Hi What is statutory Bonus and what is the difference between Bonus & statutory bonus. Also pls share what is the benefit for employees.
From India, Bangalore
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From India, Bangalore
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They may not be the same. In my view, a bonus is a generic term used to refer to a bonus linked to performance or productivity as an incentive, or any customary bonus given on festival occasions like Dussehra or Diwali, where it is known as Puja bonus or Diwali bonus. It can also refer to any incentive to encourage specific employee behavior such as punctuality and regular attendance, in which case it may be referred to as an attendance bonus. However, when a bonus is specifically termed as a statutory bonus, it indicates the bonus paid under the Payment of Bonus Act 1965.
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B. Saikumar
HR & Labor Law Advisor
From India, Mumbai
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1931Regards,
B. Saikumar
HR & Labor Law Advisor
From India, Mumbai
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Understanding Statutory Bonus
Your query: What is a statutory bonus and what is the difference between a bonus and a statutory bonus? Also, please share what the benefits are for employees.
Position on Statutory Bonus
The Payment of Bonus Act 1965 made bonus payment mandatory at the prescribed rate. Before that, the bonus amount was distributed at the sole discretion of the employers as a goodwill gesture, philanthropic act, or act of benevolence. That was neither a claim nor a deferred payment.
As per the current Act in force, employers are required to pay bonuses regardless of profit earnings, even during no profits, and the total bonus amount paid is adjustable from total earnings in successive years. This practice is beneficial to receivers but worrisome for loss-making units.
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Kritarth Consulting Pvt Ltd
Harsh K Sharan
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From India, Delhi
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Your query: What is a statutory bonus and what is the difference between a bonus and a statutory bonus? Also, please share what the benefits are for employees.
Position on Statutory Bonus
The Payment of Bonus Act 1965 made bonus payment mandatory at the prescribed rate. Before that, the bonus amount was distributed at the sole discretion of the employers as a goodwill gesture, philanthropic act, or act of benevolence. That was neither a claim nor a deferred payment.
As per the current Act in force, employers are required to pay bonuses regardless of profit earnings, even during no profits, and the total bonus amount paid is adjustable from total earnings in successive years. This practice is beneficial to receivers but worrisome for loss-making units.
Regards,
Kritarth Consulting Pvt Ltd
Harsh K Sharan
[Email Removed For Privacy Reasons]
From India, Delhi
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Understanding Bonuses: Statutory and Beyond
There are not two different bonuses available. Whatever bonus is being paid (minimum 8.33% & maximum 20%) by companies is paid as per the statutory requirement. The bonus may be stated as an ad-hoc bonus, productivity-linked bonus, attendance bonus, etc., but all are given as a part of statutory compliance. The bonus must be given whether the company makes a profit or not and whether the company earns allocable surplus or not. If the company pays a bonus beyond the maximum limit, then it is known as profit-sharing or ex-gratia.
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From India, Kumbakonam
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There are not two different bonuses available. Whatever bonus is being paid (minimum 8.33% & maximum 20%) by companies is paid as per the statutory requirement. The bonus may be stated as an ad-hoc bonus, productivity-linked bonus, attendance bonus, etc., but all are given as a part of statutory compliance. The bonus must be given whether the company makes a profit or not and whether the company earns allocable surplus or not. If the company pays a bonus beyond the maximum limit, then it is known as profit-sharing or ex-gratia.
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From India, Kumbakonam
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Though there is no doubt that there is only one kind of bonus available under the Act, my view with reference to the use of statutory bonus vis-à-vis other kinds of bonuses is different. I invite reference to Sec.31-A of the Payment of Bonus Act. It states under clause (ii) as follows:
"Where the employees enter into any agreement or settlement with their employer for payment of an annual bonus linked with productivity or production in lieu of a bonus based on profits payable under the Act, such employees shall be entitled to receive the bonus due to them under such agreement or such settlement as the case may be."
The words "in lieu of bonus based on profits payable under the Act" imply that if the employer pays a productivity-linked bonus under an agreement, he need not pay the bonus on the basis of profits payable under the Act. Thus, it clearly distinguishes that the bonus payable under an agreement may be based on productivity while the bonus payable under the Act is based on profits. But it grants a concession to the employer by exempting him from paying profit-linked bonus under the Act if he pays such productivity-linked bonus under an agreement.
Distinguishable Features of Productivity-Linked Bonus and Bonus Under the Act
Another distinguishable feature between a productivity-linked bonus and a bonus under the Act is found in the first proviso to Sec.31-A. It states that no agreement on productivity-linked bonus which deprives an employee from receiving the minimum bonus payable under Sec.10 of the Act is null and void. It implies that if for any reason or under the terms of the agreement, an employee is disqualified from being eligible for a productivity-linked bonus—say for not fulfilling productivity norms—his right to receive the minimum bonus payable under Sec.10 of the Act stands protected.
Further, the Bonus Act is applicable only to those who draw wages not exceeding Rs.10,000/- p.m., whereas an agreement for a bonus based on productivity can cover employees irrespective of this wage limit. That's how a bonus paid under the Act is also distinguishable from a bonus payable under an agreement.
Besides, I have not come across any provision in the Act that bars the payment of any bonus other than the bonus payable under the Act after the coming into force of the Bonus Act 1965. There is a practice in some companies to pay a 'joining bonus' to employees who serve a minimum period to beat attrition. It is not linked to any allocable surplus.
Definition and Customary Practices Related to Bonus
This apart, the Payment of Bonus Act nowhere defines the term "Bonus" except using the word with reference to the procedure to compute bonus under the Act. In my view, the Act deliberately omits to define Bonus so as to allow employers the freedom to continue various schemes of rewards and incentive schemes known in the name of bonus prevailing prior to the coming into force of the Act or even thereafter, if they so wish. Thus, it is customary in some establishments in certain regions to pay bonuses like Puja bonus on the eve of festivals like Dussehra or Diwali beyond the provisions of the Payment of Bonus Act. Sec. 17 itself acknowledges such practice. The joining bonus is an example subsequent to the Act.
Thus, the word "Bonus" can be used with reference to any other incentive which an employer contemplates to reward any contribution of an employee to the organization. Therefore, since the word "Bonus" may not always connote bonus payable under the Act only, the term "statutory bonus" will solely indicate bonus payable under the Act to distinguish it from other kinds of bonuses.
Regards,
B. Saikumar
HR & Labour Law Advisor
From India, Mumbai
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"Where the employees enter into any agreement or settlement with their employer for payment of an annual bonus linked with productivity or production in lieu of a bonus based on profits payable under the Act, such employees shall be entitled to receive the bonus due to them under such agreement or such settlement as the case may be."
The words "in lieu of bonus based on profits payable under the Act" imply that if the employer pays a productivity-linked bonus under an agreement, he need not pay the bonus on the basis of profits payable under the Act. Thus, it clearly distinguishes that the bonus payable under an agreement may be based on productivity while the bonus payable under the Act is based on profits. But it grants a concession to the employer by exempting him from paying profit-linked bonus under the Act if he pays such productivity-linked bonus under an agreement.
Distinguishable Features of Productivity-Linked Bonus and Bonus Under the Act
Another distinguishable feature between a productivity-linked bonus and a bonus under the Act is found in the first proviso to Sec.31-A. It states that no agreement on productivity-linked bonus which deprives an employee from receiving the minimum bonus payable under Sec.10 of the Act is null and void. It implies that if for any reason or under the terms of the agreement, an employee is disqualified from being eligible for a productivity-linked bonus—say for not fulfilling productivity norms—his right to receive the minimum bonus payable under Sec.10 of the Act stands protected.
Further, the Bonus Act is applicable only to those who draw wages not exceeding Rs.10,000/- p.m., whereas an agreement for a bonus based on productivity can cover employees irrespective of this wage limit. That's how a bonus paid under the Act is also distinguishable from a bonus payable under an agreement.
Besides, I have not come across any provision in the Act that bars the payment of any bonus other than the bonus payable under the Act after the coming into force of the Bonus Act 1965. There is a practice in some companies to pay a 'joining bonus' to employees who serve a minimum period to beat attrition. It is not linked to any allocable surplus.
Definition and Customary Practices Related to Bonus
This apart, the Payment of Bonus Act nowhere defines the term "Bonus" except using the word with reference to the procedure to compute bonus under the Act. In my view, the Act deliberately omits to define Bonus so as to allow employers the freedom to continue various schemes of rewards and incentive schemes known in the name of bonus prevailing prior to the coming into force of the Act or even thereafter, if they so wish. Thus, it is customary in some establishments in certain regions to pay bonuses like Puja bonus on the eve of festivals like Dussehra or Diwali beyond the provisions of the Payment of Bonus Act. Sec. 17 itself acknowledges such practice. The joining bonus is an example subsequent to the Act.
Thus, the word "Bonus" can be used with reference to any other incentive which an employer contemplates to reward any contribution of an employee to the organization. Therefore, since the word "Bonus" may not always connote bonus payable under the Act only, the term "statutory bonus" will solely indicate bonus payable under the Act to distinguish it from other kinds of bonuses.
Regards,
B. Saikumar
HR & Labour Law Advisor
From India, Mumbai
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The interpretation of Mr. Sai Kumar is perfectly correct. "So the word 'Bonus' can be used with reference to any other incentive which an employer contemplates to reward any contribution of an employee to the organization. Therefore, since the word 'Bonus' may not always mean bonus payable under the Act only, the term 'statutory bonus' will solely indicate bonus payable under the Act to distinguish it from other kinds of bonus." - Sai Kumar.
Regards,
PBS KUMAR
From India, Kakinada
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Regards,
PBS KUMAR
From India, Kakinada
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In addition to what other fellow members have said, I would like to add that under the statutory act of payment of bonus, an employer is liable to give a bonus to those employees whose gross salary is less than Rs. 10,000 (if the company is making a profit). Other than that, it is the employer's decision whether to give a bonus or not.
Benefits of Giving a Yearly Bonus
Giving a yearly bonus to employees is beneficial when it comes to employee satisfaction and retention.
Regards,
Ashutosh
From India, Kollam
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Benefits of Giving a Yearly Bonus
Giving a yearly bonus to employees is beneficial when it comes to employee satisfaction and retention.
Regards,
Ashutosh
From India, Kollam
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I would like to make a small addition. Many of our friends have said that 8.33% is mandatory, whether the company is profit-making or not. If it is a new company, it is not liable to pay any bonus for the first five years if it is not making or showing any profit. If such a new company makes a profit in its initial years, say the 2nd year, then yes, it has to pay a bonus.
From India, Mumbai
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From India, Mumbai
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MINIMUM BONUS IS 8.33% OF RS.3500/- AND NOT OF 8.33% OF BASIC SALARY MAXIMUM IS 20% Regards Suresh
From India, Thana
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From India, Thana
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MINIMUM BONUS IS 8.33% OF RS.3500/- AND NOT OF 8.33% OF BASIC SALARY MAXIMUM IS 20% Regards Suresh
From India, Thana
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From India, Thana
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Yes, "bonus" is a term loosely used in corporations. In many organizations, special payments made on the occasion of Diwali, New Year, etc., are also named as bonuses. However, no statutory laws are applicable in such cases. The scope of the Payment of Bonus Act is completely different from this.
From India, Mumbai
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From India, Mumbai
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Amendment to Payment of Bonus Act 2015.jpg
Bigger bonuses for more as Lok Sabha amends Payment of Bonus Act - The Economic Times.pdf
THE PAYMENT OF BONUS ACT.doc