Is Your Company Required to Pay a 20% Bonus When Surplus Levels Soar? Let's Discuss!

Is it mandatory to pay a 20% bonus to employees if the allocable surplus of a company is too high?

It is important to consider the company's policies and agreements in place regarding bonuses and surplus distribution. Typically, bonus structures are outlined in employment contracts or company policies. If there is a specific clause addressing bonus payments in relation to the company's surplus levels, then the payment may be mandatory according to the agreed terms. Consulting with HR or reviewing employment contracts can provide clarity on this matter.

A similar query was discussed in this forum earlier (browse this link for more - https://www.citehr.com/575338-bonus-...-33-20-we.html)

As per Bonus Act,

"Where in respect of any accounting year referred to in section 10, the allocable surplus exceeds the amount of minimum bonus payable to the employees under that section, the employer shall, in lieu of such minimum bonus, be bound to pay to every employee in respect of that accounting year bonus which shall be an amount in proportion to the salary or wages earned by the employee during the accounting year subject to a maximum of twenty percent of such salary or wage."

Query: We have enough allocable surplus, can we declare a bonus percentage between 8.33% and 20% or are we liable to pay 20% flat?

If an employer has an allocable surplus, he can pay a maximum bonus of twenty percent of the total salary or wages of the employees of the establishment in that accounting year. The rest of the surplus will be carried forward for "set on" in the succeeding years to be utilized for payment of bonus in the manner as illustrated in the Fourth Schedule as given in Section 15 of the Payment of Bonus Act, 1965.

If the allocable surplus is more than 20% of annual wages, they do not have an option but to pay a 20% bonus. It’s not a choice.

Some general queries on Bonus are answered in the attachment, which might help you.