Understanding Bonus Calculations in Private Companies: How Does It Affect CTC?

Hi, I need help understanding one point.

Bonus Calculation in Private Companies

In private companies, a bonus is paid as 8.33% of the basic salary, and it has no limit on the range. This means that if the first employee is getting a basic salary of 10,000 and the second is receiving 29,000, both bonuses will be calculated at 8.33% of the basic salary. However, according to the statutory Bonus Act rules, the bonus is payable to all employees whose wages do not exceed Rs. 21,000 per month. If an employee's wages are equal to or more than Rs. 7,000 or the minimum wages set by the government, then the bonus is paid based on the employee's wages.

Clarification Needed on Bonus as Part of CTC

So, what are the actual rules if the bonus is part of CTC?

It depends on the offer given to the employee. If the amount of bonus is stated as "subject to rules in force," then the amount shown shall change based on the statutory provisions regarding bonus payment. However, if the amount is calculated based on the basic salary without reference to the law or any qualifying conditions, then it should be paid in full. Nevertheless, a proportionate reduction for the loss of pay should be deducted from the quoted bonus amount.

Types of Bonuses

Bonus may be statutory or extra-legal, which is beyond statutory. Any type of bonus should be part of CTC. An extra-legal bonus is paid as per the organization's policy. However, a statutory bonus is based on gross profit in the particular financial year, available surplus, allocable surplus, set on & set off. The percentage of bonus is determined based on all the factors mentioned above, varying between 8.33% to 20%.

Eligibility for Statutory Bonus

For statutory bonus, employees whose salary is ₹21,000 per month are eligible, and the calculation is based on ₹7,000 salary or minimum wages, whichever is higher.

Non-Statutory Bonus

Non-statutory bonus, which is not calculated as per the Payment of Bonus Act, is also known as customary bonus.

The perception that bonus is only 8.33% is absolutely wrong. Statutory bonus may vary between 8.33% and 20% based on calculation.

Regards, S K Bandyopadhyay (WB, Howrah) CEO - USD HR Solutions [Phone Number Removed For Privacy-Reasons] [Email Removed For Privacy Reasons] www.usdhrs.in