Respected seniors,
I am very much confused about this matter as I am the only person handling the HR department. I have one query for you: Is a bonus the liability of the employer or not? If an employer does not provide a bonus to their employees, can employees take action against them? I have read that a bonus is a type of gift given at the employer's discretion. If the employer is satisfied with the services of an employee, then they will give a bonus; however, if they choose not to give a bonus, there is no liability on the employer. Can you please clarify my understanding on this matter?
Thank you.
From India
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I am very much confused about this matter as I am the only person handling the HR department. I have one query for you: Is a bonus the liability of the employer or not? If an employer does not provide a bonus to their employees, can employees take action against them? I have read that a bonus is a type of gift given at the employer's discretion. If the employer is satisfied with the services of an employee, then they will give a bonus; however, if they choose not to give a bonus, there is no liability on the employer. Can you please clarify my understanding on this matter?
Thank you.
From India
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Dear Member,
It would be better to refer to the Payment of Bonus Act, 1965 for your query.
R.N. KHOLA
[Welcome Skylark Associates](http://www.skylarkassociates.com/)
From India, Delhi
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422It would be better to refer to the Payment of Bonus Act, 1965 for your query.
R.N. KHOLA
[Welcome Skylark Associates](http://www.skylarkassociates.com/)
From India, Delhi
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Dear Faraz,
This depends upon the policy and procedure of your company. If it is declared formally, then it becomes the liability of the employer to pay according to the stipulated calculations.
Regards,
From Saudi Arabia, Riyadh
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This depends upon the policy and procedure of your company. If it is declared formally, then it becomes the liability of the employer to pay according to the stipulated calculations.
Regards,
From Saudi Arabia, Riyadh
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Subject: Bonus is the Liability of the Employer or Not
Dear Sir,
As per the Bonus Act of 1965, it is a bounden duty of the employer of a factory or establishment (if manpower is 10/20) to pay a minimum of 8.33% and a maximum of 20% of their wages earned in the accounting year, depending on the profits of the company. If profitability is not achieved, a minimum bonus is still mandatory.
Therefore, it is a liability of the employer.
D. Gurumurthy
LL., HR & IR Consultant.
From India, Hyderabad
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Dear Sir,
As per the Bonus Act of 1965, it is a bounden duty of the employer of a factory or establishment (if manpower is 10/20) to pay a minimum of 8.33% and a maximum of 20% of their wages earned in the accounting year, depending on the profits of the company. If profitability is not achieved, a minimum bonus is still mandatory.
Therefore, it is a liability of the employer.
D. Gurumurthy
LL., HR & IR Consultant.
From India, Hyderabad
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Dear Faraz,
Bonus used to be viewed as a courtesy given for rendering satisfactory services. That was the age-old concept. After the payment of bonus came into vogue, it has become a statutory right. It is hence viewed as deferred wages, i.e., wages that have been deferred over the previous financial year and are given in a lump sum. The minimum statutory bonus is payable irrespective of the financial position.
Hope the above clarifies. For more details, you may go through the Act and related articles for understanding the nuances.
Regards,
KK
From India, Bhopal
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Bonus used to be viewed as a courtesy given for rendering satisfactory services. That was the age-old concept. After the payment of bonus came into vogue, it has become a statutory right. It is hence viewed as deferred wages, i.e., wages that have been deferred over the previous financial year and are given in a lump sum. The minimum statutory bonus is payable irrespective of the financial position.
Hope the above clarifies. For more details, you may go through the Act and related articles for understanding the nuances.
Regards,
KK
From India, Bhopal
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Dear Faraz,
I am also new in the HR family. But, dear, as much as I know from my studies, it is a must for an industry that has completed five years from its date of establishment to pay a minimum bonus of 8.33%. However, it can be exempted only in the case of sick industries (as decided by the government).
Regards,
Umesh
From India, Gurgaon
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I am also new in the HR family. But, dear, as much as I know from my studies, it is a must for an industry that has completed five years from its date of establishment to pay a minimum bonus of 8.33%. However, it can be exempted only in the case of sick industries (as decided by the government).
Regards,
Umesh
From India, Gurgaon
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Hello Faraz,
Now all the companies have adopted the CTC model, which stands for Cost to Company. This CTC includes almost every earning of any employee. Companies are deducting around 8.33% from this CTC as a part of the bonus, and this deduction will be given as a bonus. Normally, if we include the bonus in the salary, that makes 13 salaries in 12 months. However, with this CTC model, it's 12 salaries in 12 months.
Thus, any company that has adopted the CTC model, it becomes the company's liability to give the bonus. Alternatively, it will depend on the company's policy.
Thanks.
From India, Ahmadabad
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Now all the companies have adopted the CTC model, which stands for Cost to Company. This CTC includes almost every earning of any employee. Companies are deducting around 8.33% from this CTC as a part of the bonus, and this deduction will be given as a bonus. Normally, if we include the bonus in the salary, that makes 13 salaries in 12 months. However, with this CTC model, it's 12 salaries in 12 months.
Thus, any company that has adopted the CTC model, it becomes the company's liability to give the bonus. Alternatively, it will depend on the company's policy.
Thanks.
From India, Ahmadabad
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As a matter of fact, when an employee has completed at least 30 days in an accounting year, then he gets the entitlement of a bonus.
If the employee resigns from his responsibility, then he has to pay the minimum bonus, i.e., 8.33% of the basic salary.
Remember that those who have a basic salary of more than 10000 per month would not get the entitlement of a bonus.
For example, if an employee's basic salary is 4500 per month and he resigns from his obligation on 25 Dec 2011, you only have to consider whether he has completed 30 days in the 2011-12 accounting year. If he has met that condition, then he deserves a bonus.
Disqualification of a bonus may be possible in cases where an employee is found engaging in major misconduct, theft, or sabotage of company assets, etc.
As you mentioned, if an employer is satisfied with an employee, then it is at his discretion to offer him a bonus. This seems like a monthly performance incentive or ex gratia payment, from what you are talking about.
I hope you have grasped the point.
If you encounter any issues, refer to the Payment of Bonus Act.
Thanks
Regards
Vikas Khatter
Email: Vikaskhatter29@gmail.com
Phone: 9034436151
From India, Delhi
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If the employee resigns from his responsibility, then he has to pay the minimum bonus, i.e., 8.33% of the basic salary.
Remember that those who have a basic salary of more than 10000 per month would not get the entitlement of a bonus.
For example, if an employee's basic salary is 4500 per month and he resigns from his obligation on 25 Dec 2011, you only have to consider whether he has completed 30 days in the 2011-12 accounting year. If he has met that condition, then he deserves a bonus.
Disqualification of a bonus may be possible in cases where an employee is found engaging in major misconduct, theft, or sabotage of company assets, etc.
As you mentioned, if an employer is satisfied with an employee, then it is at his discretion to offer him a bonus. This seems like a monthly performance incentive or ex gratia payment, from what you are talking about.
I hope you have grasped the point.
If you encounter any issues, refer to the Payment of Bonus Act.
Thanks
Regards
Vikas Khatter
Email: Vikaskhatter29@gmail.com
Phone: 9034436151
From India, Delhi
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One thing I want to tell you is that if your organization is new, up to 5 years, a bonus is not compulsory. It only happens in such a case when your company discloses the loss in Bonus registers A and B, both of which are maintained by the finance department.
When you are earning a loss, then it is not mandatory. But after the completion of 5 years of your organization, it has to be compulsory whether your organization is suffering a loss or making a profit.
Form C is applied for the distribution of a bonus, and form D is applied for bonus return.
Regards,
Vikas Khatter
From India, Delhi
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When you are earning a loss, then it is not mandatory. But after the completion of 5 years of your organization, it has to be compulsory whether your organization is suffering a loss or making a profit.
Form C is applied for the distribution of a bonus, and form D is applied for bonus return.
Regards,
Vikas Khatter
From India, Delhi
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Bonus is liability of the employer as per the terms and conditions of Payment of Bonus Act. It is attached for your reading.
From India, Mumbai
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From India, Mumbai
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Dear Faraz,
Bonus is an extra pay due to good performance and as per Payment of Bonus 1965 as a part of social security legislation has made is mandatory and the provision of the act are as below.
The payment of Bonus Act is applicable to every factory and every other establishment in which twenty or more persons are employed on any day during an accounting year excluding some categories of employees as contained in section 32 of the Act (i.e. employees in Life Insurance – Corporation, seamen, port and dock workers, universities, etc.).
Definition of an employee – An ‘employee’ means any person (other than an apprentice) employed on a salary or wage not exceeding three thousand and five hundred rupees per mensem.
Calculation of bonus w.r. to certain employees – where the salary or wage of an employee exceeds two thousand and five hundred rupees per mensem, the bonus payable to such employee shall be calculated as if his salary or wage were two thousand and five hundred rupees per mensem.
Every employee shall be entitled to be paid by his employer in an accounting year, bonus, in accordance with the provisions of this act, provided he has worked in establishment for not less than 30 days.
MINIMUM BONUS - Every employer shall be bound to pay to every employee in respect of the accounting year a minimum Bonus which shall be 8.33 % of the salary or wages 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.
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 wages earned by the employee during the accounting year subject to a maximum of 20% of such salary or wage.
The employer whom this Act, applies, need not pay any Bonus for first five accounting year in which the Employer sells the goods produced or manufactured by him or render 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 the Act in relation to that year.
Regards,
Brijesh
From India, Mumbai
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Bonus is an extra pay due to good performance and as per Payment of Bonus 1965 as a part of social security legislation has made is mandatory and the provision of the act are as below.
The payment of Bonus Act is applicable to every factory and every other establishment in which twenty or more persons are employed on any day during an accounting year excluding some categories of employees as contained in section 32 of the Act (i.e. employees in Life Insurance – Corporation, seamen, port and dock workers, universities, etc.).
Definition of an employee – An ‘employee’ means any person (other than an apprentice) employed on a salary or wage not exceeding three thousand and five hundred rupees per mensem.
Calculation of bonus w.r. to certain employees – where the salary or wage of an employee exceeds two thousand and five hundred rupees per mensem, the bonus payable to such employee shall be calculated as if his salary or wage were two thousand and five hundred rupees per mensem.
Every employee shall be entitled to be paid by his employer in an accounting year, bonus, in accordance with the provisions of this act, provided he has worked in establishment for not less than 30 days.
MINIMUM BONUS - Every employer shall be bound to pay to every employee in respect of the accounting year a minimum Bonus which shall be 8.33 % of the salary or wages 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.
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 wages earned by the employee during the accounting year subject to a maximum of 20% of such salary or wage.
The employer whom this Act, applies, need not pay any Bonus for first five accounting year in which the Employer sells the goods produced or manufactured by him or render 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 the Act in relation to that year.
Regards,
Brijesh
From India, Mumbai
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Very happy to note that many senior friends suggest better reading, which I always advocated.
Queries of HR professionals should be more of a practical nature, like situational management, crisis resolution, etc.
From India, Jaipur
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Queries of HR professionals should be more of a practical nature, like situational management, crisis resolution, etc.
From India, Jaipur
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Dear Faraz,
Good morning!
I would like to clarify that while giving a bonus to an employee is typically the responsibility of an employer, there is an exception. An employer can claim an exemption for a particular year in which the organization has not generated a profit. In such a scenario, the employer can refuse to provide a bonus for that specific year. This clause can be found in the Bonus Act of 1965.
I hope this clears up any confusion you may have had.
Thanks & Regards,
Abhay Raj
National Head-HR & Legal
From India, Mumbai
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Good morning!
I would like to clarify that while giving a bonus to an employee is typically the responsibility of an employer, there is an exception. An employer can claim an exemption for a particular year in which the organization has not generated a profit. In such a scenario, the employer can refuse to provide a bonus for that specific year. This clause can be found in the Bonus Act of 1965.
I hope this clears up any confusion you may have had.
Thanks & Regards,
Abhay Raj
National Head-HR & Legal
From India, Mumbai
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According to the Payment of Bonus Act, it is the liability of the company to pay the annual statutory bonus to the employees. It is not compulsory for new companies to pay a bonus for five years, but if within five years the company generates any kind of profit, then it becomes the statutory liability of the company to pay a bonus. The grace period for the payment of the bonus is 8 months. Eligibility for the bonus is 30 days of joining. The minimum statutory bonus is 8.33%, and the maximum is 20%. The maximum eligibility is 10,000, and it will be calculated at 3,500 rupees. I hope everything is clear.
From India, Chandigarh
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From India, Chandigarh
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Please note that statutory liability of a bonus is only for those whose salary is less than Rs. 6,500 per month. Furthermore, the bonus is computed on a maximum salary of Rs. 3,500 per month.
Any extra amount paid is referred to as Ex-Gratia (which cannot be enforced in a court of law, as it is at the option of the employer) to distinguish it from the bonus that is payable under the law.
From India, Mumbai
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Any extra amount paid is referred to as Ex-Gratia (which cannot be enforced in a court of law, as it is at the option of the employer) to distinguish it from the bonus that is payable under the law.
From India, Mumbai
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Dear Faraz,
It is a statutory obligation and also a liability to pay the bonus to your employees, which should be at 8.33% of one month's salary based on their earnings. If you are facing challenges in the industry, kindly inform the labor department about the poor performance records and seek guidance from the labor officer.
Thank you,
Suresh Tondepu
From India, Hyderabad
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It is a statutory obligation and also a liability to pay the bonus to your employees, which should be at 8.33% of one month's salary based on their earnings. If you are facing challenges in the industry, kindly inform the labor department about the poor performance records and seek guidance from the labor officer.
Thank you,
Suresh Tondepu
From India, Hyderabad
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Dear,
This depends purely on the companies. Private companies do not always strictly adhere to all the company acts and payment regulations mandated by the government. However, private companies (excluding manufacturing companies) often find loopholes in these rules to operate profitably.
In my opinion, individuals who work hard in a company are acknowledged and may even receive monetary incentives, reflecting the company management's level of interest. If companies announce bonuses for all employees, they are expected to follow through. However, companies can choose to explain if they faced losses or did not meet profit expectations for the year.
While the system may have shortcomings, as an HR professional, you could communicate to employees that the company may not be performing as well financially, using appropriate wording to reassure and maintain a positive atmosphere.
Sandeep Korde
From India, Warangal
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This depends purely on the companies. Private companies do not always strictly adhere to all the company acts and payment regulations mandated by the government. However, private companies (excluding manufacturing companies) often find loopholes in these rules to operate profitably.
In my opinion, individuals who work hard in a company are acknowledged and may even receive monetary incentives, reflecting the company management's level of interest. If companies announce bonuses for all employees, they are expected to follow through. However, companies can choose to explain if they faced losses or did not meet profit expectations for the year.
While the system may have shortcomings, as an HR professional, you could communicate to employees that the company may not be performing as well financially, using appropriate wording to reassure and maintain a positive atmosphere.
Sandeep Korde
From India, Warangal
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Dear Faraz Also note the point tht bonus shud b paid compulsory to employees whose sal is wit in 10k. & also 8.33%of sal or 100/- which ever is higher to b paid.
From India, Bangalore
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From India, Bangalore
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Bigger bonuses for more as Lok Sabha amends Payment of Bonus Act - The Economic Times.pdf
THE PAYMENT OF BONUS ACT.doc