Can We Include Bonuses in Monthly Salaries? Understanding the Legal Guidelines

Can we settle the bonus with a monthly salary? If yes, then which act or rules allow us to do this?

Hi, I think you are referring to the statutory minimum bonus of 8.33%.

Statutory Minimum Bonus

As per the amendment to the Payment of Bonus Bill passed in 2015, if the gross earnings of the employee are below Rs. 21,000, employers are liable to pay bonuses. The bonus will be calculated as follows:

Calculation of Bonus

If the salary is equal to or less than Rs. 7,000, then the bonus will be calculated on the actual amount using the formula: Bonus = Salary x 8.33 / 100

If the salary is more than Rs. 7,000, then the bonus will be calculated on Rs. 7,000 using the formula: Bonus = 7,000 x 8.33 / 100

Note: Salary means Basic Salary + Dearness Allowance.

If you are paying an overall monthly salary instead of basic + DA, then it would be good.

You can pay 8.33% of the salary as a bonus subject to the above conditions explained by Lakshmi Narayan. However, you cannot fix the rate at 8.33% because the rate of the bonus should depend on the profits earned by the company. Depending upon the profits, the rate shall vary from 8.33% to 20%. The profits mean the surplus arrived at following the steps elaborated in the Payment of Bonus Act and not the net profits as evidenced by the financial statements of the company alone.

I would like to add to Mr. Lakshminarayanan and Madhu Jee's comments that, under the amended Payment of Bonus Act, the minimum bonus is computed on Rs. 7000 or the applicable minimum wage, whichever is higher.

Regards,
Suresh

Suresh, that was clarified by Lakshmi Narayan in his post. However, I would like to make a correction in your post. It is not the minimum bonus that is computed on Rs 7000 or the notified minimum wages, whichever is higher. Instead, if the establishment has higher allocable/available surpluses, the rate of bonus will vary from 8.33% (minimum) to 20% (maximum). The amount of bonus will be calculated based on Rs 7000 or the notified minimum wages, whichever is higher. If you choose to pay a 20% bonus, then it will be calculated on a salary of Rs 7000 or the notified statutory wages only.

Yes, you can add a bonus to monthly salary/wages. Statutory bonus return filing and record-keeping are mandatory.

Hi Madhu jee, I indicated a minimum bonus sum of Rs. 7,000; however, based on allocable surpluses, the bonus computation on Rs. 7,000 might be as high as Rs. 16,800 (20%). Although Mr. Lakshminarayanan stated in his post that salary meant Basic + DA, some of our junior members get puzzled and so specified as applicable Minimum Wages, which can be a maximum of 20% based on allocable surpluses.

Suresh