We\'re a PEB Manufacturing Private Limited Company, now in our fourth year of operation. For the fiscal year 2024-2025, we have plans to offer a yearly bonus to our employees. I need to clarify a few points on this topic:

Is the provision of a yearly bonus to employees a mandatory requirement?

If the management has made a decision to give a bonus, what would be the appropriate method or calculation to employ?

Should we incorporate performance evaluation as a factor when determining the bonus?

Your guidance on these points will help us to move forward appropriately.


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It's great to see that you're considering implementing a yearly bonus for your employees. Here are the answers to your questions:

1. The provision of a yearly bonus is not a mandatory requirement under most labor laws. However, it is a common practice in many industries and can be a great way to incentivize and reward employees.

2. The method for calculating bonuses can vary widely depending on the company's financial status, the industry, and the specific roles of the employees. A common method is to calculate the bonus as a percentage of the employee's annual salary. This percentage can be determined based on the company's profitability, the employee's contribution to that profitability, or a combination of both.

3. Incorporating performance evaluation into the bonus calculation is a good idea. This can help to ensure that the bonus serves as a reward for high-performing employees, further incentivizing good performance. However, it's important to ensure that the performance evaluation process is fair and transparent, to avoid any potential disputes or dissatisfaction.

Before implementing any bonus scheme, it's a good idea to consult with an HR professional or labor law expert to ensure that the scheme is fair, legal, and likely to achieve its intended goals.

From India, Gurugram
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Payment of bonus is not a statutory obligation to such companies who have not made profits in five years. The company will have to start paying bonus from the year in which it made profits. This infancy protection is available only for five years from commencement or till the company made profits whichever comes first. Even if in the subsequent year there incurred a loss, the company is liable to pay bonus. Similarly, from sixth year of operation onwards the company is liable to bonus even if there is no profits.

Profit for the purpose of payment of bonus shall mean surplus after providing for depreciation, development reserve and income tax. The detailed working is available in the schedule attached to the Act itself.

Bonus (statutory bonus) is payable only to those employees whose wages do not exceed Rs 21000. In certain cases, the entire amount will not qualify for bonus calculation. Bonus is calculated on Rs 7000 or the notified statutory minimum wages payable to the employee. Therefore, if for your industry, there does not exist any minimum wages as notified by the government, you can take Rs 7000 as the wages for calculating the bonus. But at the same time, if minimum rates of wages have been notified for your industry, then the minimum wages for each category of employees should be the base for calculation of bonus of each employees under each category. Obviously, if the notified wages is less than Rs 7000, then you should calculate bonus taking Rs 7000 as base wages. If, for example, the minimum wages notified is Rs 19000 and you are actually paying only Rs 13000, then you have to calculate the bonus assuming that the wages is Rs 19000. Please note that you have no right to operate if you are not able to pay the statutory minimum wages (says, the Apex Court of India- refer Crown Aluminium Works Vs Workmen)

Depending upon the available surplus, the rate of bonus may vary from 8.33% to 20% of bonus qualifying wages.

You cannot pay bonus considering productivity of employees. It is okay that you can pay any additional amount as ex gratia to workers or even to workers whose are not entitled to bonus due to the reason that their wages exceed Rs 21000, but statutory bonus should be paid to all eligible workers without considering their performance.

From India, Kannur
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  • CA
    CiteHR.AI
    (Fact Checked)-Your explanation is largely correct as per the Payment of Bonus Act, 1965. However, the wage ceiling for bonus eligibility was raised to Rs 21,000 in 2015. Good job! (1 Acknowledge point)
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  • Dear Poster,
    1. The payment of bonus is an obligation for the employer under the statute.
    2. The payment of bonus is an obligation for the employer under the statute, paid out of profit.
    3.The payment of bonus has got nothing to do with performance of the employee.
    4. The payment of bonus is made to employee with monthly salary of ₹21000.
    5. The employee having 30 days attendance in previous year are eligible for Bonus.
    6. The minimum bonus 8.33 & maximum of 20%, and ₹7000 is minimum.
    7. The employer has to pay the bonus of previous Financial Year in Subsequent FY by 30th November.
    8.The company can't slip out of obligations on pretext of loss, because bonus amount stay fixed under Set-on and Set-off years to year.
    9. The bonus are paid as ex-gratia to employees above the threshold salary limit.
    Trust, your query clarified.

    From India, Mumbai
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