to all eligible employees/workers. Therefore, irrespective of the actual Basic plus DA, calculate the annual bonus either on 7000 or on your state's minimum wages for scheduled employees, whichever is higher as per Section 12.

Calculating the bonus on actual Basic plus DA in case of less than 7000 is just to avoid statutory dues, which are subjected to punishment and penalties as defined in Section 28 of the Bonus Act. Hence, even if Basic plus DA is less than the ceiling limit, always calculate the bonus either on the ceiling limit or on the state minimum wages for scheduled employees, whichever is higher.

Thanks and Regards,
Devesh Chauhan
Practicing in Accounts, Finance, Taxation, and Labour Laws

Dear Manu Bhai,

I don't know why there is doubt or confusion. For individuals earning higher than Rs. 7000/- but up to Rs. 21000/-, their bonus will be calculated based on a salary of Rs. 7000/- or the minimum wages, whichever is higher. For those earning less than Rs. 7000/-, their bonus will be calculated based on the actual pay (basic plus DA) they receive.

BS Kalsi
Member since August 2011

Dear all,

My question is: If a workman worked for 20 days in a month and gets a basic salary of 6000/, then what amount should be considered for calculation in the bonus? 6000 or 7000?

Calculation of Bonus in Light of Amendment

In continuation of our discussions, I would like to bring to your attention the calculation of bonuses in light of the recent amendment. The Act provides that the bonus payable to an employee will be in proportion to his or her salary or wage. Previously, if an employee's salary was more than Rs 3,500 per month, it was assumed to be Rs 3,500 for the purposes of bonus calculation. The amendment has raised this calculation ceiling to Rs 7,000 per month or the minimum wage notified for employment under the Minimum Wages Act, 1948, whichever is higher.

I could not understand your interpretation: "If the bonus is less than Rs 7,000, take the basic salary, whatever it is, e.g., Rs 6,500, as the basic + DA."

I may be corrected if my submissions are wrong.

Regards, P K Sharma

Dear all,

Rs. 7000/- is not a maximum ceiling limit, but it is the minimum limit. So, if an employee is drawing a salary less than Rs. 7000/-, then he should be paid a minimum of Rs. 7000/-. If his salary is more than Rs. 7000/-, then he should be paid at the rate of minimum wages fixed for that category in the state. Hope it is now clear to all.

Dear Mr. AL Gupta,

Thank you for your insight into the new bonus act. It is evident that many colleagues find it confusing, so your interpretation is valuable.

To clarify:
1. If the minimum wage is less than 7000, it should be considered as 7000 for bonus calculation.
2. If the minimum wage is between 7000 and 21000, 8.33% of the minimum wage is considered as the bonus.
3. The maximum ceiling for the bonus is set at 20% of the minimum wage earned, meaning workers cannot claim more than 20% as a bonus.

I hope this explanation is clear and understandable.

Regards,
P. L. Kanthan

When (basic+da) > 7000, then it is 7000. When (basic+da) < 7000, then it is the actual earning. The percentage may range from 8.33% to 20% of (basic+da), with a maximum of up to 20% as per the union agreement for workers.

Understanding the Bonus Act

I think it is important for members to read the Bonus Act and understand it properly to avoid passing incorrect information to the readers on this forum.

Minimum Bonus as Defined in Section 10

Payment of minimum bonus: Subject to the other provisions of this Act, every employer shall be bound to pay to every employee, in respect of the accounting year commencing on any day in the year 1979 and in respect of every subsequent accounting year, a minimum bonus which shall be 8.33 percent of the salary or wage earned by the employee during the accounting year or one hundred rupees, whichever is higher, whether or not the employer has any allocable surplus in the accounting year.

So, it's 8.33% of salary or wages.

Bonus Calculation for Certain Employees as per Section 12

Calculation of bonus with respect to certain employees: Where the salary or wage of an employee exceeds [two thousand five hundred rupees] per mensem, the bonus payable to such employee under section 10 or, as the case may be, under section 11, shall be calculated as if his salary or wage were [two thousand five hundred rupees] per mensem.

This limit of Rs. 2,500 was increased to Rs. 2,500 and now increased to "Rs. 7,000 or minimum wages, whichever is higher."

So, an employee gets a bonus (minimum bonus) at 8.33% of his actual wages (which is defined as basic + DA), and if his salary or wages are more than Rs. 7,000, then the bonus will be computed as if his salary is Rs. 7,500.

If the company has made more profit and money is available in the allocable surplus account (working provided in Sec 5), then the bonus will be higher, subject to a maximum of 20% of salary or wages. And again, if someone's salary or wages are more than Rs. 7,000, then he gets 20% of the ceiling (20% of Rs. 7,000 X 12 months).

Rs. 7,000 is not the minimum bonus; it is not necessary for the company to pay Rs. 7,000 as a bonus to someone whose basic and DA are less than Rs. 7,000 per month.

Hi Members,

There have been frequent queries, doubts, and misinterpretations about the latest Amendment in the Bonus Act. The amendment is as follows: "Where the salary/wage of the employee...

Sorry, friends, my PC misbehaved. Please find attached a scanned copy of the Bonus Act Amendment 2016. Kindly read sentence 3.(i) - "three thousand and five hundred rupees" at both places where they occur, the words "seven thousand rupees or the minimum wage for the scheduled employment, as fixed by the appropriate Government," and "whichever is higher" shall respectively be substituted. This clearly states that even if the minimum wage is less than 7000, a minimum of 7000 should be paid as a bonus. In other words, everyone is assured of a minimum of 7000 as a bonus; it does not mean that if anybody's wage is less than 7000, the calculation should be based on that low wage.

Dear Priyabrat,

In reference to your query, you are advised to refer to Section 13 of the Payment of Bonus Act, 1965, which states that if an employee has not worked for all the working days in an accounting year, their bonus amount will be proportionally reduced.

BS Kalsi,
Member since August 2011

I agree with the contention of Sh. Saswata Banerjee that the limit of Rs 7000/- has been fixed for employees who are drawing a salary of more than Rs 7000/- and up to Rs 21000/- per month. Employees earning less than Rs 7000/- shall be eligible to receive a bonus calculated based on their basic salary plus DA drawn by them in that accounting year. Section 11 clearly provides that an employee shall be eligible to receive an amount in proportion to the salary or wage earned by them during the accounting year where the allocable surplus exceeds the amount of the minimum bonus.

Regards, BS Kalsi

Understanding the Bonus Act Calculation

I would like to know in which section of the Bonus Act it is written that if the basic salary plus DA is less than 7000, then the bonus would be calculated on the actual basic drawn by the employee. If the basic plus DA exceeds 7000, then the bonus is to be calculated on 7000 or the minimum state wages fixed by the appropriate government for scheduled employment.

Purpose of the Bonus Act

I would also like to ask the basic question to all members: What was the objective of the government in implementing this act? Was it to provide benefits to employees or something else? Why has the government extended the threshold limit from 10000 to 21000? Was it to bring more employees within the purview of the Bonus Act or for another reason? What was the objective of the government in extending the ceiling limit from 3500 to 7000? Was it to provide a higher bonus amount to employees or to benefit employers?

Now, let me tell you all, a few months back, I met with my range labor commissioner and asked the same question. If the basic plus DA is less than 7000, then on what amount is the bonus to be calculated? He said this act was inserted to provide benefits to employees, and drafting the salary structure depends on the company's policy. An employer may divide the salary into allowances just to avoid the bonus. Therefore, even if the basic plus DA is less than 7000, the bonus would still be calculated on 7000. If employees fall under the scheduled category and the state minimum wage is higher than 7000, then the state minimum wage will be taken into account.

Thanks,

Employee who has worked for less than 30 days in the fiscal year is not entitled to receive a bonus.

Employee who has worked for 30 or more days in the fiscal year is entitled to receive a bonus.

Please let me know if you need any further assistance.

I think this is my third post on the same query, and still, my understanding is that if basic + DA is less than 7000/-, then the bonus will calculate on 7000/-, whichever is higher to calculate the bonus. Please understand the meaning of whichever is higher, either 7000/- or the state minimum wage.

Thanks to all.

Then, calculate the month's bonus as follows:
{7000 / (month days x working days)} x bonus %
For example, if the number of working days is 20, the month is January, and the bonus percentage is 8.33,
then
7000 / 31 x 20 = 4516 bonus calculation wage
and the bonus is = 4516 x 8.33% = 376/-

The calculations of the bonus are made on the earned wage, which includes weekly offs and holidays as well. As such, it is paydays, not actual working days, for making calculations. Actual working days are calculated for checking the 30-day working qualification purpose.

P.K. Sharma

Actual Calculation Bonus is $7000 or 8.33% and paid bonus working days (26) or Actual working days (30). Please provide details.

The Payment of Bonus Act, 1965 - FAQ

Is an employee entitled to get a bonus on the basis of his entire salary or wage? If an employee is drawing a salary or wage not exceeding ₹3,500.00 per month, he is entitled to get a bonus on his entire salary or wage. If an employee is getting a salary or wage exceeding ₹3,500.00 per month, but not exceeding ₹10,000.00 per month, the bonus payable to him is to be calculated as if his salary or wage were ₹3,500.00 per month. An employee getting a salary or wage exceeding ₹10,000.00 per month is not entitled to get a bonus. {Section 12}

Regards, Narendra

Dear Sir,

How can we calculate bonus working days from the financial year 2018-19? Please provide an example.

Amit Gaur