Is Including Bonuses in Monthly Salaries Legal? Understanding the Implications and ESI Concerns

Hi everyone,

Can a bonus be given in the monthly salary?

I need to know this urgently because I am observing that most companies are paying bonuses in the monthly salary. To my knowledge, if you add a bonus to your monthly salary, it will become part of your salary component, and ESI will be applicable to this. According to the Bonus Act 1965, bonuses will be disbursed based on company profits and sharing. After the completion of the financial year, bonuses can be given within the next eight months.

Advance bonus payment and its implications

Now, the question arises: If you paid the bonus in advance, whether quarterly, half-yearly, or otherwise, could it be added to the salary? To my knowledge, it cannot be added to the salary. If we are disbursing bonuses in advance, they will be on a separate disbursement sheet, not included with the salary. Please clarify if I am wrong.

Since the bonus is a statutory right of each employee, and ESI is not applicable to it, it should be given after the completion of the financial year once the company balance sheet is prepared and profits and losses are determined. If the company is providing a monthly salary, does that mean it is breaking the law? How can they determine the bonus percentage without finalizing the current financial year's profit and loss? Please clarify this doubt.

Hi, Paying a bonus on a monthly basis is an incorrect process. Strictly speaking, a bonus should be calculated based on the performance and profit of the organization, which cannot be determined in advance. If the bonus is paid as part of the salary, then ESI should also be calculated, including the bonus amount if the member is within the ESI limit.

Hi,

Bonus as Part of Monthly Wages

Bonus as part of monthly wages is followed in contract labor engagement cases. The minimum bonus is considered and paid along with the salary as it is convenient and reaches contract workers directly. When calculating annually, the contractor claims all eligible bonuses, but actual payment for cases where work was left incomplete or was less than anticipated would be difficult to trace. Therefore, having annual calculations on record for book closure while managing contracts on a monthly basis is the ideal option that is typically followed.

Most companies in Delhi and NCR are including bonuses in the monthly salary, which I believe is incorrect. My superior suggested this strategy to me, and I responded that it was not right. However, they are unwilling to accept this and just want to add the bonus to the salary. I disagree with this approach and have even referenced the act, which clearly states that bonuses should be distributed within eight months after the completion of the financial year.

I would like to express my gratitude to Laxmi Narayan ji for the valuable feedback.

Hi, The minimum bonus is 8.33%. You can proceed to pay it on a monthly basis. Later, based on the P&L / A&B results, you can adjust the differences at the end of the bonus pay period by November.

Thanks

Indeed, depending on how it is set up, a bonus may be included in the monthly wage. The bonus becomes a part of the compensation package if it is paid as a regular, set part of the wage. If the entire salary is within the applicable ESI wage limit, it is subject to statutory deductions such as ESI (Employees' State Insurance).

However, a bonus is typically not regarded as a part of the compensation structure if it is paid out as an annual incentive or performance bonus, for example. This kind of incentive might not be eligible for ESI contributions because regular earnings are normally the only ones included for ESI reasons. To properly organize bonuses, it's crucial to refer to legal and compliance rules.