Understanding the Bonus Act: How Do I Calculate Eligibility and Monthly Bonuses?

Hello everyone,

Currently, I am working in a manufacturing company as an HR executive. My question is, I am confused about the Bonus Act. How do I calculate monthly bonus, and how much time is required for an employee to become eligible for a bonus? Also, if a worker works for 6 months and then leaves the job, is the Bonus Act applicable to him?

Please help me out with this matter.

Thanks & Regards,
Neetu Verma

Understanding the Payment of Bonus Act, 1965

I would request you to go through the Payment of Bonus Act, 1965 first and raise your questions next. The statutory bonus contemplated under the Act is an annual bonus computed as a percentage of the surplus earned out of the performance of the establishment and the total earnings of the eligible employees in an accounting year. Any eligible employee who has worked for a minimum of 30 days in the accounting year is entitled to a bonus, irrespective of whether they remain in service at the time of the bonus declaration for that particular accounting year.

Regards

First, you need to check whether your company falls within the purview of the Bonus Act, 1965, as per Section 1(3)(b). Also, check Section 16 of the Payment of Bonus Act, 1965, which provides exemptions for newly established companies for up to five years in the form of having no profit or inadequate profit. However, as per Section 8, if any employee has worked 30 days or more, including weekly holidays and national and festival holidays, they shall be entitled to receive a bonus.

It is provided that the said employee is also eligible as per Section 2(13) of the Payment of Bonus Act, 1965. Regarding bonus calculation, assuming the employee's basic pay plus Dearness Allowance (DA) is ₹6000 per month and the state minimum wage is, let's say, ₹7500 for scheduled employment. Hence, the minimum bonus at 8.33% shall be calculated on the actual basic pay plus DA drawn by the employee, i.e., ₹6000. If the employee's basic pay plus DA is, say, ₹7200, exceeding the ceiling limit, then the state minimum wage of ₹7500 shall be considered for bonus calculation. If the state minimum wage is, say, ₹6500, then the bonus shall be calculated on ₹7000, i.e., the ceiling limit.

I hope your doubts are clear.

Thanks and Regards,

V. SHAKYA

HR and Labour Laws Advisor