Can a Company Pay Bonuses During Losses? Understanding India's Bonus Act Requirements

Greetings, My query is regarding the Payment of Bonus Act in relation to the statutory bonus applicable to employees.

1.) If the company has made a loss for the past accounting year, is it still eligible to pay a bonus to employees earning below ₹21,000? (The establishment of the company was in the late 1990s, therefore it is well out of the infancy period).

2.) In case the company is eligible to pay the same, what documents are to be sought regarding understanding the set on and set off from the past years?

3.) While calculating the payment of a bonus for employees, should only their basic + DA be considered? In this case, conveyance, special allowance, education/medical allowance are to be disregarded?

Requesting all help in this urgent matter, thanks.

Location: Bengaluru, India
Tags: bonus act, payment of bonus act, special allowance, payment of bonus, medical allowance, Country-India, City-India-Bengaluru

It's important to address the Payment of Bonus Act in the context of a company making losses. Here are some key points to consider:

1. Eligibility to pay bonus:
- According to the Payment of Bonus Act, 1965, if a company has experienced losses during the accounting year, and the allocable surplus is insufficient to pay the minimum bonus, the employer is not legally bound to pay a bonus. However, if there is an allocable surplus despite the loss, the employer is still required to pay a bonus to eligible employees.

2. Documents required:
- To understand the set on and set off from past years, the employer should maintain proper records of financial statements, audit reports, and bonus calculations for each accounting year. These documents will help in determining the available surplus for the current year's bonus calculation.

3. Components considered for bonus calculation:
- When calculating the bonus for employees, only the components specified under the Payment of Bonus Act should be considered. Typically, the bonus is calculated based on the employee's basic salary and dearness allowance (DA). Conveyance, special allowance, education allowance, and medical allowance are usually excluded from the bonus calculation unless specifically included under the Act.

In summary, while a company making losses may impact the payment of bonuses, it is essential to assess the allocable surplus as per the Act's guidelines to determine the eligibility and amount of bonus to be paid to employees. Maintaining accurate records and adhering to statutory regulations is crucial in such scenarios.