Dear Seniors Can bonus be given in monthly salary ?? Need to know this URGENTLY. Regards Anuradha
From India, Pune
22From India, Pune
Hi
Bonus is a Turnover profit , that a company shares with its employees. this can be shared as a "festival bonus" or Annual Bonus, whose %age is Fixed minimum Being 8.33 % or Rs 2800(as per Bonus Act). for CTC sake the minimum Annual bonus can be broken up & shown as a monthly component if it is a fixed one.
But iguess you are confusing with Monthly Incentive. Which is purely Target based & as per performance which cannot be clubbed with the salary component as this is a variable concept all together.
Hope Clear !
Rgds
Vj:-P
From India, New Delhi
Bonus is a Turnover profit , that a company shares with its employees. this can be shared as a "festival bonus" or Annual Bonus, whose %age is Fixed minimum Being 8.33 % or Rs 2800(as per Bonus Act). for CTC sake the minimum Annual bonus can be broken up & shown as a monthly component if it is a fixed one.
But iguess you are confusing with Monthly Incentive. Which is purely Target based & as per performance which cannot be clubbed with the salary component as this is a variable concept all together.
Hope Clear !
Rgds
Vj:-P
From India, New Delhi
Dear Seniors 24 views and one reply only.... Seniors please give more reply. Regards Anuradha
From India, Pune
From India, Pune
Hi All,
Bonus can be shown as a part of monthly salary, but limitations are there.
Employees who has <= Rs.10,000 (Bonus) can be offered bonus as salary component.
If need more clarity pls revert.
Regards,
Ramesh
From India
Bonus can be shown as a part of monthly salary, but limitations are there.
Employees who has <= Rs.10,000 (Bonus) can be offered bonus as salary component.
If need more clarity pls revert.
Regards,
Ramesh
From India
The Payment of Bonus Act, 1965
BRIEF:
The practice of paying bonus in India appears to have originated during First World War when certain textile mills granted 10% of wages as war bonus to their workers in 1917. In certain cases of industrial disputes demand for payment of bonus was also included. In 1950, the Full Bench of the Labour Appellate evolved a formula for determination of bonus. A plea was made to raise that formula in 1959. At the second and third meetings of the Eighteenth Session of Standing Labour Committee (G. O.I.) held in New Delhi in March/April 1960, it was agreed that a Commission be appointed to go into the question of bonus and evolve suitable norms. A Tripartite Commission was set up by the Government of India to consider in a comprehensive manner, the question of payment of bonus based on profits to employees employed in establishments and to make recommendations to the Government. The Government of India accepted the recommendations of the Commission subject to certain modifications. To implement these recommendations the Payment of Bonus Ordinance, 1965 was promulgated on 29th May, 1965. To replace the said Ordinance the Payment of Bonus Bill was introduced in the Parliament.
STATEMENT OF OBJECT AND REASONS
A Tripartite Commission was set by the Government of India by their resolution No.WB-20(9)/61, dated 6th December, 1961 to consider in a comprehensive manner, the question of payment of bonus based on profits to employees employed in establishments and to make recommendations to the Government. The Commission’s Report containing their recommendations was received by the Government on 24th January, 1964. In their Resolution No. WB-20(3)/64, dated the 2nd September, 1964, the Government announced acceptance of the Commission’s recommendations subject to a few modifications as were mentioned therein. With a view to implement the recommendations of the Commission as accepted by the Government, the Payment of Bonus Ordinance, 1965, was promulgated on 29th May, 1965. The object of the Bill is to replace the said Ordinance.
OBJECT & ACT :
Bonus is really a reward for good work or share of profit of the unit where the employee is working. Often there were disputes between employer and employees about bonus to be paid. It was thought that legislation will solve the problem and hence Bonus Act was passed. Unfortunately, in the process, bonus has become almost as deferred wages due to provision of payment of minimum 8.33% and maximum 20% bonus. Bonus Act has not in any way reduced the disputes.
The Act is applicable to (a) any factory employing 10 or more persons where any processing is carried out with aid of power (b) Other establishments (established for purpose of profit) employing 20 or more persons. Minimum bonus payable is 8.33% and maximum is 20%. Bonus is payable annually within 8 months from close of accounting year. Bonus is payable to all employees whose salary or wages do not exceed Rs 3,500 per month provided they have worked for at least 30 days in the accounting year. However, for calculation of bonus, maximum salary of Rs 2,500 is considered.
Once the Act is applicable, it continues to apply even if number of employees fall below 20. The Act is applicable to Government companies and corporations owned by Government which produces goods or renders services in competition with private sector. However, the Act is not applicable to Government employees, the employees of Municipal Corporation or Municipality, railway employees, university and employees of educational institutions, public sector insurance employees, employees of RBI and public sector financial institutions, charitable hospitals, social welfare organisations and defense employees. The Act does not apply to any institution established not for purposes of profit.
Establishments to which the Act is applicable - The Act applies to— (a) every factory; and (b) every other establishment in which twenty or more persons are employed on any day during an accounting year. [section 1(3)].
‘Factory’ has same meaning as per Factories Act. [section 2(17) of Bonus Act].
The words used are ‘number of persons employed’. Hence, all persons employed are to be considered, including those who are not eligible for bonus. Thus, all employees including those, whose salary or wages exceed Rs 3,500 per annum will have to be considered for purpose of deciding eligibility.
MEANING OF ‘ESTABLISHMENT’ - The word ‘establishment’ is not defined in the Act. Normally, ‘establishment’ is a permanently fixed place for business. The term ‘establishment’ is much wider than ‘factory’. It covers any office or fixed place where business is carried out.
ESTABLISHMENT IN PUBLIC SECTOR COVERED ONLY IN CERTAIN CASES - The Act applies to establishment in public sector only if the establishment in public sector sells the goods or renders services in competition with an establishment in private sector, and the income from such sale or services or both is not less than twenty per cent, of the gross income of the establishment in public sector for that year. [Section 20(1)]. In other cases, the provisions of this Act do not apply to the employees employed by any establishment in public sector. [Section 20(2)]. As per section 32(v)(c), the Act does not apply to any institution established not for purposes of profit.
Establishment in public sector means an establishment owned, controlled or managed by— (a) a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956) (b) a corporation in which not less than forty per cent of its capital is held (whether singly or taken together) by the Government; or the Reserve Bank of India; or a corporation owned by the Government or the Reserve Bank of India. [Section 2(16)]. Establishment which is not in public sector is ‘establishment in private sector’ [section 2(15)].
“Corporation” means anybody corporate established by or under any Central Provincial or State Act but does not include a company or a co-operative society. [Section 2(11)].
ESTABLISHMENTS TO INCLUDE DEPARTMENTS, UNDERTAKINGS AND BRANCHES - Where an establishment consists of different departments or undertakings or has branches, whether situated in the same place or in different places, all such departments or undertakings or branches shall be treated as parts of the same establishment for the purpose of computation of bonus under this Act. [section 3]
Who are eligible for bonus - Employees drawing salary or wages upto Rs 3,500 per month are entitled to bonus, if he has worked for at least 30 working days in an accounting year. Even a worker working in seasonal factory is eligible if he has worked for at least 30 working days. Apprentices are not eligible for bonus.
Salary above Rs. 2,500 is not considered for calculation of Bonus. [Section 12]. Employee drawing salary/wage exceeding Rs 3,500 is not entitled to any bonus under the Act.
Thus, minimum bonus @ 8.33% will be Rs 2,500 and maximum @ 20% will be Rs 6,000 for the year, when salary of employee exceeds Rs 2,500 but is less than Rs 3,500.
ELIGIBILITY FOR BONUS IF WORKED FOR MINIMUM 30 DAYS - Every employee shall be entitled to be paid be his employer in an accounting year, bonus, in accordance with the provisions of this Act, provided he has worked in the establishment for not less than thirty working days in that year. [Section 8]
Computation of amount available for distribution as bonus - The establishment has to prepare a balance sheet and profit and loss account of the year and calculate the ‘gross profit’, ‘available surplus’ and ‘allocable surplus’ as per method and formula given in Bonus Act.
The first step is to calculate ‘Gross Profit’. As per section 4, the gross profit in respect of any accounting year is required to be calculated as per First Schedule to Act in case of banking company and as per second schedule in case of other establishments. After calculation of ‘Gross Profit’ as per section 4, next step is to calculate ‘Available Surplus’. As per section 5, ‘available surplus’ is calculated by deducting sums as specified in section 6 from ‘gross profit’ arrived at as per section 6 and adding difference equal to income tax on the bonus paid in the preceding year.
Thus, Available Surplus is equal to Gross Profit [as per section 4] less prior charges allowable as deduction u/s 6 plus amount equal to income tax on bonus portion calculated as per proviso (b) to section 5.
Allocable surplus is equal to 60% of ‘available surplus’ calculated as per provisions of section 5. [In case of company which does not deduct tax at source as per provisions of section 194 of Income Tax Act, ‘allocable surplus’ will be 67% of ‘available surplus’. Frankly, I am not able to visualise a situation where a company can legally ignore provisions of section 194 of Income Tax Act]. - - This ‘allocable surplus’ has to be distributed as bonus among employees in proportion to the salary or wages actually earned by each employee during the year. However, this is subject to minimum 8.33% and maximum 20% as explained below.
Set off and set on provisions - It may happen that in some years, the allocable surplus is more than the amount paid to employees as bonus calculating it @ 20%. Such excess ‘allocable surplus’ is carried forward to next year for calculation purposes. This is called ‘carry forward for being set on in succeeding years’. The ceiling on set on that is required to be carried forward is 20% of total salary and wages of employees employed in the establishment. In other words, even if actual excess is more than 20% of salary/wages, only 20% is required to be carried forward. The amount set on is carried forward only upto and inclusive of the fourth accounting year. If the amount carried forward is not utilised in that period, it lapses [section 15(1)].
Similarly, in a particular year, there may be lower ‘allocable surplus’ or no ‘allocable surplus’ even for payment of 8.33% bonus. Such shortfall is also carried to next year. This is called ‘carry forward for being set off in succeeding years’. Thus, in every year, ‘allocable surplus’ is calculated. To this amount, set on from previous years is added. Similarly, set off, if any, from previous years is deducted. This gives amount which is available for distribution as bonus. The amount set off is carried forward only upto and inclusive of the fourth accounting year. If the amount carried forward is not set off in that period, it lapses. [section 15(2)]
Minimum bonus - Every employer shall be bound to pay to every employee in respect of any accounting year, a minimum bonus which shall be 8.33 per cent of the salary or wage earned by the employee during the accounting year or one hundred rupees, whichever is higher, whether or not the employer has any allocable surplus in the accounting year. Where an employee has not completed fifteen years of age at the beginning of the accounting year, the minimum bonus payable is 8.33% or Rs 60 whichever is higher. [section 10].
While computing number of working days, an employee shall be deemed to have worked in an establishment even on the days on which (a) He was laid off (b) He was on leave with salary/wages(c) He was absent due to temporary disablement caused by accident arising out of and in course of employment and (d) Employee was on maternity leave with salary/wages. [section 14].
Payment of maximum bonus - Where in respect of any accounting year, the allocable surplus exceeds the amount of minimum bonus payable to the employees, the employer shall, in lieu of such minimum bonus, be bound to pay to every employee in respect of that accounting year bonus which shall be an amount in proportion to the salary or wage earned by the employee during the accounting year subject to a maximum of twenty per cent of such salary or wage. [Section 11(1)]. - - In computing the allocable surplus under this section, the amount set on or the amount set off under the provisions of section 15 shall be taken into account in accordance with the provisions of that section. [section 11(2)].
Thus, maximum bonus payable to employee is 20% in any accounting year.
Salary or wages for calculating bonus - Where the salary or wage of an employee exceeds Rs 2,500 per month, the bonus payable to such employee under sections 10 or 11 shall be calculated as if his salary or wages were Rs 2,500 per month. [section 13]. In other words, employees drawing salary or wages between Rs 2,500 to Rs 3,500 per month, are entitled to bonus on the basis of Rs 2,500 per month salary only.
As per Payment of Bonus Act'1965 - Bonus is paid after completion of Financial Year within 8 Months, as it is the part of Companies Profit or at the time of F & F whichever is earlier to the employee who has served for more than 30 Days in a year. It means Bonus is paid for the previous year.
It can be paid as part of monthly salary. Bonus has to be paid for the previous financial year. That has been prescribed because profit is declared for previous financial year. Even if the company is running in losses, it has to pay minimum bonus to employees and it can be adjusted in add - on / add - off for next year's profit.
If the company pays the bonus amount in advance, its not a problem or non-compliance. So, it can be paid monthly as a part of CTC.
Query
1. Now question to understand that how we are going to pay statutory BONUS as per the Bonus Act on monthly basis?
2. How you will maintain the Form No. A, B, C & D then under the provision of the Act?
One Scenario
Taking into account the Sec.17 (b) of the Payment of the Bonus Act, 1965, which reads as under :
Section 17. Adjustment of customary or interim bonus against bonus payable under the Act.—Whether in any accounting year –
(b) an employer has paid a part of the bonus payable under this Act to an employee before the date on which such bonus becomes payable.
The Bonus can be paid with monthly salary and can be adjusted at the end of the accounting year and the requirement of maintaining registers and returns in form A, B, C & D can be maintained accordingly.
In my opinion it’s wrong. Please read Second Scenario to understand my logic.
Second Scenario
Bonus under the payment of Bonus Act 1965 cannot be paid in monthly installment. It is an annual payment and you do not need any case law for this fact of law. Also kindly note:
1. Bonus, conceptually, is a share in the profits of the organization.
2. The Act provides a "formula" in which the "available surplus", the "allocable surplus" and therefore the percentage of bonus can be determined. This is one of the fundamental justifications for this being an annual payment.
3. The act provides for a "minimum bonus" and a "maximum bonus" that can be paid under the act. Since the "minimum bonus" is required to be paid even if the organization makes a loss and it does not have a supporting balance in the "set on" and "set off" calculations. For this reason it has to be treated by the organization as a "deferred payment" and therefore bonus as part of CTC has to be restricted to 8.33% (and nothing else) of the basic + DA of the coverable employees unless the organization pays bonus @ 20% irrespective of the profit picture (in this case alone the company may treat the entire bonus as CTC).
4. What may one do, for sake of convenience, is to first estimate the percentage of bonus that the organization MAY have to pay in a given financial year, then pay out the same in twelve equal installments but at the end of the year when the accounts are finalized and actual payable bonus is known, appropriate the due payment with the payment actually made. Even in this case it cannot be considered as part of CTC.
You may have read the provision of Sect 17 (b) of the Act. The rule of interpretation of a provision of a Statute is that if there is no specific prohibition then by implication it is permitted. The Scheme of the Act has been made taking into account Manufacturing Companies. With the advent of Service Sector & Contract Employment since it is a beneficial Legislation if payment of minimum bonus of 8.33 % is adhered to it can be construed as compliance. With advent of Flexi Staffing it will be difficult to trace your employee to pay Bonus later.
The Law Commission will have to take note of these changes in the Employment scenario.
From India, Bahadurgarh
BRIEF:
The practice of paying bonus in India appears to have originated during First World War when certain textile mills granted 10% of wages as war bonus to their workers in 1917. In certain cases of industrial disputes demand for payment of bonus was also included. In 1950, the Full Bench of the Labour Appellate evolved a formula for determination of bonus. A plea was made to raise that formula in 1959. At the second and third meetings of the Eighteenth Session of Standing Labour Committee (G. O.I.) held in New Delhi in March/April 1960, it was agreed that a Commission be appointed to go into the question of bonus and evolve suitable norms. A Tripartite Commission was set up by the Government of India to consider in a comprehensive manner, the question of payment of bonus based on profits to employees employed in establishments and to make recommendations to the Government. The Government of India accepted the recommendations of the Commission subject to certain modifications. To implement these recommendations the Payment of Bonus Ordinance, 1965 was promulgated on 29th May, 1965. To replace the said Ordinance the Payment of Bonus Bill was introduced in the Parliament.
STATEMENT OF OBJECT AND REASONS
A Tripartite Commission was set by the Government of India by their resolution No.WB-20(9)/61, dated 6th December, 1961 to consider in a comprehensive manner, the question of payment of bonus based on profits to employees employed in establishments and to make recommendations to the Government. The Commission’s Report containing their recommendations was received by the Government on 24th January, 1964. In their Resolution No. WB-20(3)/64, dated the 2nd September, 1964, the Government announced acceptance of the Commission’s recommendations subject to a few modifications as were mentioned therein. With a view to implement the recommendations of the Commission as accepted by the Government, the Payment of Bonus Ordinance, 1965, was promulgated on 29th May, 1965. The object of the Bill is to replace the said Ordinance.
OBJECT & ACT :
Bonus is really a reward for good work or share of profit of the unit where the employee is working. Often there were disputes between employer and employees about bonus to be paid. It was thought that legislation will solve the problem and hence Bonus Act was passed. Unfortunately, in the process, bonus has become almost as deferred wages due to provision of payment of minimum 8.33% and maximum 20% bonus. Bonus Act has not in any way reduced the disputes.
The Act is applicable to (a) any factory employing 10 or more persons where any processing is carried out with aid of power (b) Other establishments (established for purpose of profit) employing 20 or more persons. Minimum bonus payable is 8.33% and maximum is 20%. Bonus is payable annually within 8 months from close of accounting year. Bonus is payable to all employees whose salary or wages do not exceed Rs 3,500 per month provided they have worked for at least 30 days in the accounting year. However, for calculation of bonus, maximum salary of Rs 2,500 is considered.
Once the Act is applicable, it continues to apply even if number of employees fall below 20. The Act is applicable to Government companies and corporations owned by Government which produces goods or renders services in competition with private sector. However, the Act is not applicable to Government employees, the employees of Municipal Corporation or Municipality, railway employees, university and employees of educational institutions, public sector insurance employees, employees of RBI and public sector financial institutions, charitable hospitals, social welfare organisations and defense employees. The Act does not apply to any institution established not for purposes of profit.
Establishments to which the Act is applicable - The Act applies to— (a) every factory; and (b) every other establishment in which twenty or more persons are employed on any day during an accounting year. [section 1(3)].
‘Factory’ has same meaning as per Factories Act. [section 2(17) of Bonus Act].
The words used are ‘number of persons employed’. Hence, all persons employed are to be considered, including those who are not eligible for bonus. Thus, all employees including those, whose salary or wages exceed Rs 3,500 per annum will have to be considered for purpose of deciding eligibility.
MEANING OF ‘ESTABLISHMENT’ - The word ‘establishment’ is not defined in the Act. Normally, ‘establishment’ is a permanently fixed place for business. The term ‘establishment’ is much wider than ‘factory’. It covers any office or fixed place where business is carried out.
ESTABLISHMENT IN PUBLIC SECTOR COVERED ONLY IN CERTAIN CASES - The Act applies to establishment in public sector only if the establishment in public sector sells the goods or renders services in competition with an establishment in private sector, and the income from such sale or services or both is not less than twenty per cent, of the gross income of the establishment in public sector for that year. [Section 20(1)]. In other cases, the provisions of this Act do not apply to the employees employed by any establishment in public sector. [Section 20(2)]. As per section 32(v)(c), the Act does not apply to any institution established not for purposes of profit.
Establishment in public sector means an establishment owned, controlled or managed by— (a) a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956) (b) a corporation in which not less than forty per cent of its capital is held (whether singly or taken together) by the Government; or the Reserve Bank of India; or a corporation owned by the Government or the Reserve Bank of India. [Section 2(16)]. Establishment which is not in public sector is ‘establishment in private sector’ [section 2(15)].
“Corporation” means anybody corporate established by or under any Central Provincial or State Act but does not include a company or a co-operative society. [Section 2(11)].
ESTABLISHMENTS TO INCLUDE DEPARTMENTS, UNDERTAKINGS AND BRANCHES - Where an establishment consists of different departments or undertakings or has branches, whether situated in the same place or in different places, all such departments or undertakings or branches shall be treated as parts of the same establishment for the purpose of computation of bonus under this Act. [section 3]
Who are eligible for bonus - Employees drawing salary or wages upto Rs 3,500 per month are entitled to bonus, if he has worked for at least 30 working days in an accounting year. Even a worker working in seasonal factory is eligible if he has worked for at least 30 working days. Apprentices are not eligible for bonus.
Salary above Rs. 2,500 is not considered for calculation of Bonus. [Section 12]. Employee drawing salary/wage exceeding Rs 3,500 is not entitled to any bonus under the Act.
Thus, minimum bonus @ 8.33% will be Rs 2,500 and maximum @ 20% will be Rs 6,000 for the year, when salary of employee exceeds Rs 2,500 but is less than Rs 3,500.
ELIGIBILITY FOR BONUS IF WORKED FOR MINIMUM 30 DAYS - Every employee shall be entitled to be paid be his employer in an accounting year, bonus, in accordance with the provisions of this Act, provided he has worked in the establishment for not less than thirty working days in that year. [Section 8]
Computation of amount available for distribution as bonus - The establishment has to prepare a balance sheet and profit and loss account of the year and calculate the ‘gross profit’, ‘available surplus’ and ‘allocable surplus’ as per method and formula given in Bonus Act.
The first step is to calculate ‘Gross Profit’. As per section 4, the gross profit in respect of any accounting year is required to be calculated as per First Schedule to Act in case of banking company and as per second schedule in case of other establishments. After calculation of ‘Gross Profit’ as per section 4, next step is to calculate ‘Available Surplus’. As per section 5, ‘available surplus’ is calculated by deducting sums as specified in section 6 from ‘gross profit’ arrived at as per section 6 and adding difference equal to income tax on the bonus paid in the preceding year.
Thus, Available Surplus is equal to Gross Profit [as per section 4] less prior charges allowable as deduction u/s 6 plus amount equal to income tax on bonus portion calculated as per proviso (b) to section 5.
Allocable surplus is equal to 60% of ‘available surplus’ calculated as per provisions of section 5. [In case of company which does not deduct tax at source as per provisions of section 194 of Income Tax Act, ‘allocable surplus’ will be 67% of ‘available surplus’. Frankly, I am not able to visualise a situation where a company can legally ignore provisions of section 194 of Income Tax Act]. - - This ‘allocable surplus’ has to be distributed as bonus among employees in proportion to the salary or wages actually earned by each employee during the year. However, this is subject to minimum 8.33% and maximum 20% as explained below.
Set off and set on provisions - It may happen that in some years, the allocable surplus is more than the amount paid to employees as bonus calculating it @ 20%. Such excess ‘allocable surplus’ is carried forward to next year for calculation purposes. This is called ‘carry forward for being set on in succeeding years’. The ceiling on set on that is required to be carried forward is 20% of total salary and wages of employees employed in the establishment. In other words, even if actual excess is more than 20% of salary/wages, only 20% is required to be carried forward. The amount set on is carried forward only upto and inclusive of the fourth accounting year. If the amount carried forward is not utilised in that period, it lapses [section 15(1)].
Similarly, in a particular year, there may be lower ‘allocable surplus’ or no ‘allocable surplus’ even for payment of 8.33% bonus. Such shortfall is also carried to next year. This is called ‘carry forward for being set off in succeeding years’. Thus, in every year, ‘allocable surplus’ is calculated. To this amount, set on from previous years is added. Similarly, set off, if any, from previous years is deducted. This gives amount which is available for distribution as bonus. The amount set off is carried forward only upto and inclusive of the fourth accounting year. If the amount carried forward is not set off in that period, it lapses. [section 15(2)]
Minimum bonus - Every employer shall be bound to pay to every employee in respect of any accounting year, a minimum bonus which shall be 8.33 per cent of the salary or wage earned by the employee during the accounting year or one hundred rupees, whichever is higher, whether or not the employer has any allocable surplus in the accounting year. Where an employee has not completed fifteen years of age at the beginning of the accounting year, the minimum bonus payable is 8.33% or Rs 60 whichever is higher. [section 10].
While computing number of working days, an employee shall be deemed to have worked in an establishment even on the days on which (a) He was laid off (b) He was on leave with salary/wages(c) He was absent due to temporary disablement caused by accident arising out of and in course of employment and (d) Employee was on maternity leave with salary/wages. [section 14].
Payment of maximum bonus - Where in respect of any accounting year, the allocable surplus exceeds the amount of minimum bonus payable to the employees, the employer shall, in lieu of such minimum bonus, be bound to pay to every employee in respect of that accounting year bonus which shall be an amount in proportion to the salary or wage earned by the employee during the accounting year subject to a maximum of twenty per cent of such salary or wage. [Section 11(1)]. - - In computing the allocable surplus under this section, the amount set on or the amount set off under the provisions of section 15 shall be taken into account in accordance with the provisions of that section. [section 11(2)].
Thus, maximum bonus payable to employee is 20% in any accounting year.
Salary or wages for calculating bonus - Where the salary or wage of an employee exceeds Rs 2,500 per month, the bonus payable to such employee under sections 10 or 11 shall be calculated as if his salary or wages were Rs 2,500 per month. [section 13]. In other words, employees drawing salary or wages between Rs 2,500 to Rs 3,500 per month, are entitled to bonus on the basis of Rs 2,500 per month salary only.
As per Payment of Bonus Act'1965 - Bonus is paid after completion of Financial Year within 8 Months, as it is the part of Companies Profit or at the time of F & F whichever is earlier to the employee who has served for more than 30 Days in a year. It means Bonus is paid for the previous year.
It can be paid as part of monthly salary. Bonus has to be paid for the previous financial year. That has been prescribed because profit is declared for previous financial year. Even if the company is running in losses, it has to pay minimum bonus to employees and it can be adjusted in add - on / add - off for next year's profit.
If the company pays the bonus amount in advance, its not a problem or non-compliance. So, it can be paid monthly as a part of CTC.
Query
1. Now question to understand that how we are going to pay statutory BONUS as per the Bonus Act on monthly basis?
2. How you will maintain the Form No. A, B, C & D then under the provision of the Act?
One Scenario
Taking into account the Sec.17 (b) of the Payment of the Bonus Act, 1965, which reads as under :
Section 17. Adjustment of customary or interim bonus against bonus payable under the Act.—Whether in any accounting year –
(b) an employer has paid a part of the bonus payable under this Act to an employee before the date on which such bonus becomes payable.
The Bonus can be paid with monthly salary and can be adjusted at the end of the accounting year and the requirement of maintaining registers and returns in form A, B, C & D can be maintained accordingly.
In my opinion it’s wrong. Please read Second Scenario to understand my logic.
Second Scenario
Bonus under the payment of Bonus Act 1965 cannot be paid in monthly installment. It is an annual payment and you do not need any case law for this fact of law. Also kindly note:
1. Bonus, conceptually, is a share in the profits of the organization.
2. The Act provides a "formula" in which the "available surplus", the "allocable surplus" and therefore the percentage of bonus can be determined. This is one of the fundamental justifications for this being an annual payment.
3. The act provides for a "minimum bonus" and a "maximum bonus" that can be paid under the act. Since the "minimum bonus" is required to be paid even if the organization makes a loss and it does not have a supporting balance in the "set on" and "set off" calculations. For this reason it has to be treated by the organization as a "deferred payment" and therefore bonus as part of CTC has to be restricted to 8.33% (and nothing else) of the basic + DA of the coverable employees unless the organization pays bonus @ 20% irrespective of the profit picture (in this case alone the company may treat the entire bonus as CTC).
4. What may one do, for sake of convenience, is to first estimate the percentage of bonus that the organization MAY have to pay in a given financial year, then pay out the same in twelve equal installments but at the end of the year when the accounts are finalized and actual payable bonus is known, appropriate the due payment with the payment actually made. Even in this case it cannot be considered as part of CTC.
You may have read the provision of Sect 17 (b) of the Act. The rule of interpretation of a provision of a Statute is that if there is no specific prohibition then by implication it is permitted. The Scheme of the Act has been made taking into account Manufacturing Companies. With the advent of Service Sector & Contract Employment since it is a beneficial Legislation if payment of minimum bonus of 8.33 % is adhered to it can be construed as compliance. With advent of Flexi Staffing it will be difficult to trace your employee to pay Bonus later.
The Law Commission will have to take note of these changes in the Employment scenario.
From India, Bahadurgarh
Dear Anuradha,
You can show bonus as bonus, not festive allowance,
Some companies are paying Bonus to thier Employees on Monthly basis.
Simply calculate it on Basic DA X 8.33%
Manufacturing Companies. With the advent of Service Sector & Contract Employment since it is a beneficial Legislation if payment of minimum bonus of 8.33 %.
See whether Bonus is paid on Monthly or yearly what makes the difference, Employee is getting Bonus or not..... Go Ahead and implement it all the best....
From India, Delhi
You can show bonus as bonus, not festive allowance,
Some companies are paying Bonus to thier Employees on Monthly basis.
Simply calculate it on Basic DA X 8.33%
Manufacturing Companies. With the advent of Service Sector & Contract Employment since it is a beneficial Legislation if payment of minimum bonus of 8.33 %.
See whether Bonus is paid on Monthly or yearly what makes the difference, Employee is getting Bonus or not..... Go Ahead and implement it all the best....
From India, Delhi
I do not think Bonus can be paid on a monthly basis. For eg I join a company in July 2010. I cannot be paid Bonus as part of monthly salary as I have not worked in the previous financial year.
From India, Calcutta
From India, Calcutta
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