Understanding Minimum Wage and Bonus Calculations for Unskilled Labor in Kerala: Is This Formula Right?

Our company is an electronic manufacturing unit in Palakkad, Kerala. Today, I heard from the District Labour Officer that the bonus is to be calculated based on the minimum wages. I would like to know what the new minimum wages are for employees in our industry (unskilled labor). For minimum bonus calculation, Bonus = (MinWage + VDA) 8.33/100 * 12. Is this formula correct? Kindly confirm.

Computation of Bonus Under the Payment of Bonus Act, 1965

The question of computing a bonus under the Payment of Bonus Act, 1965, based on the minimum wage rates arises only when your industry wages fall below the statutory minimum wages. Similarly, the notional limit on wages for the purpose of calculating the bonus comes into play only for employees whose monthly wages are Rs. 7000/- or more. In such cases, the bonus should be calculated as if the monthly wages are Rs. 7000/-. If the minimum wages payable to such employees are more than Rs. 7000/-, then the actual minimum wages should be the basis for the calculation.

In the case of minimum wages or industry wages comprising several components, only those components included in the definition of wages/salary under the Payment of Bonus Act, 1965, should be taken into account for the calculation of the bonus under the Act.

Thank you very much for the reply, sir.

We paid a bonus in 2015-16 with a Basic of 5240 + VDA avg(12 months) = 3344, totaling 8584, along with 8.33% of the same. In 2016-17, we paid a Basic of 5240 + VDA avg(12 months) = 3658, amounting to 8898, and 8.33% of the same.

As we move into 2017-18, we are planning to have a Basic of 5240 + VDA avg and 8.33% of the same. Are there any mistakes in our calculations? Has there been any change in the Basic 5240 amount?

Dear colleague,

While what is stated by Mr. Umakanthan is correct, I would like to add that the bonus is computed not on the basis of the rate of the applicable minimum wages but wages earned during the financial year based on attendance.

Regards,
Vinayak Nagarkar
HR Consultant