Bonus Act Amendment: Is the New 21000 Eligibility Based on Gross Salary or Basic + DA?

Hi Everyone,

As per the amendment in the Bonus Act, the eligibility amount of 10000 has been replaced by 21000. My query pertains to whether this amount of 21000 is based on gross salary or basic + DA.

Please do the needful.

Dear sir,

It is calculated on Basic + DA (VDA also if any) only subject to eligibility threshold limit of Rs. 21,000 per month.

Regards,
RDS Yadav

Dear Yadav Sir,

Thank you for your reply. The calculation part is fine, but could you please clarify if the 21000 is the gross salary or the basis + DA. Additionally, I kindly request if you could provide a reference if possible.

Thank you.

Clarification on Salary or Wages Under the Payment of Bonus Act, 1965

The answer is Basic + DA, not the Gross amount. For clarification of the term "Salary" or "Wages," I want to take you through Sec. 2 (21) of the Payment of Bonus Act, 1965, which is as follows:

"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 employee.

Thanks for your query.

Regards,

Dear Mahesh,

As per Section 2(13) of the Payment of Bonus Act, 1965, the Basic plus DA should not exceed the threshold limit, i.e., 21,000/-. If an employee is drawing basic plus DA exceeding 21,000/-, they shall be excluded from the purview of the bonus.

Thanks & Regards,

V. SHAKYA
HR & Labour, Corporate Laws Advisor

Dear Sir,

As per Sec. 2(21) of the Payment of Bonus Act, 1965 which is as below: "salary or wage" means all remuneration. What does it mean? Is it means we have to consider Gross salary (which includes basic + HRA + Conveyance + Medical allowance + other/General allowance). Kindly clarify this.

Regards,
Bala
9873350637

Dear Sir,

As per Sec. 2(21) of the Payment of Bonus Act, 1965 which is as follows:

"Salary or wage" means all remuneration. What does it mean? Is it that we have to consider Gross salary (which includes basic, HRA, Conveyance, Medical allowance, and other/General allowance)?

Kindly clarify this.

Regards,

Payment of Bonus Act Applicability

The bonus is a reward paid to an employee for their dedication to the organization. The primary objective of giving a bonus is to share the profit earned by the organization among the employees and staff members.

The Payment of Bonus Act applies to the whole of India. The provisions of this act apply to the following factories/establishments/companies:
- The factory defined under clause section 2 of the Factories Act 1948.
- Every establishment in which 20 or more persons are employed on any day during an accounting year.
- The act also applies to public sectors in some cases.
- Part-time employees are also included.

When is the Employee Eligible for the Bonus?

Every employee drawing not less than Rs. 21,000/- per month and who has worked for not less than 30 days in an accounting year shall be eligible for the bonus. Every employee will be entitled to be paid by their employer in an accounting year, a bonus, in accordance with the provisions of this Act, provided they have worked in the establishment for not less than 30 working days in that year. When an employee is not eligible for the statutory bonus but the company wants to share a bonus, it can be given as ex-gratia.

Minimum Bonus

Previously, the maximum bonus payable was 20% of Rs 3500 per month. The minimum bonus payment was capped at 8.33% of Rs 3500 per month or Rs 100, whichever is higher. The calculation ceiling of Rs 3500 is currently doubled to Rs 7000 per month “or the minimum wage for the scheduled employment, as fixed by the appropriate Government” (whichever is higher). Therefore, the cost associated with bonus payments could be double, based on the organization’s performance.

Calculation of Bonus as per Bonus Act (Amendment of 2015)

If the gross earning of your employees is below Rs. 21,000, you are eligible to pay a bonus. The calculation of the bonus will be as follows:
- If Basic + DA is below Rs. 7000, then the bonus will be calculated on the actual amount.
- If Basic + DA is above Rs. 7000, then the bonus will be calculated on Rs. 7000.

Examples of Calculation of Bonus

- If the Basic salary of the employee is less than or equal to Rs 7,000:
Rahul is working as an engineer in a company in Bangalore. His basic salary is Rs. 6,500 per month.
Formula: Basic Salary * 8.33% = Bonus per month
6500 * 8.33% = 541.45 (6497.4 per annum)

- If the Basic salary of the employee is higher than Rs 7,000:
Siddharth is working as a sales officer in one of the shops in Delhi. His basic salary is Rs. 18,000 per month.
Formula: Basic Salary * 20% = Bonus per month
7,000 * 20% = 1400 per month

- If the Basic salary of the employee is higher than Rs 21,000:
There is no bonus applicable to employees having a basic salary of more than Rs 21,000.