Dear All
Best Regards
Jitendra
From Hong Kong, Hong Kong
- Can the bonus payout be substituted with the incentive schemes so that the Incentive scheme can work in lieu of the Bonus due to the employees (if any) under the payment of Bonus act 1965.
- What is the liability of loss making Companies wrt Bonus payout?
- What is the treatment for ex-employees (Bonus amount payable to ex-associates)?
Best Regards
Jitendra
From Hong Kong, Hong Kong
The Payment of Bonus Act will apply to every establishment which employs 20 or more employees. It is mandatory that even if the establishment is running in loss, it has to pay minimum bonus @ 8.33% to all employees whose monthly salary (Basic Salary + Dearness Allowance) does not exceed Rs 10000. Certainly, those who receive a gross salary in between Rs 3500 and Rs 10000 need be given bonus at the prescribed rate on the basis of a maximum salary of Rs3500.
If you substitute incentive to bonus, it will only be regarded as an additional value to employees and any incentive given which is not based on the profitability of the firm will not be treated as bonus.
In fact, when the employer can fix the rate of bonus payable depending upon the net profit and allocable surplus for payment of bonus, why do we go for incentive? I do not think that paying incentives will cost lesser than bonus.
Regards,
Madhu.T.K
From India, Kannur
4250If you substitute incentive to bonus, it will only be regarded as an additional value to employees and any incentive given which is not based on the profitability of the firm will not be treated as bonus.
In fact, when the employer can fix the rate of bonus payable depending upon the net profit and allocable surplus for payment of bonus, why do we go for incentive? I do not think that paying incentives will cost lesser than bonus.
Regards,
Madhu.T.K
From India, Kannur
as regard to your point 2 and 3 which Mr. Madhu has not answered are as under
Any comapny who has completed 5yrs of exiistence comes under the purview of bonus and the same is relaxable to a maximum extent of 1 year. 7Th year onwards bonus has to be paid by the comany wheathe it is in loss or profit.
Also note those employees who have resigned but still worked under that financial year will be paid bonus.
sanjeev.
From India, Delhi
Any comapny who has completed 5yrs of exiistence comes under the purview of bonus and the same is relaxable to a maximum extent of 1 year. 7Th year onwards bonus has to be paid by the comany wheathe it is in loss or profit.
Also note those employees who have resigned but still worked under that financial year will be paid bonus.
sanjeev.
From India, Delhi
Madhu
Thanks for the reply. Please clarify why payment of bonus should be linked to profitability of the Company.
As per the law after first five years of a Company in any case has to pay the min. bonus despite losses.
If a Co. is in losses and has paid or in the process of paying incentive which are based on production/sales of good of the Company, can the same be treated as bonus and hence become adjustable against the payment of Bonus as per Act as stated in Section 17 of the payment of Bonus Act.
thanks much again for the help
Best Regards
Jitendra
From Hong Kong, Hong Kong
Thanks for the reply. Please clarify why payment of bonus should be linked to profitability of the Company.
As per the law after first five years of a Company in any case has to pay the min. bonus despite losses.
If a Co. is in losses and has paid or in the process of paying incentive which are based on production/sales of good of the Company, can the same be treated as bonus and hence become adjustable against the payment of Bonus as per Act as stated in Section 17 of the payment of Bonus Act.
thanks much again for the help
Best Regards
Jitendra
From Hong Kong, Hong Kong
Dear Jitendra,
The preamble to the Payment of Bonus Act, 1965, says that it is "an Act to provide for payment of bonus to persons employed in certain establishments on the basis of profits or on the basis of production or productivity and for matters connected therewith". Therefore, basically, the bonus is linked to production, productivity and profitability of the firm. In other words, it is purely on the basis of capacity to pay. It is with this view that provisions of finding out available and allocable surplus and carry forward and set off of the same are provided in the Act. The infancy protection given under the Act is also a measure to highlight the scheme linked to profitability.
Section 17 of the Act deals with interim bonus and employer can adjust any advance of bonus paid from the final bonus payable. In areas where two major festivals take place, it is common to pay interim bonus. For example, in Kerala, interim bonus is paid during April to enable the employees to spend for Vishu, a festival and the same is adjusted when the final bonus is paid during Aug/ Sept month during which yet another festival, Onam, takes place.
If you pay bonus based on sales/production, it will form part of salary and is as per an agreement between the employee(s) and the employer and usually, the incentive terms will be mentioned in the appoitment order itself. In order to be eligible for deduction u/s 17 of the Payment of Bonus Act, the payment should be made under the head "bonus Advance".
Another important view in this regard is that, incentive differs from employee to employee and it depends on the performance of the employee. Whereas, bonus is based on the salary of the employees and salary for the purpose of calculation of bonus does not include any incentive. Therefore, bonus is expected to be similar for similar category of employees. If we go for adjusting the incentives paid from the bonus payable, good performers who have already received high incentives will be getting less amount as final bonus and those who recieved less incentives will get more bonus! If so, there is no meaning for performance. Finally, all will get the same total incentive, the bonus declared.
Regards,
Madhu.T.K
From India, Kannur
The preamble to the Payment of Bonus Act, 1965, says that it is "an Act to provide for payment of bonus to persons employed in certain establishments on the basis of profits or on the basis of production or productivity and for matters connected therewith". Therefore, basically, the bonus is linked to production, productivity and profitability of the firm. In other words, it is purely on the basis of capacity to pay. It is with this view that provisions of finding out available and allocable surplus and carry forward and set off of the same are provided in the Act. The infancy protection given under the Act is also a measure to highlight the scheme linked to profitability.
Section 17 of the Act deals with interim bonus and employer can adjust any advance of bonus paid from the final bonus payable. In areas where two major festivals take place, it is common to pay interim bonus. For example, in Kerala, interim bonus is paid during April to enable the employees to spend for Vishu, a festival and the same is adjusted when the final bonus is paid during Aug/ Sept month during which yet another festival, Onam, takes place.
If you pay bonus based on sales/production, it will form part of salary and is as per an agreement between the employee(s) and the employer and usually, the incentive terms will be mentioned in the appoitment order itself. In order to be eligible for deduction u/s 17 of the Payment of Bonus Act, the payment should be made under the head "bonus Advance".
Another important view in this regard is that, incentive differs from employee to employee and it depends on the performance of the employee. Whereas, bonus is based on the salary of the employees and salary for the purpose of calculation of bonus does not include any incentive. Therefore, bonus is expected to be similar for similar category of employees. If we go for adjusting the incentives paid from the bonus payable, good performers who have already received high incentives will be getting less amount as final bonus and those who recieved less incentives will get more bonus! If so, there is no meaning for performance. Finally, all will get the same total incentive, the bonus declared.
Regards,
Madhu.T.K
From India, Kannur
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