Can Employers Split Bonuses Between Cash and PF Contributions? Let's Discuss!

Can an employer pay a bonus to an employee in two parts, like 50% as a bonus and 50% in the PF account?

PF & Bonus Compliance

PF and Bonus are statutory. You need to contribute towards PF in accordance with the Employees' Provident Fund and Miscellaneous Provisions Act, 1952, and you need to make payment of the minimum statutory bonus in accordance with the Payment of Bonus Act.

Thank you.

Thank you for your reply, but I still have one confusion.

Bonus Payment into PF Account

We paid the minimum amount as a bonus as an employer. Can we pay the bonus amount into the PF account instead of that amount?

Bonus Payment and Provident Fund Contributions

You can pay up to 20% as a bonus payment depending on the company's profit (or more, but the terminology used is "ex-gratia" instead of bonus). However, the statutory minimum bonus is 8.33%.

Provident Fund Contributions

In Provident Fund, contributions are deposited based on the wages/salary earned by the employee. According to the Income Tax Act, the bonus is considered part of the employee's salary and is taxable.

"As per the provisions of the Income Tax Act, 1961, the amount of compensation due or received by an employee from their employer in connection with employment shall be taxable as salary in the hands of the employee. Accordingly, the bonus receivable by you shall be taxable in your hands as salary income."

Contributions towards PF are based on the monthly wages/salaries of employees. Employers cannot increase contributions towards PF for just one month.