Facebook page

Join HR SUCCESS TALK Forum to discuss your HR related queries : Click here to join HR Forum Join us on Facebook : Click here to view our Facebook Page

Sunday, 28 April 2013

Frequently asked questions on Payment of Bonus Act, 1965, in India



Payment of Bonus Act, 1965


As per this act, employer, employing 20 or more employees at any day of financial year is bound to pay bonus provided wages of employee should be below or equal to Rs 10,000/- per month. Every employee should get minimum of 8.33% of wages, capped at Rs 3500/-, even if there is loss and maximum of 20% of wages, capped at Rs 3500/-, in an accounting year. Download Payment of Bonus Act 1965.

Q  : Who are eligible for Bonus?


Every employee whether on probation, part time, contractual, permanent, supervisor or manager whose wage is less than or equal to Rs 10000/- and has completed 30 days in an accounting year is eligible for bonus. Apprentice under Apprentice act are not eligible.

Q: On which salary components Bonus is calculated?


Bonus is calculated on Basic and DA.

Q :  Do a start up organization need to pay bonus?


In the first five accounting year following the accounting year in which the employer sells the goods produced or manufactured by him or renders services, as the case may be, from such establishment, bonus shall be payable only in respect of the accounting year in which the employer derives profit from such establishment and such bonus shall be calculated in accordance with the provisions of this act in relation to that year but the concept of set off and set on will not apply.

Q : When should a new unit be considered as separate unit for the purpose of taking Bonus exemption for new establishment.


As per Supreme Court judgement, any unit where Profit and Loss account and Balance sheet are maintained separately should be considered as separate establishment.

Q : What is the concept of set on and set off.


(1) Where for any accounting year, the allocable surplus exceeds the amount of maximum bonus payable to the employees in the establishment, then, the excess shall, subject to a limit of 20% of the total salary or wage of the employees employed in the establishment in that accounting year, be carried forward for being set on in the succeeding accounting year and so on up to and inclusive of the fourth accounting year to be utilized for the purpose of payment of bonus.

(2) Where for any accounting year, there is no available surplus or the allocable surplus in respect of that year falls short of the amount of minimum bonus payable to the employees in the establishment, and there is no amount of sufficient amount carried forward and set on which could be utilized for the purpose of payment of the minimum bonus, then, such minimum amount or the deficiency, as the case may be, shall be carried forward for being set off in the succeeding accounting year and so on up to and inclusive of the fourth accounting year.

Where in any accounting year any amount has been carried forward and set on or set off under this section, then, in calculating bonus for the succeeding accounting year, the amount of set on or set off carried forward from the earliest accounting year shall first be taken into account.


Example:

In the Example, the total amount of bonus equal to 8.33 per cent of the annual salary or wage payable to all the employees is assumed to be Rs. 1,04,167. Accordingly, the maximum bonus to which all the employees are entitled to the paid (twenty per cent of the annual salary or wage of all the employees) would be Rs. 2,50,000.


Year
Amount equal to sixty per cent, or sixty seven per cent, as the case may be, or available surplus allocable as bonus
Amount payable as bonus
Set on or set off of the year carried forward
Total set on or set off Carried forward
(1)
(2)
(3)
(4)
(5)

Rs.
Rs.
Rs.
Rs.  of       (year )
1.
1,04,167
1.04,167**
Nil
NIl
2.
6.35,000
2,50,000*
Set on 2,50,000*
Set  on           
2,50,000*       (2)
3.
2,20,000
2,50,000*
(inclusive of 30,000 from year –2)
Nil
Set  on           (2)
2,20,000
4.
3,75,000
2,50,000*
Set on 1,25,000*
Set  on          
2,20,000         (2)
1,25,000         (4)
5.
1,40,000
2,50,000*
(inclusive of 1,10,000 from year-2)
Nil
Set  on            (2)
1,10,000
1,25,000         (4)
6.
3,10,000
2,50,000*
Set on 60,000
Set on
Nil+                 (2)
1,25,00           (4)
  60,000          (6)
7.
1,00,000
2,50,000*
(inclusive of 1,25,000 from year–4 and 25,000 from year-6)
Nil
Set on
35,000            (6)
8.
Nil (due to loss)
1,04,167**
(inclusive of 35,000 from year -6)
Set off 69,167
Set off
69,167            (8)
9.
10,000
1,04,167**
Set off 94,167
Set off
69,167            (8)
94,167            (9)
10.
2,15,000
1,04,167**
(after setting of 69,167 from year-8 and 41,666 from year-9)
Nil
Set off
52,501            (9)
Notes-
* Maximum.
+ The balance of Rs. 1,10,000 set on from year-2 lapses.
** Minimum


Q : What is the time limit to pay bonus?


Bonus should be paid within 8 months from end of financial year.

Q : Can Bonus be paid on monthly basis?


Many company follow the practise of paying bonus on monthly basis, some pay minimum 8.33% of Rs 3500 i.e Rs 292/- or some 20% of Rs 3500/- i.e Rs 700/- per month.

They do it for achieving following purpose:

  • In hand salary of employee will increase as we are paying statutory bonus up front on monthly basis.
  • Company liability of bonus payment is taken care of.
Now the question is whether this is a right practise or not? If you go out to find out answer of this question you will get two opinions as follows:

  1. Yes, we can do this as there is no mention in the act that we can not pay it on monthly basis.
  2. No, we can not do this. How can company calculate percentage of bonus to be paid in the starting of financial year? Also when you pay any money on monthly basis it becomes part of your salary which means statutory bonus is yet to be paid. ESI will also be deducted on such payments.
If you ask me, I would not recommend to pay bonus on monthly basis as it can create problem in future and employer pay need to pay statutory bonus again.

Q : What are the circumstances when an employee is not eligible for bonus?


An employee shall be disqualified from receiving bonus under this Act, if he is dismissed from service for -- 
(a) fraud; or
(b) riotous or violent behaviour while on the premises of the establishment; or
(c) theft, misappropriation or sabotage of any property of the establishment.


Q : Which institutions are exempted from payment of bonus?


Hospitals, Social welfare institutions, Chambers of the Commerce , Indian Red Cross society or other institutions of a like nature, universities and educational institutions. 

Q: How working days of an employee calculated for computing bonus?


Computation of number of working days.—An employee shall be deemed to have worked in an establishment in any accounting year also on the days on which-- 

(a) he has been laid off under an agreement;
(b) he has been on leave with salary or wage;
(c) he has been absent due to temporary disablement caused by accident arising out of and in the course of his employment; and 
(d) the employee has been on maternity leave with salary or wage, during the accounting year.

Q : Can interim bonus paid to employee be adjusted against statutory bonus payout?


When:

(a)    an employer has paid any puja bonus or other customary bonus to an employee; or
(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.

then, the employer shall  be entitled to deduct the amount of bonus so paid from the amount of bonus payable by him to the employee under this Act in respect of that accounting year and the employee shall be entitled to receive only the balance.

Q: Can an organization pay different percentage of bonus to different set of employees?


No, bonus percentage should be same for every employee who is eligible under the act. No discrimination.

Request you to post you queries on HR SUCCESS TALK Forum regarding Payment of Bonus Act, 1965. 
You can also join us on Facebook. Our face book page is HR SUCCESS TALK face book page.

If you are really serious about learning HR and want to grow then visit our web page LEARN HR THROUGH PRACTICAL IMPLEMENTATION

62 comments:

Sridhar Raman said...

Very informative article. Quite useful for all HR/Finance & Accounting professionals. Thank you very much for your sharing.

Govind Negi said...

Thanks Sridhar

Aparna Goel said...

I have a query regarding the eligibility. As said above "Every employee whether on probation, part time, contractual, permanent, supervisor or manager whose wage is less than or equal to Rs 10000/- " . Has this limit been revised? I ask because the limit was Rs 3500 p.m.

Govind Negi said...

Dear Aparna,

Current limit is Rs 10,000/- and there is no information regarding its revision. Limit of Rs 3500 is to determine amount of bonus to be paid and it is still applicable. Same is mentioned in the post. Hope this answers your query

Anonymous said...

dear mr negi,

pls advise section under the act /judgements to establish that only Basic and DA needs to be included for bonus computation.

we understand HRA too needs to be included in bonus calculations.

Govind Negi said...

Dear Friend,

Please refer bare act of Bonus and refer definition of wages. Also request you to post your further queris on www.hrsuccesstalk.com forum

Saurabh Mantri said...

A company has not paid Bonus for the last 5 years. instead the company has paid production incentives to all the employees.. Can the company claim those production incentives to be bonus given by them now???

Govind Negi said...

Production incentive can not be considered as Statutory bonus.Also please note that your eligibility for statutory bonus depends upon your Basic salary.

Nishant said...

Is the employer liable to pay minimum bonus even in case of lass in the establishment?

Govind Negi said...

In the first five accounting year following the accounting year in which the employer sells the goods produced or manufactured by him or renders services, as the case may be, from such establishment, bonus shall be payable only in respect of the accounting year in which the employer derives profit from such establishment and such bonus shall be calculated in accordance with the provisions of this act in relation to that year but the concept of set off and set on will not apply.

Else Employer is liable to pay bonus. In case of loss minimum bonus should be paid. Also seton and setoff should be kept in mind.

pawan bhattarai said...

Language is simple and easy to understand.Better than that contained in study materials of ICAI !!

Govind Negi said...

Thanks pawan and good that it helped you

Prem Anand said...

Dear Govind,
In my increment letter for the 2012-13, the company has mentioned that there is a performance bonus if the company meets the target. At the month of April 2013, company told that due to some reason - the performance bonus and increment may delay from 3 to 6 months.

After that I have resigned my job on 30th June 2013. On beginning of September 2013, company has provided the performance bonus to all the employees for 2012-13. Let me know, will i eligible for that performance bonus?

Govind Negi said...

Dear Prem,

You need to have a look at company policy on performance bonus and see what it says about employee who resigns. In your case, you have completed your period for which you should be given performance bonus but company delayed and then you left. Now company has paid it to others for same tenure. Hence you are eligible for the bonus. Please write back to company demanding for money.

Gaurav Singh said...

If the employer can show Bones in Employee CTC then it should be calculated as per working days or The bones has to be fixed as per CTC norms.

Govind Negi said...

Dear Gaurav,


Bonus is paid basis working days of an employee in financial year.

Anonymous said...

sir hum 10 persion ek shop me kaam kar rahe hai last 25 years se magar aaj tak hame diwali ka boues nahi mila aap hame batae kya karna chaiye thanku

Anonymous said...

Dear sir,
Our company has only 18 employees whether it is eligible to pay bonus, it renders a service in engineering field.

Govind Negi said...

Dear Friend,

Company should have 20 or more employees in any month of year. Eg. Lets say in a particular month company has 20 or more employee but later on two employees left. Now 18 employees are working. Even then company will fall under Bonus act

Govind Negi said...

20 or more employees should be there for statutory bonus

Anonymous said...

If an employees' Basic + DA exceeds 120000-00 per annum, is he eligible to get bonus on only 120000-00 or on actual full amount of Basic + DA ? If it is the first case, the maximum bonus any employer needs to pay will be restricted to 10000-00 ( on minimum 8.33 % ) in a year.
Are there any special provisions for IT companies ?

Govind Negi said...

Dear Friend, It is not on annual basic payment but on monthly Basic eligibility. If an employee's Basic is equal to or less than 10000 then that employee becomes eligible for Bonus.

But for the payout of bonus, capping is at 3500/-. Rules are same for IT company also.

Anonymous said...

On what amount is the 8.33% or 20% charged at?
Is it charged on your salary or Rs. 3500?

Gaurav Nain said...

i resigned from a company . my basic salary was 8800 . but company gave me diwali bonus according to rs 3500 as basic .HR told me according to payment of bonus act this is the rule .so i just want to know this is right ..? or wrong? because i read all act but there is no such kind type of rule . plz give me sugestion asap . thanks

Govind Negi said...

Dear Gaurav,

It is correct. Bonus is paid on Basic capped to maximum Rs 3500 Basic.

Govind Negi said...

Dear Friend,

Minimum is 8.33% of Basic and maximum is Rs 20% of Basic. It depends upon company profitability. Yes, it is on maximum Rs 3500

Anonymous said...

Suppose,
CASE 1. My salary is Rs. 50000, then on what amount is the bonus calculated at. And,
CASE 2. My salaray is Rs. 2000. What amount would the bonus be calculated at?

Govind Negi said...

Dear Friend,

First of all please note that Bonus is calculated on Basic +DA and not on salary. I am assuming that here you referring salary as Basic

Case 1 : You are not eligible for Bonus as Employee's whose basic is less than or equal to 10000 are eligible for Bonus rest are excluded.

Case 2: It will be calculated on 2000.

Gaurav Nain said...

dear sir
this is with all employee or 3500 basic for resigned employees only .another question is compnay gave ex gratia with diwali bonus ,which is not given in year end of 2012-13. am i eligible for that gratia..? plz reply
thanks for last reply

Govind Negi said...

Dear Gaurav,

It is for every employee both including Resigned and working.

Ex gratia is as per company policy. You need to refer company policy for this.

Gaurav Nain said...

Dear sir
but every working employee got bonus according to his current basic,working employee whose post is equivalent to my post got bonus as basic rs 8800.my basic & his basic is same.
thanks sir for replying & suggestion

Govind Negi said...

Dear Gaurav, It may be policy of the company to give bonus as ex gratia where employee is paid on more basic. There is nothing wrong if it is the company policy

Anonymous said...

Dear Sir,
Our company is celebrating 25th year on 08th Feb 2014 .My seniors want hr dept to send 30 emails to employees starting from 08th Jan 2014
Can I have any suggestions/ formats for sending invitations to the employees.

Regards,
Geeta

Govind Negi said...

Dear Geeta,

You can post all such question on our HR Forum.

Link below

www.hrsuccesstalk.com/forum

Raj said...

Hi Govind,
Currently i am serving my notice period in a organization, my last day is on 3rd march, my pay out of bonus for the year 2013 will be on 25th March, by that i will be leaving the organization, so can i eligble for the bonus?

Govind Negi said...

Dear Raj,

Company has to pay you bonus for number of days you have worked with the organization in a financial Year. They can either pay you as part of your Full and Final or they have to pay when they make payment to all i..e 25th March

Raj said...

Thanks Govind ,But my company says that to get the bonus eligibility i should be there in the organization as employee till payout date, i.e on 25th march, but my last date is on 3rd March. What should be my next step, please guide me

Anonymous said...

Dear Gaurav,

I have a bonus component in my salary and I have given my resignation. The time period will remains till the end of financial yera. Do I am eligible for bonus? Also is there any legal description for this as well. Your help will be highly appreciated.

Govind Negi said...

Dear Raj,

You should show them Bonus Act.

Else write a letter and submit. Give reference of Bonus Act. As per Bonus Act they are suppose to pay you.

Govind Negi said...

Dear Friend,

Your case is also similar to Raj case.

You are eligible for bonus provided you have worked for minimum 30 days in the company.

Bonus should be paid within 8 months of Financial year end.

Govind Negi said...

Dear Friend,

Your case is also similar to Raj case.

You are eligible for bonus provided you have worked for minimum 30 days in the company.

Bonus should be paid within 8 months of Financial year end.

Swaps said...

Hi Govind ,

2 quick doubts :

1. What do you mean by CAPPED to 3500/-

Swaps said...

2. A co gives bi yearly increment !
If the first basic falls below 10k!
and the next above 10k .. How to manage such situation

Govind Negi said...

Dear Swaps,

Capping of Rs 3500 means even if an employee is falling under Bonus (Basic is less than or equal to 10000), he will be paid bonus on maximum Rs 3500/-.

Example : If an employees Basic is Rs 5000 then he is eligible for Bonus but he will be paid Bonus on maximum Rs 3500 and not on Rs 5000

Regarding your second query. Please note, Employee will be paid bonus only for those months when his basic was equal to or less than 10000.

Swaps said...

Thanks Govind ! Your initial brief about Bonus Act has been very much clear and helped lot of us !

Few people in the other forums have doubts if the bonus to be paid on Master (Basic + DA) or Earned (Basic + DA).... Eg:A person might have earned few day's extra working and the Basic + DA increases . How to manage this .

Swaps said...

Thanks Govind ! Your initial brief about Bonus Act has been very much clear and helped lot of us !

Few people in the other forums have doubts if the bonus to be paid on Master (Basic + DA) or Earned (Basic + DA).... Eg:A person might have earned few day's extra working and the Basic + DA increases . How to manage this .

Swaps said...

Thanks Govind ! Your initial brief about Bonus Act has been very much clear and helped lot of us !

Few people in the other forums have doubts if the bonus to be paid on Master (Basic + DA) or Earned (Basic + DA).... Eg:A person might have earned few day's extra working and the Basic + DA increases . How to manage this .

Kannan Smart said...

Hi Govind,
Thanks for your informative answers.

If the company pay the bonus on January ie., they have calculated based on calendar year. Is it correct or not. Pl inform.

Thanks
Kannan

Govind Negi said...

Dear Swaps,

Bonus should be calculated on earned Basic + DA

Govind Negi said...

Dear Kannan,

You will get this answer from the company. Statutory bonus should be paid on financial year and not on calendar year.

rajvir singh said...

Hello Sir,
our factory has started on sep 13. we are showing profit in closing year 2014, please advise me can we entitle for payment of bonus ?


Regards
Rajvir Singh Rawat

Govind Negi said...

Dear Rajvir,

You have to pay bonus as your company has started making profit.

Anonymous said...

Hello Govind,
My basic is 15000 per month. I have worked from 1st April 2013 to 31st March 2014. I resigned after that on 11th April.

Am i eiligible for bonus?

I will be serving till 30th of June 2014 as notice period.
will i get bonus for 3 months in 2014-15 FY?

Please clarify.

Rakesh

om prakash said...

dear sir,
as per the act the company has to pay a minimum of 8.33% bonus even if it is in loss. is there any condition that to receive such minimum bonus an employee should be taking less than or equal to Rs. 10,000/- as Basic + DA.

Anonymous said...

Hello Govind,
I have the following doubt - The Payment of Bonus Act applies to all establishments employing 20 or more 'employees'. Does 'employees' here means total number of employees or only eligible employees. By eligible employees, I mean to say such people getting not more than Rs 10000 per month.
Please reply at the earliest. Thank you in advance.

Govind Negi said...

Dear Rakesh,

You are not eligible for Bonus as your basis is less than Rs 10000

Govind Negi said...

Dear Om Prakash,

To be eligible for Bonus, your Basic +DA should be less than or equal to Rs 10000/-

Govind Negi said...

Dear Friend,

Total number of employees means all employees including excluded or included employees as per definition of bonus

Anonymous said...

Mr Govind,

Recently i have resigned from my job and at the time final settlement my company ahs not settled my 2013-14 year bonus,as i have completed last financial year.As per them as my salalry was more than 40,000/- i am not eligible for bonus, but in my appointment letter it was clearly mentioned that the bonus is part of my salary package.
kindly suggest.

Govind Negi said...

Dear Friend,

If your basic is less than or equal to Rs 10000 in year 13-14 then you are eligible for Bonus else not

Anonymous said...

Hi ,

recently i resigned from a company where my gross salary was 48,000.
in my ctc they have shown the bonus,now i completed financial for 2013-14. now company people is not ready to release the bonus for that financial year.
guide me on this.
Kulkarni

Shantanu Joshi said...

Hello Mr. Negi,

Just Want to Know, Basic Average Salary is Considered on Working days or Basic salary in My Salary Structure to be considered for applicability of Bonus Act.
I Mean to Say
if As per Salary Structure my Basic Salary + DA is 11,000 per month but
My (Yearly Basic Salary/365)* 21 i.e. Average Working days per Month = 7594
so as per this Calculation is Bonus Act Applicable to me or Not?