How Should Bonuses Be Calculated in FMCG Companies? Seeking Clarity on Diwali Bonus Practices

Hello HR Experts,

I was associated with one of the growing FMCG companies, where we received one full salary at the time of Diwali, entitled as a "Diwali bonus." However, the bonus act states that "Bonus is calculated as 8.33% of BASIC + DA."

Now, my question is, what is the standard bonus calculation for the additive company?

Dear,

Bonus Act of 1965

Bonus is given by companies as per the Bonus Act of 1965. Bonus calculation ranges from a minimum of 8.33% to a maximum of 20% based on the allocable surplus of the company.

Three steps of Bonus Calculations

1. According to the act, the eligibility for a bonus applies only if an employee receives a Basic Salary + DA up to Rs. 21,000.
2. The ceiling of the bonus is Rs. 7,000.
3. If the minimum wage in a state is Rs. X, then the bonus should be at least Rs. 7,000 or Rs. X, whichever is higher.

Generally, the bonus is paid approximately 8 months after the closing of the financial year, around the time of "Deepawali." Sometimes, this bonus is referred to as "Diwali Bonus," but in reality, it is a "Statutory Bonus." This means that if a candidate leaves the job before Diwali, they should receive their bonus in their final settlement.

As per what Mr. Neeraj Kumar explained, I would like to add that if the organization has paid a bonus at the time of Diwali as a 'Diwali bonus,' ignoring the calculation as per statutory guidelines, instead of the full month's gross salary, it is known as a customary bonus.

There is no harm in paying more bonus. However, it would be better if the bonus portion is paid as per the Payment of Bonus Act and the extra portion as ex-gratia. Legally, this would provide a stronger foundation.

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

Dear Amisha,

Bonus Calculation Under the Act

Bonus under the act is payable on basic + DA. 8.33% actually is 1/12, which is a month's salary. If you are getting a full month's salary, it is probably more than what they are required to give under the law. Further, if your salary is above ₹21,000, you are not eligible for a bonus. Also, if your salary is above minimum wages, you will get a bonus on minimum wages only (the rule says ₹7,000 per month or minimum wages, whichever is higher, but now minimum wages in the country are higher than ₹7,000 anyway).

Eligibility for Higher Bonus

At the same time, if the company's profit is high, you may be eligible for 20% of annual basic + DA as a bonus (which is 2.5 months' salary, but with the restriction explained above).

Diwali Bonus Payment Timing

Regarding payment at Diwali, the bonus is payable within 8 months from the end of the financial year, which is mostly when Diwali is, so again, few people bother to dispute that part.

I hope this (and the details posted by other members) has clarified that you are most probably not at a loss compared to what the rules provide.

Sir, where and how is a bonus paid recorded? I mean, what paperwork needs to be done. Should it be paid in cash or online, and how can we show that it is a bonus and not salary, advance, or something else? I hope I've gotten my point across; sorry for the bad English.

Also, if someone whose salary at the time of joining is less than 21k but increases above 21k after increments, are they eligible for a bonus following this increment?

Bonus is generally paid along with that month's salary or can even be paid separately. In that case, process it like an additional payroll run. Documentation should be similar.

However, also ensure Form A to D is filed properly, and online filing of the bonus return is also done.

Incidentally, you cannot pay a bonus in cash as most states have a requirement of bank payment under the Payment of Wages Act.