Is It Necessary to Include Employee Bonuses in CTC When Revising for Minimum Wages?

I would like to request guidance on the Bonus Act. We are revising the CTC as per minimum wages, so I want to know if a bonus is a part of CTC or not. If we are giving bonuses to employees, is it mandatory to mention them in CTC or not? Please suggest.

Understanding Bonus as Part of CTC

A bonus is a payment to an employee. For those whose salary exceeds Rs. 21,000, it is a statutory payment, while for others, it is a non-statutory but beneficial employee benefit. If the bonus is paid annually, it should be considered an employee benefit and, as such, included in the CTC.

Salary Structure and Bonus Inclusion

Normally, bonuses, like other employer contributions, are shown after the gross salary. To clarify, a salary structure should contain Basic and VDA as per the minimum wages notification, followed by other allowances like HRA, conveyance allowance, and special allowance, leading to the gross salary. The annual bonus will appear next to the gross salary. If you have variable incentives, they can also be included as part of the CTC. Additionally, you can show the employer's contributions towards ESI/EPF.

Madhu Sir, I thought that for salaries above 21k, a bonus is not mandatory. Please explain if I am wrong, sir.

Hi Vikas,

The Bonus Act and its impact on CTC

The Bonus Act, or Bonus Payment Act, regulates the payment of bonuses to employees. The treatment of bonuses in the context of Cost to Company (CTC) can vary, and it's advisable to check the labor laws.

Typically, the CTC includes all the components that form part of the employee's overall compensation, including basic salary, allowances, bonuses, benefits, and other perks. However, the treatment of bonuses in CTC can depend on company policies and practices.

Inclusion in CTC

Many companies include the expected annual bonus in the CTC as it reflects the overall compensation package. This is often done to provide employees with a clear understanding of their total remuneration.

Mandatory Disclosure

In some jurisdictions, there may be regulations or laws that require employers to disclose all components of the CTC to employees. If bonuses are a part of the CTC, it might be necessary to mention them.

Flexibility

Some companies choose not to include bonuses in the CTC to maintain flexibility in bonus structures. In such cases, bonuses may be seen as variable pay and not guaranteed.

Bonus Policy

It's crucial to have a well-defined bonus policy that outlines the criteria for bonus eligibility, calculation methodology, and payment timelines. This policy should be communicated clearly to employees.

Thanks

@RamGoswamy, yes, in respect of employees whose salary (bonus qualifying salary, like Basic and VDA) is above Rs 21,000, a bonus is not mandatory. However, this does not mean that you should not pay a bonus or include it as a component of CTC. You can prefix the bonus and include it as part of the CTC.