Understanding Bonus Calculation: How to Handle Allocable Surplus Exceeding Wages?

What is the bonus calculation formula?

What is the bonus calculation formula in case the allocable surplus is more than wages, given the limits of 8.33-20%?

I found the formula on this website: https://www.labourlawreporter.com/wp...PT-shushil.pdf

Formula:

(Allocable Surplus) X 100 / (Salary and wages of the employees eligible for Bonus)

Bonus Calculation Percentage

What you have mentioned is the percentage of bonus calculation. Here, salary means bonus-eligible salary, which is ₹7000/- or minimum wages, whichever is higher. If the allocable surplus is more than the bonus-eligible salary for all eligible employees (Basic and DA ₹21k or less in the previous financial year as bonus is deferred wages), then the bonus percentage will be more than 8.33%. This can be calculated in the following way.

Calculation Method

Rs. x is required to pay a minimum bonus of 8.33%. Therefore, allocable plus (say A, which is more than x) can pay a bonus = (x / 8.33 * A)%. If it is more than 20%, then the maximum amount equivalent to 20% will be paid as a bonus, and any excess amount beyond the 20% bonus will be set on.

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

The excess remains with the company.

Set on and Set off Mechanism

In following years, if the allocable surplus is less than 20%, it will be met from the excess of previous years.

Please read the section on set on and set off, and you will be clear.

Set On and Set Off Process

Excess will remain in the company as Set On. Both Set On and Set Off will continue for 4 years, and in the 5th year, the 1st-year amount will be returned to the company's account. This will be a continuous process. Any Set On or Set Off will be adjusted with the following year's bonus calculation if required. As a former employee of Philips India, I have noticed that there were years when there was a Set On every year for more profit/allocable surplus.

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

I believe you are aware of obligations under the Payment of Bonus Act (which is being subsumed in the Code on Wages, 2019) which involves the preparation/filing of various Forms - A, B, C, D, and a format for arriving at 'Allocable Surplus' as per the provisions of Sec. 2(4) of the PoB Act. This includes 'set-off/set-on' procedures. Soon after the preparation of your Final Accounts, you'll arrive at the 'Allocable Surplus'. I have attached useful notes on the subject which may provide some guidelines at this juncture.