A company which is running in loss, is the company is bound to pay the bonus to its employees? Please advise.
From India, Bhubaneswar
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3From India, Bhubaneswar
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The answer is yes and no, and it all depends on how the company does its budgeting.
Yes, if bonuses have been budgeted and provision has been made so that the bonus payout will be "prorated" depending on performance achievement.
No, if management never makes provision for this "business cost" in the annual budget.
Autumn Jane
From Singapore, Singapore
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Yes, if bonuses have been budgeted and provision has been made so that the bonus payout will be "prorated" depending on performance achievement.
No, if management never makes provision for this "business cost" in the annual budget.
Autumn Jane
From Singapore, Singapore
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When company has completed its 5 years of business, then from 6th year, bonus is must be to paid. And due to this "made profit or loss", Set on Set off is clearly mentioned for bonus under bonus act.
From India, Ahmadabad
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From India, Ahmadabad
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Dear 087980.....
You need to refer to the Payment of Bonus Act 1965, and I quote: "was enacted to provide for the payment of bonus on the basis of profits." So if the business is running at a loss, then as there are no profits, there is no bonus to be paid; HOWEVER, the accounting practices of the business also matter greatly. Again, I quote: "Where in any accounting year, any amount has been carried forward and set ON or set OFF, 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."
I suggest you take professional advice. Make sure that any such advice is from a competent person or authority and, in writing, as the penalties are very high. I hope this helps.
Harsh
From United Kingdom, Barrow
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You need to refer to the Payment of Bonus Act 1965, and I quote: "was enacted to provide for the payment of bonus on the basis of profits." So if the business is running at a loss, then as there are no profits, there is no bonus to be paid; HOWEVER, the accounting practices of the business also matter greatly. Again, I quote: "Where in any accounting year, any amount has been carried forward and set ON or set OFF, 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."
I suggest you take professional advice. Make sure that any such advice is from a competent person or authority and, in writing, as the penalties are very high. I hope this helps.
Harsh
From United Kingdom, Barrow
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I am afraid the posts made by Autumn and Harsh are wrong in the Indian scenario. The Payment of Bonus Act requires a company to pay a minimum bonus of 8.33% (1 month's salary) irrespective of profits. If the company makes a profit, the bonus will be higher, subject to a maximum of 20% of annual wages. There are some riders in this:
- The Payment of Bonus Act does not cover those with wages of over Rs. 10,000 per month.
- Bonus is payable on actual wages or Rs. 3500 per month, whichever is lower.
So, the minimum bonus in the case of a loss is Rs. 3500 per person. Exemption from bonus is provided to a company not making a profit in the first 6 years of setting up the factory. Further, there is a provision of set on and set off, which means if you have paid a bonus in the previous year despite a loss, you can set that off in the year you made a profit before computing the amount of bonus payable. Hope that clears your doubt.
From India, Mumbai
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- The Payment of Bonus Act does not cover those with wages of over Rs. 10,000 per month.
- Bonus is payable on actual wages or Rs. 3500 per month, whichever is lower.
So, the minimum bonus in the case of a loss is Rs. 3500 per person. Exemption from bonus is provided to a company not making a profit in the first 6 years of setting up the factory. Further, there is a provision of set on and set off, which means if you have paid a bonus in the previous year despite a loss, you can set that off in the year you made a profit before computing the amount of bonus payable. Hope that clears your doubt.
From India, Mumbai
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