If any employee's basic pay is less than 21k and he gets a performance bonus. Can he be eligible for a statutory bonus also in the same period?

Hello all,

If any employee's basic pay is less than 21k and he receives a performance bonus, can he also be eligible for a statutory bonus in the same period?

Dear Azim,

I think that the difference between a performance bonus and a statutory bonus would automatically answer your question.

A performance bonus is an additional compensation paid by some employers to an employee or a department for having achieved a certain predetermined score threshold of quantified performance. It is not compulsory but optional, either subject to the discretion of the employer or its inclusion in the hiring contract in order to incentivize the employees to perform better. The periodicity of payment of a performance bonus can be monthly, quarterly, biannually, or annually with or without a ceiling. It can also be introduced project-wise or based on critical performance for a specific period to drive extra efforts.

On the contrary, payment of a statutory bonus is covered by the provisions of the Payment of Bonus Act, 1965. Once the Act becomes applicable to the establishment and the employee is one as defined under section 2(13) of the Act and not otherwise disqualified, a bonus has to be paid to him based on the performance of the establishment in the accounting year either at the minimum percentage or the maximum percentage, as the case may be, independent of the performance bonus.

Dear Colleague,

As very clearly mentioned by our colleague, there is a difference in the terms "performance bonus" and "statutory bonus".

Performance Bonus (hereinafter mentioned as PB) is normally paid voluntarily. Looking back at the origin of PB, a lot of focus was given during globalization and the presence of MNCs in India, wherein the thrust was given to create a "performance culture". This led to the creation of systems like Projects/KRAs/KPIs/Goals/Business Objectives mostly for each financial year. The achievement of KRA/KPI, etc., leads to eligibility for "Performance Bonus", "Performance Pay", "Performance Incentive", etc., which are normally over and above the Basic Components of CTC. Few companies included Performance Bonus as part of CTC, whereas few companies kept it outside the CTC. To earn this pay, the individual has to achieve certain numbers as part of his role based on prefixed KRA, etc. This is PB. Normally, PB is paid to all employees despite their salary levels, and even to General Managers, and so on.

In the case of Statutory Bonus (hereinafter mentioned as SB), as you rightly mentioned, for those employees whose wages do not exceed Rs. 21,000/- per month, they are eligible to get a statutory bonus calculated at the rate of 8.33% (minimum SB) to the rate of 20% (maximum SB) for each financial year, which is calculated based on restricted wages of Rs. 7,000/- per month or the stipulated Minimum Wages, if any, for that scheduled employment, whichever is higher. Here, this payment is based on the "Establishment's Financial Performance" based on workings called "Allocable Surplus" and "Available Surplus" and Principles called Set-On/Set-Off.

SB is subject to certain leverages given to newly started establishments up to 5 years. Generally, SB is statute-based, which is normally called "Deferred Wages", which is referred to as the 13th-month wages in practical terms. This is mandatory and cannot be denied to anyone covered under the Payment of Bonus Act 1965. Hence, this is a statutory requirement or statutory obligation on the part of the employer.

There is one important aspect under the Act concerning Production or Productivity-linked Bonus based on a settlement between Employer and Employee, as clear from the below provision:

31A. Special provision with respect to the payment of bonus linked with production or productivity.-Notwithstanding anything contained in this Act,-

(i) where an agreement or a settlement has been entered into by the employees with their employer before the commencement of the Payment of Bonus (Amendment) Act, 1976 (23 of 1976), or

(ii) where the employees enter into any agreement or settlement with their employer after such commencement,

for payment of an annual bonus linked with production or productivity in lieu of bonus based on profits payable under this Act, then, such employees shall be entitled to receive the bonus due to them under such agreement or settlement, as the case may be:

[Provided that any such agreement or settlement whereby the employees relinquish their right to receive the minimum bonus under section 10 shall be null and void insofar as it purports to deprive them of such right:

[Provided further that] such employees shall not be entitled to be paid such bonus in excess of twenty percent of the salary or wage earned by them during the relevant accounting year.]

Further, the only adjustment allowed is under section 17 of the Act in case the employer pays any customary bonus:

17. Adjustment of customary or interim bonus against bonus payable under the Act. Where in any accounting year-

(a) an employer has paid any puja bonus or other customary bonus to an employee; or

(b) an employer has paid a part of the bonus payable under this Act to an employee before the date on which such bonus becomes payable,

then, the employer shall be entitled to deduct the amount of bonus so paid from the amount of bonus payable by him to the employee under this Act in respect of that accounting year, and the employee shall be entitled to receive only the balance.

Hence, PB is independent of SB, and SB is a statutory right of the employees subject to their eligibility mentioned by the Payment of Bonus Act 1965.

All the Best, God Bless,
Dr. P. Sivakumar
Doctor Siva Global HR
Tamil Nadu

As per the provisions of the Payment of Bonus Act, if your organization has a system of Performance Bonus, then the fixed Annual Bonus does not apply as long as the Performance Bonus/Incentive is more than 8.33% of the salary.

For this purpose, we are talking about a proper system where the employee is entitled to a performance bonus or incentive as a right, based on specified formulas and not as a variable amount given at the discretion of management.

The answer to the query is based on the structure of your performance bonus system, not on the amount of basic salary the employee is receiving.

Please read Sec 31A. Special provision with respect to the payment of bonus linked with production or productivity.

Dear Friend,

The Performance Bonus does not fall under any Act but is an additional payment apart from wages and also a hidden part of CTC. The management pays it by evaluating the performance to offset the loss during a financial recession.

The Annual Bonus is covered by statute; you are eligible for a bonus for FY 20-21 provided you fulfill the criteria.