Is Including Bonus in CTC Fair or Just a Common Practice? Seeking Clarity

Dear All,

I have one query regarding the bonus. As per my knowledge, a bonus is an extra amount that is to be given to the employee on a yearly basis, proportionate to the profit made by the company in that year. This means this is a type of reward that is given by the company to the employees.

Then how can we include it as a part of CTC? I have seen many organizations that consider the bonus as part of CTC and pay it as a yearly component. Is this a statutory requirement or what?

Please guide me on the same.

Waiting for your reply.

Thanks,
Shweta G

This has become company fashion to include everything in the name of CTC. You can include PL/gratuity/bonus/medical, so the company will not have to pay you extra.

Dear Shweta,

No, it's not a statutory requirement to include a bonus in CTC. However, many organizations do so because CTC represents the Cost to Company, i.e., how much an employee is costing the company. Therefore, companies include all direct or indirect costs if they have to hire the employee. They include the bonus amount as they are obligated to provide this amount to the employee at some point. It's up to you and your management whether to calculate the employee's actual cost by including it or excluding it.

Regards,
Shilpi

Bonus is not a reward. It is given to an employee for contributing to the prosperity of employees. Yes, this is a statutory requirement. Many organizations are considering a bonus as a part of CTC. You can take 8.33% (min) to 20% (max) of basic in computing CTC.

Neeraj

Hi Neeraj, Shilpi, and others,

Is it statutory to take 20% of basic pay into consideration in bonus computation, or does it depend on the management's decision? In my current workplace (manufacturing), 25% of the basic pay is considered when calculating bonuses. Could you please clarify this for me?

Good day!

Bonus range - 8.33% of earned basic and DA to 20% of earned basic and DA. Above 20% is not called a bonus. If management wants to give more than this, they have to give it as an ex-gratia.

- Hiten

Hi Hiten,

I welcome your timely reply. Please let me know what is earned basic and DA? Is it the same as that considered for PF computation of 12%? Please elaborate.

Hi Sumana!

Yes, it is the same as basic + DA we consider in PF. Earned basic and DA actually mean earned basic + DA. In case an employee is absent without leave approval / LWOP, their earned basic + DA will be less than the projected basic or agreed basic and official DA.

Further, the earned basic + DA includes any basic and DA paid to the employee as arrears for an increment declared, the effect of any settlement arrived after its due date, and other adjustments.

Hope I have been able to reply as desired. Please let me have feedback. Or ask for more sharing.

Regards,
Hiten

Hi,

I want to know on what basis a company decides how much bonus should be given to an individual employee. Does it vary from salary to salary? Kindly reply.

Please read the Payment of Bonus Act. It is applicable to the basic plus dearness allowance of Rs 10,000 only, with a maximum limit of the bonus being Rs 3,500. Yes, it is a part of CTC.

Bonus Eligibility Requirements

1. The first requirement for bonus eligibility is that the employee should have worked for 30 working days in that year.
2. The minimum bonus limit is 8.33% of the basic salary up to Rs. 3500. However, the company can choose to offer more than this amount, depending on their policies.
3. If the basic salary exceeds Rs. 10,000, the employee is not eligible for a bonus. In cases where the management decides to provide a bonus to such an employee, it will be treated as "EX-GRATIA."

Hope this information helps you understand the bonus policy better.

Regards

Hi Friends,

When we consider the bonus in the CTC, the tax bracket in TDS may change to a higher one. This means an employee may be forced to pay more tax. Is this a good practice?

Thank you.