I will request you to read the Payment of Bonus (PB) Act in detail, where Available Surplus, Allocable Surplus, Set On, Set Off, etc., are explained in different sections. Moreover, the schedule explains how the 4-year movement of Set On and Set Off takes place, also with examples.
However, for your easy understanding, let me try to explain it simply.
Bonus Calculation Basics
Basically, the bonus calculation starts from the Profit and Loss Account of any organization. The Finance/Accounts department calculates, as per the guidance of the PB Act, firstly the Available Surplus. In the case of a financial organization, the allocable surplus is 50% of the available surplus, and for non-financial organizations, it is 60%.
If there is no available surplus, there is no allocable surplus, and the bonus percentage will be 8.33% as the minimum bonus if the organization has already enjoyed a Bonus holiday period. If there is available surplus, there will be an allocable surplus. After adjustment of Set Off, if any, then from the leftover amount of allocable surplus percentage, the bonus will be determined.
Set On and Set Off
If there is no Set Off but there is a Set On, then to pay a higher percentage of the bonus, subject to a maximum 20% bonus (maximum limit), may be taken from the Set On amount if the allocable surplus is not sufficient.
There may be a situation when the allocable surplus is much more than the 20% bonus amount, and in that case, the bonus will be 20%, and a maximum 20% equivalent amount will be Set On.
Current Practices in India
In India, except for MNCs, Big Indian Houses, and some serious organizations, no other organizations are calculating bonuses as per the PB Act. It is basically 8.33% for the majority of organizations, and there are a few that are paying some more. It is nothing but Customary Bonus and in many places exploitation by paying less bonus.
S K Bandyopadhyay (WB, Howrah)
CEO-USD HR Solutions