Can We Legally Withhold Bonuses for Departing Employees During Final Settlement?

Dear Seniors,

We are a manufacturing company with over 300 employees. I would like to inquire whether it is permissible to withhold the bonus amount of an employee who has left at the time of full and final settlement. Is it possible to include this payment along with the regular employees' salaries in the months of October and November?

Please provide guidance on this matter.

Thank you.

If it is a statutory bonus, then you cannot withhold the amount; rather, you should pay it with the full and final settlement only.

Bonus as per The Payment of Bonus Act, 1965

Bonus as per The Payment of Bonus Act, 1965 is not part of F & F. The company will declare the percentage of Bonus payable for the previous financial year after Generation A & B Register. Normally, Bonus is disbursed for employees who are in service during Dussehra/Diwali. However, Bonus has to be paid on or before 30th November.

Claiming Bonus for Ex-employees

Employees who are not in service at the time of disbursement of Bonus or ex-employees have to submit their claim for the release of Bonus after the declaration of Bonus by the employer. After the scrutiny of the claim, Bonus has to be paid to ex-employees not later than 30th November.

What happens if the employee goes to the labor department and asks for the bonus to be paid with F&F? It has happened with our company.

Dear Mr. Sanjay,

In the Labour Department, you are required to submit your submissions in writing, quoting the information provided here. You must be assertive in your written communication, referencing the provisions of the Bonus law which state that the statutory due date for the disbursement of Bonus is on or before the 30th of November for the previous financial year.

Thank you.

Bonus is not a part of F&F Settlement.

After the completion of the financial year, the company will declare the bonus. For employees who have left the company, we can pay them during Diwali or by 30th November.

In addition to the above comments, if the bonus is part of the salary structure communicated to the employee at the time of appointment, then it should be paid along with the F&F.

Dear Vikash,

You can pay the employee on the declaration of the bonus by management, not before that.

Dear Agarwal, all statutory benefits like PF, ESI, Gratuity, Bonus, etc., are all part of the salary structure/CTS. However, the payments will be as provided under the relevant Act & Rules. An employee who leaves service will get his salary dues, leave encashment, along with full and final settlement.

It is unnecessary that things are being stretched rather than wrapped within the dictates of law and rules. As per the Act, all amounts payable to an employee by way of bonus are to be paid within 8 months from the close of the accounting year. For example, in the year 2016-17, the bonus should be paid to the employees any day between 1.04.2017 to 30.11.2017. If an employee leaves the job by 31.03.2017, his/her bonus can be paid on 1.4.2017 with his Full and Final settlement at 8.33%. By doing this, one will invite another problem as the employee may not agree to 8.33%.

As a cultural practice, organizations declare bonuses during the major festival of the state (Durga Puja or Diwali) after consultation with the union. So, Full and Final settlement and Bonus are two different aspects that should not be combined in one payment. Bonus should only be paid when it is due and within the specified date.

Thank you.