Dear All-Cite HR Family, I have a doubt about the Payment of Bonus Act 1965. Below are the queries. Could you please help to clarify my doubts?
1) Who (total number of employees) is eligible for a bonus?
2) What is the company's age?
3) What is the company's total turnover?
4) Bonus eligibility?
5) How is the bonus calculated?
From India, Pune
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1) Who (total number of employees) is eligible for a bonus?
2) What is the company's age?
3) What is the company's total turnover?
4) Bonus eligibility?
5) How is the bonus calculated?
From India, Pune
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Applicability of the Payment of Bonus Act
If your establishment is a factory (engaged in some kind of manufacturing activity), the Payment of Bonus Act will be applicable to you without any reference to the number of employees. On the other hand, if yours is not a factory, there should be at least 20 employees for coverage of the Act. Note that the state government may include any kind of industry in the coverage of the Act even if the number of employees is less than 20.
Liability to Pay Bonus
An establishment is liable to pay a bonus from the year in which it made profits or from the sixth year onwards. This means an infancy protection of five years, or the year in which the company makes profits, is available. Once the company has started paying the bonus, it should continue to pay it without any reference to its profitability, financial position, or age.
Relation to Turnover and Profits
Payment of Bonus has nothing to do with the turnover of the company, but it can be correlated to the profits of the company to some extent. However, the payment of statutory bonus at the rate of 8.33% of the qualifying salary has no reference to profits either.
Eligibility for Bonus
An employee whose salary does not exceed Rs 21,000 per month is eligible to receive a bonus. The bonus amount for this employee will be based on a salary of Rs 7,000 or the statutory minimum wages set by the government for that employee. Therefore, if the government’s minimum wage is, for example, Rs 12,000, then the bonus should be calculated as if the salary is Rs 12,000. Any loss of pay leave shall be deducted from this amount to determine the annual salary figure, which will be the base for calculating the bonus.
Bonus Calculation Process
Though the bonus is calculated based on allocable surplus, the typical process is to begin with the statutory rate of 8.33% and increase the bonus rate with the company’s increased profits. Hence, any rate between 8.33% and 20% shall be set for the bonus. In an organization where trade unions are present, the bonus rate is usually determined after negotiation with the union.
Any employee whose monthly salary exceeds Rs 21,000 is not eligible to receive a bonus.
Components for Bonus Calculation
For bonus calculation purposes, the salary is considered as the total salary without allowances that do not form part of the salary. Typically, the basic salary and dearness allowance are considered for this purpose. It is essential to use the same components for calculating the bonus and determining the eligibility for the bonus.
From India, Kannur
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4556If your establishment is a factory (engaged in some kind of manufacturing activity), the Payment of Bonus Act will be applicable to you without any reference to the number of employees. On the other hand, if yours is not a factory, there should be at least 20 employees for coverage of the Act. Note that the state government may include any kind of industry in the coverage of the Act even if the number of employees is less than 20.
Liability to Pay Bonus
An establishment is liable to pay a bonus from the year in which it made profits or from the sixth year onwards. This means an infancy protection of five years, or the year in which the company makes profits, is available. Once the company has started paying the bonus, it should continue to pay it without any reference to its profitability, financial position, or age.
Relation to Turnover and Profits
Payment of Bonus has nothing to do with the turnover of the company, but it can be correlated to the profits of the company to some extent. However, the payment of statutory bonus at the rate of 8.33% of the qualifying salary has no reference to profits either.
Eligibility for Bonus
An employee whose salary does not exceed Rs 21,000 per month is eligible to receive a bonus. The bonus amount for this employee will be based on a salary of Rs 7,000 or the statutory minimum wages set by the government for that employee. Therefore, if the government’s minimum wage is, for example, Rs 12,000, then the bonus should be calculated as if the salary is Rs 12,000. Any loss of pay leave shall be deducted from this amount to determine the annual salary figure, which will be the base for calculating the bonus.
Bonus Calculation Process
Though the bonus is calculated based on allocable surplus, the typical process is to begin with the statutory rate of 8.33% and increase the bonus rate with the company’s increased profits. Hence, any rate between 8.33% and 20% shall be set for the bonus. In an organization where trade unions are present, the bonus rate is usually determined after negotiation with the union.
Any employee whose monthly salary exceeds Rs 21,000 is not eligible to receive a bonus.
Components for Bonus Calculation
For bonus calculation purposes, the salary is considered as the total salary without allowances that do not form part of the salary. Typically, the basic salary and dearness allowance are considered for this purpose. It is essential to use the same components for calculating the bonus and determining the eligibility for the bonus.
From India, Kannur
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THE PAYMENT OF BONUS ACT.doc