Confused About Bonus Calculations? How to Determine the Right Base Salary for Skilled Workers

I'm a proprietor who was in profit in FY 22-23. My consultant has told me that for bonuses, we need to use minimum wages for specific skill levels (not 7000).

Support 8.33% bonus is payable for a driver (skilled) whose minimum wage in my state is Rs. 14000.

So will the bonus be calculated on the base Rs. 14000 salary or Rs. 7000 in this case?

Thanks

Bonus Calculation for Proprietors

The consultant is correct. Bonuses must be calculated based on minimum wages, not on Rs. 7000, if the minimum wages exceed Rs. 7000. It is essential to calculate the bonus according to the schedule of the Bonus Act. For a proprietor, discussing the calculation with an appropriate person, such as a chartered accountant or a consultancy firm, is advisable.

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

Bonus Calculation Based on Minimum Wages

The correct bonus will be paid as per the minimum wages in the state, not based on 7,000 rupees, as per the Bonus Act.

I'm a proprietor, and as per income tax AY 23-24, I have an allocable surplus of Rs. 58 lakhs. Secondly, my labor registration was from 1/11/2023. I'm attaching calculations from my CA.

Bonus Calculation for Employees

Now, how much bonus do I need to pay to an employee whose salary was below Rs. 21,001? Should it be 8.33% or 20%?

I am not an accountant, but considering your allocable surplus figure of 58 L is correct, to calculate the percentage of the bonus, you first determine the bonus salary/wage, which should be ₹7000 or the minimum wages of the employees who are eligible for the bonus. Find out how much amount will be required to pay the minimum bonus (8.33%) to the eligible employees. If it is less than 58 L, then, by the unitary method, determine the percentage of the bonus. If even after paying the 20% bonus there is surplus money, then the money equivalent to 20% maximum will be reserved as Set-On. If there is any shortfall to pay the minimum bonus, then the excess amount above 58 L will be Set-Off.

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

I asked two senior consultants who handle more than 100 clients in Delhi. They told me to just pay 8.33%, and everybody pays the same.

Secondly, I should pay the same percentage in bonus to everyone. I should not pay 30% to one while 8.33% to another. What is your view?

Unfortunately, many consultants and HR professionals are not properly aware of the Payment of Bonus (PB) Act. I also have a client who consistently pays an 8.33% bonus without calculating it correctly, even after repeated advice. I would recommend that you familiarize yourself with the Payment of Bonus Act. It is a common practice among many organizations in India to pay 8.33% without adhering to the Act's calculations year after year.

Proper Calculation of Bonus

As per Schedule-II of the PB Act, the proper method for calculating the bonus is clearly outlined. The Act also provides examples of calculating Set On and Set Off. According to the PB Act, the statutory bonus must be calculated based on factors such as gross profit, available surplus, allocable surplus, Set On, and Set Off. Unfortunately, only a few organizations follow these guidelines. Additionally, the enforcement authority is often weak and does not regularly visit organizations to ensure compliance or provide training to employers.

Obligations and Eligibility

Once the bonus is calculated in accordance with the PB Act (let's assume it is 10%), you are obligated to pay this bonus to all eligible employees whose basic salary and Dearness Allowance in the previous financial year were 21,000/- or below, as the bonus is considered deferred wages. For those who are ineligible, you may still choose to pay them, based on your ability, perhaps at 8.33%, not as a bonus but as an ex-gratia payment.

Regards, S K Bandyopadhyay (WB, HOWRAH) CEO-USD HR Solutions [Phone Number Removed For Privacy-Reasons] [Email Removed For Privacy Reasons]