Navigating the Bonus Act: Can I Split Statutory Bonuses and Handle Diwali Payments Correctly?

Questions About the Bonus Act

Regarding the bonus act, I have these three questions:

1) Can I pay a statutory bonus in 2-4 installments?

2) Do I need to get an employee's signature confirming that the employee has received a bonus (even if it is received via bank transfer)?

3) Can I classify the bonus paid during Diwali as last year's bonus while recording it as an expense in the current year, considering the audit deadline is September 30th?

Bonus Payment in Installments

1. Bonus can be paid in installments. However, the bonus pertaining to any financial year should be paid in full before 8 months of the close of that financial year. Therefore, the bonus for FY 2023-24 shall be paid in installments but before November 2024.

Signature Requirement for Bonus Payment

2. If you pay the bonus amount to an individual's bank account, no signature is required.

Accounting for Bonus Payments

3. The bonus for any financial year will be accounted for in that financial year itself. Once the amount is provided, how can you change it? An amount provided in the last year cannot be considered as an expense of the current year.

Statutory Bonus Payment

1.0 Statutory Bonus cannot be paid in installments. The quantum of bonus percentage will be calculated within 8 months of the completion of the financial year based on the available surplus and allocable surplus. Moreover, if it is paid every month, it will attract ESI if applicable.

2. As Mr. Madhu T K has replied, it is correct.

Deferred Wage and Accounting

3. Bonus is a deferred wage, which means the bonus for a particular financial year will be paid in the next year. Therefore, the payable year is always one year later, and accounts should be in the payable year. It is better to discuss with a CA for proper accounting formalities.

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

@Madhu.T.K, please note that the audit filing is at the end of September. To claim expenses in the previous year, the bonus amount must have been deducted from the bank account before filing the audit report. How can we give bonuses in September? I usually give them out during Diwali. Therefore, bonuses given during Diwali are considered as belonging to the previous year as per labor Form C/D. However, since this bonus could not be debited from my books before the filing of the audit report, this expense will be accounted for in the current year.

@Nanu1953, how can you say that mandatory bonuses cannot be paid in installments?

I didn't get you. Bonus is provided in the books of accounts of every financial year and is paid within 8 months of the close of the financial year. If you have provided for a bonus in 2023-24, that should be paid before November 2024. Let it be paid during Diwali if it comes before November, no issue. An amount provided in the books of accounts of the previous year will not become an expense of the current year, right? You can just pay the amounts by bank transfers and pass entries debiting the provision for bonus account and bulk of bank or the recipients as per the accounting practice. In this exercise, no expenditure account is created but only cash flow is changed, right?

I am not an expert in Finance and Accounts. Please discuss the matter with your CA.

Form D annual return is submitted for the calendar year, and it shall contain only the rate of bonus, total amounts paid, and the date of payment of the bonus. It shall show the actual payments and not the amounts provided. Whatever amount is paid in 2024 shall be shown in it.

The Payment of Bonus Act does not say that the total amount payable should be paid in a whole sum. It only says that the bonus should be paid within 8 months of the close of the financial year. But it will be good for the employees to get an amount in whole, especially during the festival. The very purpose of a bonus as a deferred wage will be defeated if it is paid in installments.

Understanding Bonus Payments

A bonus is a deferred wage, meaning the bonus for the financial year will be paid in the next financial year. The percentage of the bonus should be calculated based on gross profit, available surplus, allocable surplus, Set On, and Set Off. All these calculations will take some time after the closing of accounts. Furthermore, if the bonus percentage exceeds 8.33%, it may be challenging to pay it in installments. According to the Payment of Bonus Act, statutory bonuses must be paid within 8 months of closing the accounts and in one lump sum. Even if the bonus is paid in installments (for example, monthly or every alternate two months), ESI will be applicable if covered.

My name is not Nanu1953. Please refer to me as S K Bandyopadhyay in the future.

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

Provision for Bonus Payment

Provision for the payment of a bonus is created in the accounts of the respective financial year 'on an accrual basis'. The actual payment(s) shall be made either in one lump sum or more than one (for example, part of it as 'Diwali bonus' and the balance as 'bonus' or ex-gratia) within 8 months of the closure of the financial year. The same is to be adjusted against the provisions made, and the balance, if any, shall be provided for if short or written back if 'excess'. The same should be accounted for as 'Prior Year Adjustments' in the profit and loss account.

There is no confusion.