Is It Legal to Change Bonus Calculation from Gross to Basic Salary for Exiting Employees?

This year, we have distributed a bonus to exiting employees at 8.33% of the gross salary of last year (April to March). However, we want to give 8.33% of the basic salary of last year instead. Is this in accordance with the law? Can we do this legally? I seek a legal decision on this issue. I am working as a Corporate Manager - H.R./I.R., overseeing branches in Thane and Goa, with the corporate office located in Pune. We are the main dealers of GRUNDFOS, an international manufacturer of water pumps.

Please provide a response at the earliest via email at [Email Removed For Privacy Reasons].

Thank you.

Regards, Jayant Nisal
Corporate Manager - H.R./I.R.
MULTITECH HYDROSYSTEMS.

Dear Jayant,

Please clarify whether the bonus payable is for "existing employees" or "exiting employees."

Thank you.

Bonus Distribution for Resigning Employees

We have already distributed the bonus to the employees who are currently working with us. Now, we want to distribute the bonus to the resigning employees. Can we use a different calculation for the resigning employees? We want to give them a bonus of 8.33% of the BASIC salary, but we have given the bonus to the employees currently working with us as 20% of the GROSS salary. As these employees have left our company, what entitlement do they have?

We are concerned about the legal implications. If ex-employees take the matter to court, what would happen? Would the company have to pay the difference or not?

Thanks,

Regards, Jayant Nisal

As you are well aware, a bonus is a payment made in the current year to eligible employees based on the performance of the establishment and the total earnings of the employees during the previous (accounting) year. What is important, therefore, is the employees' total earnings in the previous year and not whether they are in the service of the establishment when the bonus is declared and paid. It is a payment made to all employees based on their combined contribution to the revenues of the establishment in the relevant accounting year. Whether some employees are no longer with the organization in the subsequent year due to reasons like resignation, retrenchment, retirement, or death cannot be a relevant factor for differentiation. Therefore, you cannot have two scales of bonus for the same class of workmen.

Regards,
[Username]

In addition to the highlights provided by the honorable member Mr. Umakanthan, I wish to add two more points:

1) The payment of the bonus amount, percentage, etc., is determined as per the provisions of the Bonus Act (BA). Please ensure that the calculation is in accordance with the BA. However, paying a bonus at 20% to current employees creates discrimination between present employees and those who contributed equally but left the company during the year. The main objective of the BA is to ensure that employees also receive profit-sharing.

2) The bonus to eligible employees is legally payable on earned Basic Salary and DA/VDA. Also, please ensure that this is not part of the paid salary.

Regards,
RDS Yadav
Labour Law Adviser
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