Understanding Bonus Calculation
Wages for calculation (and also for deciding eligibility) mean the total salary (gross salary) as per the contract of employment. Since HRA, traveling allowances, etc., which are allowances given for specific purposes, are excluded from the scope of wages, the practice is to calculate the amount of bonus based on basic wages and dearness allowance alone.
Disputes in Salary Components
In a scenario where companies break up the salary into various components to reduce the amount to the minimum possible extent, the wage that qualifies for a bonus shall include the gross wage as well. It can be disputed in cases where HRA is paid as part of the salary even to an employee who resides in his own house or traveling allowance is paid to one who does not spend anything for commuting to the office. It shall also be disputed if the organization considers the gross salary for the deduction of loss of pay for absence without leave.
Eligibility and Calculation of Bonus
Therefore, if you take gross salary for eligibility (an employee is eligible to get a bonus only when his salary is Rs 21,000 or less than Rs 21,000), you should take the gross salary for the calculation of the bonus as well. At the same time, if you take basic salary (and DA if any) for deciding whether an employee should be paid a bonus, then you can take that basic salary and DA for the calculation of the bonus as well. You cannot take the gross salary for deciding whether the employee comes under the bonus purview and only the basic salary for calculation.
Statutory Limitations on Bonus Calculation
At the same time, the Payment of Bonus Act itself has restricted the calculation of bonus to Rs 7,000 even if the wages amount to Rs 21,000. This base of Rs 7,000 shall extend to the statutory minimum wages fixed for the industry. As per the Act, employees whose salary does not exceed Rs 21,000 only are eligible to get a bonus. In respect of such employees, the bonus shall be calculated assuming that wages are Rs 7,000 per month. In case the employee belongs to a category of employment for which no minimum wage has been fixed by the government, and in respect of an employee for whom minimum wages have been fixed by the government, the bonus should be calculated on that minimum wage without reference to actual wages.