Understanding Wage Components for Bonus Calculation Under the 2015 Amendment: What Should Be Included?

As per the Bonus Act 2015 amendment, an employee with wages up to 21,000 is eligible to receive statutory bonus. Could you please confirm which components should be considered when calculating wages?

Dear Vishwanath, I would like to request you to go through the definition of the term "Salary or Wage" as defined under Section 2(21) of the Payment of Bonus Act, 1965. Legally speaking, there is no difference between salary and wage. Salary is a periodical payment while wage is generally paid for the day, although the periodicity of payment varies.

Clarification on Salary and Wage

To bring clarity of understanding, let me quote the observation of the Bonus Commission in its report at paragraph 12.4 as follows: "Having considered the various views, we are of the opinion that the distinction between basic wages and dearness allowance for the purpose of expressing the bonus quantum should be done away with and that bonus should be related to wages and dearness allowance taken together."

Definition Under the Payment of Bonus Act, 1965

Therefore, upon careful analysis, salary and wages under the Payment of Bonus Act, 1965 primarily mean:

1) All remuneration (except O.T allowance)
2) Capable of being expressed in terms of money
3) Payable for work done
4) If terms of employment, express or implied, were fulfilled and
(a) Includes (i) dearness allowance (ii) free food allowance or (iii) food given in lieu of the whole or part of salary or wages but
(b) Does not include any other allowance and the other six items mentioned in the definition.

Thank you for the detailed information.

Would you please advise on the provision of legal action if an employer does not pay bonuses to eligible staff?

Best Regards,
Vishwanath W

Dear Mr. Vishwanath, the query is whether you are referring to an employer or an employee? Shri Umakanthan has already provided a detailed description of your query. To add some more information, please note the following:

Employees drawing salary wages up to Rs. 21,000 per month are eligible for a maximum bonus amount of Rs. 7,000 or the amount equivalent to the Minimum Wages, whichever is higher, if the employee or workman earned full salary or wage for the entire financial year. This is in accordance with the amended Payment of Bonus Act.

However, organizations are giving or may give a full bonus based on the actual earned salary or wage up to the amount of Rs. 21,000.

Regards, Suresh

Dear Mr. Vishwanath, further to the comments by seniors here, you need to look at the components of Monthly Gross in your CTC structure. From the monthly gross, deduct the HRA & Conveyance amounts. The remainder amount up to Rs. 21,000/- per month is to be considered for payment of statutory bonus at 8.33% of the said amount.

Example Calculation

For example: Conveyance is Rs. 1,600 per month, and HRA is Rs. 4,000 per month.

To calculate statutory bonus:

If Monthly Gross is Rs. 27,000 - then 27,000 - 1,600 - 4,000 = 21,400, which is out of the statutory bonus.

If Monthly Gross is Rs. 26,600 - then 26,600 - 1,600 - 4,000 = 21,000, then 8.33% of 21,000 = Rs. 1,749.30 per month * 12 = Rs. 20,931.60 statutory bonus for the year.

If Monthly Gross is Rs. 23,000 - then 23,000 - 1,600 - 4,000 = 17,400, then 8.33% of 17,400 = Rs. 1,449.42 * 12 = Rs. 17,393.04 as statutory bonus for the year based on attendance.

Regards,

My understanding of the provisions of the Payment of Bonus Act is as follows:

While employees receiving wages/salary up to Rs. 21,000 per month are covered under the Bonus Act, the calculation of statutory bonus will be based on Rs. 7,000 per month.

Therefore, statutory bonus may vary from Rs. 7,000 (8.33%) to Rs. 16,800 (20%), depending on the company's financial performance.

Employers may pay higher rates of bonus over and above the statutory requirement at their own discretion.

Bonus Calculation Components

21000/. One is (Basic salary + DA) or Gross Salary. Kindly explain which salary component is included for bonus calculation.

Thank you for your question. In bonus calculations, the salary component that is usually considered is the Gross Salary. This includes the Basic Salary along with any additional components such as Dearness Allowance (DA) or other fixed allowances. By using the Gross Salary for bonus calculations, companies can incentivize employees based on their overall earnings. If you have any further questions or need clarification, please feel free to ask.