New HR Executive Seeking Guidance on Bonus Eligibility for Probationary Employee

Hello Everyone,

I have joined as an HR Executive recently. One employee joined in August 2016. His salary is 12k (10k + 2k), with 2k being variables that he will receive after completing his probation. Will he be eligible for a bonus? If so, how much and when? Perhaps on Diwali? I am unsure of when my company gives bonuses as I have no idea about the bonus structure. Therefore, I kindly request assistance. If my question seems trivial, please provide guidance. Thank you in advance.

Regards,
Gayatri

Understanding Bonus Eligibility Under the Payment of Bonus Act

Accept my congratulations on your joining as an HR executive. First, you need to examine whether the establishment is covered under the Act (refer to Section 1(3) of the Act). Refer to Section 2(13) of the Act, which clearly debars an apprentice engaged under the Apprentices Act, 1961, and not a trainee. Also, refer to Section 16 of the Act, which gives relaxation to newly set up establishments if they don't make a profit, from paying bonuses to their employees.

The calculation of the bonus is made on the basis of each accounting year, and the bonus is payable within eight months of the close of the accounting year (refer to Section 19).

My sincere advice to you is to please go through the Payment of Bonus Act, 1965, or visit the citehr site where such queries have been answered many times for more clarity.

Regards,
BS Kalsi
Member Since August 2011

As per the Payment of Bonus Act, the bonus is payable eight months after the end of the financial year. Your employee has joined this year, so he will be included in the bonus payment next year.

Good morning, thank you all. I got it. Another query is: how much will he get? How will I calculate? His basic is 5500. Please, someone, calculate it for me. Thanks in advance.

Regards,
Mama

The Bonus Act is applicable to establishments engaging 20 or more persons. If in the first 5 years the establishment has made losses, it need not pay a bonus. If it has made profits, the percentage of the bonus has to be calculated as provided in the act.

Now, you mention that his basic is 5500. You have to check the minimum wages for your area in case the bonus percentage works out to 8.33%. The quantum of the bonus should be 7000 or the minimum wages declared from time to time, whichever is higher. Phew!

Shrikant, your analysis is wrong. The bonus will be based on actual wages, subject to a wage ceiling of Rs. 7000 or minimum wages, whichever is higher. This means that the ceiling on the wages, not the minimum bonus, is capped at Rs. 7000.

In this case, where the wages are less than Rs. 7000, the bonus will be calculated based on the actual wages drawn.

Dear Mr. Banerjee,

Your submission is true and correct to the extent that the bonus is calculated on actual wages earned during a financial year. Keeping in view of the latest amendment replacing "Rs. 3500/-" by "Rs. 7000/- or minimum wages which is higher," your view "that if wages are less than Rs. 7000 so the bonus will be based on actual wages drawn." is not within the sense of the amendment.

P. K. Sharma

I disagree with Mr. Saswata Banerjee. The new amendment is protecting the worker with a minimum bonus of Rs. 7000/- whether his salary is less than or equal to 7000. The previous amount of Rs. 3500/- as a minimum bonus has been raised to Rs. 7000/-. Previously, the bonus was not linked to the minimum wages. The Act states, "Minimum Bonus is Rs. 7000 or 8.33% of Minimum Wages paid," whichever is higher. The phrase "whichever is higher" holds significance. It seems many are not giving importance to these words. If the company is willing, they can pay up to 20% of the minimum wages as well; however, the workforce cannot demand more than 20% as a bonus.

Hope it is clear.

Regards

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.

Section 10: Minimum Bonus

Payment of minimum bonus: Subject to the other provisions of this Act, every employer shall be bound to pay 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% 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.

Section 12: Bonus for Certain Employees

Calculation of bonus with respect to certain employees: Where the salary or wage of an employee exceeds [two thousand and five hundred rupees] per mensem, the bonus payable to such an 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 and five hundred rupees] per mensem.

This limit of Rs. 2,500 was 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. 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.

Regards, Saswata Banerjee

Progress Partners, Mumbai

Twitter: @sasmumbai