Confused About Bonus Calculation: National Floor Rate or Rs. 7000 Ceiling?

Working in a reputed tire manufacturing company based in Tamil Nadu as a senior executive, where the bonus is calculated at a flat rate of Rs. 4800/- with a 20% for 2016-17 as per the national floor rate, although we are used to calculating the same up to the ceiling of Rs. 7000/-. In this regard, I am unclear and would appreciate clarification on whether the bonus is calculated based on the national floor rate or the ceiling amount of Rs. 7000/-. Thank you, and please take the necessary steps to address this.

Dear Gobikannansudhakar, it is imperative that we first clarify the difference between the minimum wages fixed under the Minimum Wages Act, 1948, and the National Floor Level Minimum Wage (NFLMW) set by the Central Government.

Understanding Minimum Wages

Minimum wages are fixed and periodically revised for scheduled employments under the Minimum Wages Act, 1948, by the respective Appropriate Governments. We are aware that many employments in the unorganized sector are yet to be included under the schedule of the MW Act, 1948, for various reasons. Even in the unorganized sector, where the fixation and revision of minimum wages by the appropriate governments are practiced, there are considerable differences in the rates. Similarly, in organized sectors, where collective bargaining is the method of wage determination, regional differences create an imbalance in the cost of labor.

National Floor Level Minimum Wage (NFLMW)

To establish a uniform wage structure and reduce the disparity in minimum wages across unorganized sectors nationwide, the concept of the National Floor Level Minimum Wage was introduced based on the recommendations of the National Commission on Rural Labor (NCRL) in 1991. Acknowledging the NCRL's recommendation and subsequent rises in Price Indices, the Central Government set the NFLMW at Rs. 35 per day in 1996. It has been periodically revised, and if I remember correctly, it stands at Rs. 160.00 per day as of 01-07-2015.

Therefore, the NFLMW is a non-statutory measure to ensure uniform minimum wages and their upward revision across the nation for employments in the unorganized sector not yet included under the MW Act, 1948. For the organized sector, the NFLMW serves as a guideline for appropriate governments in fixing minimum wages under the MW Act, 1948.

Bonus Calculation for 2016-17

Hence, calculating the bonus for the year 2016-17 based on the NFLMW is incorrect, even if minimum wages are not yet fixed under the MW Act for your industry. Additionally, your management should note the amendment to Section 12 of the Payment of Bonus Act, 1965, which clearly states that the calculation should be made as Rs. 7000 or the minimum wage fixed under the MW Act, whichever is higher.