There is no CTC structure in the firm. Employees are given salary based on a monthly basis as finalized during joining. Now, the firm wants to start giving bonuses, so how should they start? The present salary sheet is maintained by the firm in Excel, which has only basic salary, no da and no hra, so basic = gross salary. Then it has net salary based on the number of days worked, and esi and pf are deducted as per the rules.
So, the question now is:
1) What should be changed in this structure, how should a bonus be added, and when should it be given since the firm is planning to start this system now?
2) The firm wants to give bonuses only to those whose salary is below 21k. So, how do we show that and how do we show that bonuses are not given to those above 21k?
3) Is no DA and no HRA allowed? If DA and HRA are 0, but basic wages are way above minimum wages, what are the implications for the firm?
4) what paperwork is to be done to give a bonus?
5) The Firm pays some employees online and some in cash, so how should the bonus be shown for such different categories?
6) is bonus amt. = net salary amt.
7) Is ESI on basic wage or gross wage? Since the firm wants to start the initiative of giving bonuses every year, it does not want to increase its costs just because of a lack of knowledge. So, can the firm change the basic wage structure and bring back DA and HRA, and if yes, how?
I hope i get a clear response from learned professionals here. My English is not that good so i may have asked a simple question in a complicated manner. Hope you help me out.
From India, Hyderabad
So, the question now is:
1) What should be changed in this structure, how should a bonus be added, and when should it be given since the firm is planning to start this system now?
2) The firm wants to give bonuses only to those whose salary is below 21k. So, how do we show that and how do we show that bonuses are not given to those above 21k?
3) Is no DA and no HRA allowed? If DA and HRA are 0, but basic wages are way above minimum wages, what are the implications for the firm?
4) what paperwork is to be done to give a bonus?
5) The Firm pays some employees online and some in cash, so how should the bonus be shown for such different categories?
6) is bonus amt. = net salary amt.
7) Is ESI on basic wage or gross wage? Since the firm wants to start the initiative of giving bonuses every year, it does not want to increase its costs just because of a lack of knowledge. So, can the firm change the basic wage structure and bring back DA and HRA, and if yes, how?
I hope i get a clear response from learned professionals here. My English is not that good so i may have asked a simple question in a complicated manner. Hope you help me out.
From India, Hyderabad
There is no need to have a CTC structure. CTC is only a concept but does not have any legal backing. Therefore, if your Basic salary itself is the gross salary, there is no issue so long as the total amount does not fall below the statutory minimum wages fixed by the government. You can pay ESI and EPF on that gross salary itself.
Bonus is a mandatory payment for an organisation which has been in existence for five years, and since the year of its making profit whichever comes first. The minimum amount of bonus is equal to 8.33% of the gross salary of each employee. It shall extend to 20% depending upon the profitability.
Bonus is payable to employees whose salaries do not exceed Rs 21000 per month. In respect of an employee whose salary exceeds Rs 7000, the salary qualifying to bonus should be Rs 7000 or such amount as declared by the state government as statutory minimum wages as applicable to the industry. As such, if minimum wages is declared for your industry, and if it is above Rs 7000, then that amount should be assumed wages for calculation of bonus. Suppose that the statutory minimum wages of a particular category of employment is Rs 13000, then bonus should be calculated on a salary of Rs 13000. On the other hand, if no minimum wages is fixed for your industry, you can calculate the bonus on Rs 7000. It is not required that you should pay bonus calculated on the actual salary.
Now coming to the queries:
1. Bonus as a component of remuneration shall be shown separately, after the Gross Salary portion. Normally, in a pay structure which showcases the remuneration and contributions payable by the employer, the employer's contribution towards ESI, EPF etc will also be added to the gross salary so that the employee will get an idea as to how much the employer costs by employing him. You can also add the amount of bonus at prescribed rate. When you are starting paying bonus, it shall be 8.33% of salary, or virtually one month salary per year.
2. Only employees whose salary is not more than Rs 21000 are eligible to get Bonus. Therefore, employees getting more than that amount need not be compensated. Moreover, the amount of bonus being Rs 7000 or one month minimum wages per year, the same would be negligible when converted into monthly salary. Even if we accept that it would make those getting more than Rs 21000 as salary unhappy, you can consider for a payment of a performance linked incentive or ex gratia to them.
3. The law does not insist that DA and HRA should be paid over and above the basic salary which is above the notified minimum wages. Employers and Personnel Managers bifurcate the gross wages with an amount put as HRA just because the component of house rent allowance is not considered as part of wages/ salary for payment of certain contributions and payments like PF, Bonus, Leave encashment and gratuity. But the HRA excluded should be HRA paid as a compensatory allowance and not just a component of wages. Therefore, ultimately, HRA will be part of wages only. Therefore, if you do not pay any HRA, it is not going to make any difference.
4. You need not make any paper work for paying bonus. But you can just communicate that henceforth the employees getting salary not more than Rs 21000 will be paid annual bonus as per Payment of Bonus Act.
5. If any employee is receiving salary in cash, bonus shall also be paid to him in cash. As per the instructions from the appropriate government, all payments to workers should be made digitally. Therefore, make arrangements to transfer the salary and bonus to the employees' bank account.
6. The bonus amount need not necessarily be the net salary but it is percentage of bonus qualifying wages paid to each worker. Bonus qualifying salary means Rs 7000 or the minimum wages fixed. Any day for which no wage was paid due to absence without leave during the year shall be deducted from this wages. Year shall mean financial year.
7. ESI is payable on gross wages. But if you have given uniforms to the workers, and you have a component called washing allowance, then washing allowance can also be excluded from wages to decide the contribution. Similarly, travelling allowance paid shall also be excluded for ESI contribution. Again, if the wages after deducting these two components exceeds Rs 21000, the employee would come out of ESI coverage. For EPF only HRA paid as a compensatory allowance shall be excluded.However, the contribution can be restricted to 12% of Rs 15000.
You can change the basic structure of salary. If the contributions to these statutory welfare funds are not going to be affected by the change, there is no issue in bringing back DA and HRA into salary structure.
From India, Kannur
4193Bonus is a mandatory payment for an organisation which has been in existence for five years, and since the year of its making profit whichever comes first. The minimum amount of bonus is equal to 8.33% of the gross salary of each employee. It shall extend to 20% depending upon the profitability.
Bonus is payable to employees whose salaries do not exceed Rs 21000 per month. In respect of an employee whose salary exceeds Rs 7000, the salary qualifying to bonus should be Rs 7000 or such amount as declared by the state government as statutory minimum wages as applicable to the industry. As such, if minimum wages is declared for your industry, and if it is above Rs 7000, then that amount should be assumed wages for calculation of bonus. Suppose that the statutory minimum wages of a particular category of employment is Rs 13000, then bonus should be calculated on a salary of Rs 13000. On the other hand, if no minimum wages is fixed for your industry, you can calculate the bonus on Rs 7000. It is not required that you should pay bonus calculated on the actual salary.
Now coming to the queries:
1. Bonus as a component of remuneration shall be shown separately, after the Gross Salary portion. Normally, in a pay structure which showcases the remuneration and contributions payable by the employer, the employer's contribution towards ESI, EPF etc will also be added to the gross salary so that the employee will get an idea as to how much the employer costs by employing him. You can also add the amount of bonus at prescribed rate. When you are starting paying bonus, it shall be 8.33% of salary, or virtually one month salary per year.
2. Only employees whose salary is not more than Rs 21000 are eligible to get Bonus. Therefore, employees getting more than that amount need not be compensated. Moreover, the amount of bonus being Rs 7000 or one month minimum wages per year, the same would be negligible when converted into monthly salary. Even if we accept that it would make those getting more than Rs 21000 as salary unhappy, you can consider for a payment of a performance linked incentive or ex gratia to them.
3. The law does not insist that DA and HRA should be paid over and above the basic salary which is above the notified minimum wages. Employers and Personnel Managers bifurcate the gross wages with an amount put as HRA just because the component of house rent allowance is not considered as part of wages/ salary for payment of certain contributions and payments like PF, Bonus, Leave encashment and gratuity. But the HRA excluded should be HRA paid as a compensatory allowance and not just a component of wages. Therefore, ultimately, HRA will be part of wages only. Therefore, if you do not pay any HRA, it is not going to make any difference.
4. You need not make any paper work for paying bonus. But you can just communicate that henceforth the employees getting salary not more than Rs 21000 will be paid annual bonus as per Payment of Bonus Act.
5. If any employee is receiving salary in cash, bonus shall also be paid to him in cash. As per the instructions from the appropriate government, all payments to workers should be made digitally. Therefore, make arrangements to transfer the salary and bonus to the employees' bank account.
6. The bonus amount need not necessarily be the net salary but it is percentage of bonus qualifying wages paid to each worker. Bonus qualifying salary means Rs 7000 or the minimum wages fixed. Any day for which no wage was paid due to absence without leave during the year shall be deducted from this wages. Year shall mean financial year.
7. ESI is payable on gross wages. But if you have given uniforms to the workers, and you have a component called washing allowance, then washing allowance can also be excluded from wages to decide the contribution. Similarly, travelling allowance paid shall also be excluded for ESI contribution. Again, if the wages after deducting these two components exceeds Rs 21000, the employee would come out of ESI coverage. For EPF only HRA paid as a compensatory allowance shall be excluded.However, the contribution can be restricted to 12% of Rs 15000.
You can change the basic structure of salary. If the contributions to these statutory welfare funds are not going to be affected by the change, there is no issue in bringing back DA and HRA into salary structure.
From India, Kannur
First of all you please check whether any State HRA Act or not. It is in WB, Maharashtra which is 5% of Basic & DA. You may ignore DA.
Bonus has to be calculated on the basis Gross Profit, available surplus, allocable surplus of the organization if the organization is in business more than 5 years. From 6th year whether profit or loss you have to pay 8.33% as bonus which will be considered as Set Off. Similarly there may be Set On in case of more profit and surplus amount even after paying 20% bonus.
You have to maintain FORM - A, B , C and D as per PB Act.
Bonus account has to be audited every year to avoid any complications in future.
S K Bandyopadhyay ( WB, Howrah)
CEO-USD HR Solutions
From India, New Delhi
Bonus has to be calculated on the basis Gross Profit, available surplus, allocable surplus of the organization if the organization is in business more than 5 years. From 6th year whether profit or loss you have to pay 8.33% as bonus which will be considered as Set Off. Similarly there may be Set On in case of more profit and surplus amount even after paying 20% bonus.
You have to maintain FORM - A, B , C and D as per PB Act.
Bonus account has to be audited every year to avoid any complications in future.
S K Bandyopadhyay ( WB, Howrah)
CEO-USD HR Solutions
From India, New Delhi
@Madhu Sir,
Thank you replying so meticulously and making my knowledge more in this subject.
Sir, Let me use an example to see if I understood this:
This firm is Vijayawada based. It given salary of 16500 to employee on join. Its salary is shown on their salary sheet which they maintain in excel as:
Basic = 16500/-
DA+HRA = 0
PF = 0 (not a pf member before)
ESI =16500 * 0.75% = 124
Net = 16500-124 = 16376 paid online.
Is this good? Now they want to change it to:
Basic = 15100/-
DA+HRA = 0 (how to add that 1400/-)
PF = 0 (not a pf member before)
ESI =16500 * 0.75% = 124
Net = 16500-124 = 16376 paid online.
Also, firm is 10 years old but never gave bonus but now wants to start. And this employee is working since 2.5 years. So now how to show bonus, I mean any register is to maintained or just online payment is fine? And if paid online, how to differentiate between bonus and salry if both are same. And how to show proof that bonus is paid and that it is not salary if employee contests in fututre. Should firm give bonus on basic or gross? Is ESI deducted on bonus? Should firm pay bonus and salary on same date? When should the bonus be given to this employee, i mean which month? I hope i got my point accross without confusing you sir. I guess my knowledge about bonus will be learnt by your answer. Thankyou sir
From India, Hyderabad
Thank you replying so meticulously and making my knowledge more in this subject.
Sir, Let me use an example to see if I understood this:
This firm is Vijayawada based. It given salary of 16500 to employee on join. Its salary is shown on their salary sheet which they maintain in excel as:
Basic = 16500/-
DA+HRA = 0
PF = 0 (not a pf member before)
ESI =16500 * 0.75% = 124
Net = 16500-124 = 16376 paid online.
Is this good? Now they want to change it to:
Basic = 15100/-
DA+HRA = 0 (how to add that 1400/-)
PF = 0 (not a pf member before)
ESI =16500 * 0.75% = 124
Net = 16500-124 = 16376 paid online.
Also, firm is 10 years old but never gave bonus but now wants to start. And this employee is working since 2.5 years. So now how to show bonus, I mean any register is to maintained or just online payment is fine? And if paid online, how to differentiate between bonus and salry if both are same. And how to show proof that bonus is paid and that it is not salary if employee contests in fututre. Should firm give bonus on basic or gross? Is ESI deducted on bonus? Should firm pay bonus and salary on same date? When should the bonus be given to this employee, i mean which month? I hope i got my point accross without confusing you sir. I guess my knowledge about bonus will be learnt by your answer. Thankyou sir
From India, Hyderabad
Your first calculation is right. But why the second one is not understood. In the second calculation if you put the difference amount, Rs 1400, as HRA, then also it is fine and the same will be the net salary. This is because the employee does not have PF, and ESI is deducted on gross salary.
Now coming to the bonus section, it is not a monthly payment but it is paid annually. You can split the bonus in to, two also, so as to make an amount as advance payment which could be deducted from the final bonus when paid. As Mr S K Bandyopadhyay has said there are some returns and registers to be maintained as per the Payment of Bonus Act, but the payment is evidenced by a statement of bonus preparation and the payment of the same into Bank account. Even in the statutory audits and inspection by the Labour authorities what is required is a statement of wages (wages that qualifies to bonus) and the amount of bonus, and the dates on which the payment was made. This can be maintained in excel format.
An establishment which is in existence for thee last 10 years should certainly pay statutory bonus. It is expected that you should pay bonus after 5 years of commencement or the year in which you made profits. Therefore, it is high time that you should pay it.
Bonus is different from wages. The latter is a monthly payment whereas the former is paid once in a year. Therefore, you should not mix up salary with bonus. There should be a bonus calculation sheet above referred. It takes in to account the salary earned by each employee (who are entitled to get bonus) month wise and aggregate of that wages for the year. The same is multiplied by the rate of bonus decided. It shall depend upon the profit of the company and ranges from 8.33% to 20%. While putting the wages earned what you have to note is to put only the bonus qualifying wages earned by each employee for each month. Bonus qualifying wages means Rs 7000 or such amount as the government has declared as minimum wages for the category of employment. Obviously, LOP will be deducted from the bonus qualifying wages.
No ESI or other contributions is payable on bonus payment. Obviously, if the employee comes under the tax brackets (due to heavy overtime wages that one shall earn) TDS shall be deducted from the bonus payments.
Since bonus is paid only once in a year, that itself identifies as bonus apart from salary. Normally, date of payment of bonus will be announced separately, and as such the amount credited shall be taken as their bonus by the employees. Therefore, there will not be any dispute raised about non payment of bonus. The only dispute that may arise is the computation part. In order to make the employees how their Bonus are calculated you can prepare a bonus slip in excel and distribute it to the employees. It can be prepared from the excel sheet for calculating the bonus of all the employees.
From India, Kannur
Now coming to the bonus section, it is not a monthly payment but it is paid annually. You can split the bonus in to, two also, so as to make an amount as advance payment which could be deducted from the final bonus when paid. As Mr S K Bandyopadhyay has said there are some returns and registers to be maintained as per the Payment of Bonus Act, but the payment is evidenced by a statement of bonus preparation and the payment of the same into Bank account. Even in the statutory audits and inspection by the Labour authorities what is required is a statement of wages (wages that qualifies to bonus) and the amount of bonus, and the dates on which the payment was made. This can be maintained in excel format.
An establishment which is in existence for thee last 10 years should certainly pay statutory bonus. It is expected that you should pay bonus after 5 years of commencement or the year in which you made profits. Therefore, it is high time that you should pay it.
Bonus is different from wages. The latter is a monthly payment whereas the former is paid once in a year. Therefore, you should not mix up salary with bonus. There should be a bonus calculation sheet above referred. It takes in to account the salary earned by each employee (who are entitled to get bonus) month wise and aggregate of that wages for the year. The same is multiplied by the rate of bonus decided. It shall depend upon the profit of the company and ranges from 8.33% to 20%. While putting the wages earned what you have to note is to put only the bonus qualifying wages earned by each employee for each month. Bonus qualifying wages means Rs 7000 or such amount as the government has declared as minimum wages for the category of employment. Obviously, LOP will be deducted from the bonus qualifying wages.
No ESI or other contributions is payable on bonus payment. Obviously, if the employee comes under the tax brackets (due to heavy overtime wages that one shall earn) TDS shall be deducted from the bonus payments.
Since bonus is paid only once in a year, that itself identifies as bonus apart from salary. Normally, date of payment of bonus will be announced separately, and as such the amount credited shall be taken as their bonus by the employees. Therefore, there will not be any dispute raised about non payment of bonus. The only dispute that may arise is the computation part. In order to make the employees how their Bonus are calculated you can prepare a bonus slip in excel and distribute it to the employees. It can be prepared from the excel sheet for calculating the bonus of all the employees.
From India, Kannur
@ Madhu Sir,
1) the firm says it wants to change to 2nd salary structure so that its gratuity liability is reduced since its based on basic pay.
2) is there a problem to the firm if firm did not give bonus till now. Also which month should they pay bonus now since it is their first time?
3) an employee left the firm last month in april first week, she worked for 1.5 years, should firm call her and give bonus or there is no issue since that account is closed.
4) so if my understanding is correct, the bonus calculation should be done as follows: take average of 12 months of NET salary paid to the employee (after leave deductions) for a FY and then pay it in a certain month (when firm is paying min. bonus) . Example: Pay after their leave deuctions for month 1 = 12500, month 2 = 16500, month 3 = 15000 .... so bonus would be (12.5+16.5+15/3) (3 months just for example sake)
5) also, when should bonus be paid to new employee joining now?
Thank You again for taking your time and responding to my queries
From India, Hyderabad
1) the firm says it wants to change to 2nd salary structure so that its gratuity liability is reduced since its based on basic pay.
2) is there a problem to the firm if firm did not give bonus till now. Also which month should they pay bonus now since it is their first time?
3) an employee left the firm last month in april first week, she worked for 1.5 years, should firm call her and give bonus or there is no issue since that account is closed.
4) so if my understanding is correct, the bonus calculation should be done as follows: take average of 12 months of NET salary paid to the employee (after leave deductions) for a FY and then pay it in a certain month (when firm is paying min. bonus) . Example: Pay after their leave deuctions for month 1 = 12500, month 2 = 16500, month 3 = 15000 .... so bonus would be (12.5+16.5+15/3) (3 months just for example sake)
5) also, when should bonus be paid to new employee joining now?
Thank You again for taking your time and responding to my queries
From India, Hyderabad
1. When you reduce the basic wages from, say, Rs 16500 to Rs 15100, the employees may oppose it. Therefore, you can introduce such changes only after taking the workers in to confidence. Moreover, we have a legal obligation to give notice of changes in service conditions as per section 9A of the Industrial Disputes Act. If the employees agree, you can change the salary structure. Otherwise, you have to fix the present gross salary as the basic salary (or a salary comprising of basic pay and dearness allowance) and any future amounts given as increments may be put under some allowances not forming part of gratuity computation.
2. Not paying bonus for such a long period is certainly a non compliance. It is surprising that the workers did not demand bonus, and no law enforcing officer has asked why did not you file the annual return. Anyway, if you start paying it now, you may do the calculation based on the earnings of 2023-24, and pay it before the first regional and or religious festival.
3. An employee under the salary bracket of Rs 21000 is to be paid bonus if he has worked at least 30 days in the financial year. Hence, even if he has already left, he should be paid bonus. However, unlike gratuity which is payable even if the employee has not demanded it bonus to the left employees may be paid on request from the respective employee.
4. Bonus is not calculated on the net salary but it is paid assuming that the wages is Rs 7000 or minimum wages. Therefore, for each month there should be a separate calculation sheet putting the gross (bonus qualifying) salary as 7000 or the minimum wages. If the minimum wages of a particular category of employees is, say Rs 12500, put that amount against the employee. This 12500 is for 30 days working, and if there is no loss of pay, put the same amount as salary earned. If there is two days' LOP, then put 11667 (12500 minus 2 days wages, ie, 12500/30*2 or 833) as earned wages. For each month calculate the earned salary, and then total these earned wages to get total earned wages for the year. Multiply this by 8.33% or such other higher percentage that the employer decides. You will get bonus amount payable. Pay it.
5. An employee joining now, ie, in May, will be paid bonus next year only.
From India, Kannur
2. Not paying bonus for such a long period is certainly a non compliance. It is surprising that the workers did not demand bonus, and no law enforcing officer has asked why did not you file the annual return. Anyway, if you start paying it now, you may do the calculation based on the earnings of 2023-24, and pay it before the first regional and or religious festival.
3. An employee under the salary bracket of Rs 21000 is to be paid bonus if he has worked at least 30 days in the financial year. Hence, even if he has already left, he should be paid bonus. However, unlike gratuity which is payable even if the employee has not demanded it bonus to the left employees may be paid on request from the respective employee.
4. Bonus is not calculated on the net salary but it is paid assuming that the wages is Rs 7000 or minimum wages. Therefore, for each month there should be a separate calculation sheet putting the gross (bonus qualifying) salary as 7000 or the minimum wages. If the minimum wages of a particular category of employees is, say Rs 12500, put that amount against the employee. This 12500 is for 30 days working, and if there is no loss of pay, put the same amount as salary earned. If there is two days' LOP, then put 11667 (12500 minus 2 days wages, ie, 12500/30*2 or 833) as earned wages. For each month calculate the earned salary, and then total these earned wages to get total earned wages for the year. Multiply this by 8.33% or such other higher percentage that the employer decides. You will get bonus amount payable. Pay it.
5. An employee joining now, ie, in May, will be paid bonus next year only.
From India, Kannur
There is two things are involved in bonus calculation. One is % of bonus which is based on gross profit, available surplus, allocable surplus , Set On and Set Off. It is not that organization will pay always minimum bonus 8.33% without consideration of all above. Already organization is in fault by not paying bonus for few years.
2nd thing is individual bonus calculation. As explained by Mr. Madhu TK 30 days minimum presence is required for eligibility. There is no provisions for leave adjustment. If it is paid leave, the employee is eligible for bonus for the month along with leave pay. If the bonus salary is determined based on 7000/- or minimum wages as will be applicable, there is no need to calculate individual month salary if it is not less than 7000/- or minimum wages will be applicable for deduction.
S K Bandyopadhyay ( WB, Howrah)
CEO-USD HR Solutions
+91 98310 81531
skb@usdhrs.in
From India, New Delhi
2nd thing is individual bonus calculation. As explained by Mr. Madhu TK 30 days minimum presence is required for eligibility. There is no provisions for leave adjustment. If it is paid leave, the employee is eligible for bonus for the month along with leave pay. If the bonus salary is determined based on 7000/- or minimum wages as will be applicable, there is no need to calculate individual month salary if it is not less than 7000/- or minimum wages will be applicable for deduction.
S K Bandyopadhyay ( WB, Howrah)
CEO-USD HR Solutions
+91 98310 81531
skb@usdhrs.in
From India, New Delhi
True, but if there is loss of pay days proportionate deduction should be made from the bonus qualifying salary. Suppose we have two employees, A and B. A has reported to work on all the days but B has availed his leaves and in addition has taken 10 days loss of pay leave. If we pay bonus based on Rs 7000 per month to both A and B it will not be fair. At the same time, the bonus qualifying wages of B should be reduced proportionately to the number of days' LOP. As such if the Bonus qualifying salary of A is Rs 84000 (7000 X 12) for 2023-24, it should be Rs 81670 (7000X12- (7000/30X10)) for B and the amount of bonus should be Rs 7000 and Rs 6800 (roughly) at 8.33% rate.
From India, Kannur
From India, Kannur
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