Dear all,
I have noticed that many companies offer bonuses as either a one-time payment or as a monthly component in their employees' pay structure. Is this a beneficial practice? How does it impact the actual bonus payment in accordance with the relevant regulations? I would appreciate it if you could shed some light on this.
Thanks!
Saunee
From India, New Delhi
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13I have noticed that many companies offer bonuses as either a one-time payment or as a monthly component in their employees' pay structure. Is this a beneficial practice? How does it impact the actual bonus payment in accordance with the relevant regulations? I would appreciate it if you could shed some light on this.
Thanks!
Saunee
From India, New Delhi
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There is nothing wrong in showing the bonus in the monthly package provided its payment is made annually. Bonus is an annual payment and is expected to be paid within 8 months of closing the financial year, and as such, you cannot pay it monthly. But in order to show what costs the company by employing you, the company can show it in your offer as monthly as well as annual components of remuneration.
Madhu.T.K
From India, Kannur
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Madhu.T.K
From India, Kannur
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Thanks Mr. Madhu T.K, What about the scenario where bonus is the part of monthly structure and is being paid monthly as part of salary. is that OK?
From India, New Delhi
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From India, New Delhi
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Please read what I have written. I have stated that payment should not be made monthly whereas you can show it in the salary structure or CTC Madhu.T.K
From India, Kannur
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From India, Kannur
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I believe what Saunee wants to know is the effect of not only reflecting statutory bonus as a monthly component but also its actual proportionate monthly disbursement along with the regular salary throughout the accounting year. Bonus under the Payment of Bonus Act, 1965 is determined based on the performance of the industrial establishment in the accounting year and is calculated as a percentage of the total earnings of eligible employees in that year. While the monthly payment of bonus may rely on estimations, I personally don't consider it inappropriate or legally incorrect. It could be termed as either an interim bonus or a bonus advance that can be adjusted later against the bonus determined and paid after the accounting year ends. This approach may ease the burden of a one-time bulk payment for the employer, as they are obligated to pay the minimum bonus even in case of losses, while also supplementing the monthly earnings of employees.
However, this practice may be more convenient if there exists a standing settlement, whether bilateral or tripartite, allowing for the predetermined annual bonus strictly in adherence to the Act's provisions concerning minimum or maximum bonuses based solely on performance during its term. Additionally, it could serve as a strategic move by the employer to gain an advantage in the collective bargaining process for wage revision or to evade the annual demand for bonus. Success in this approach hinges on several positive factors such as the employer's confidence in the stability and profitability of their operations, strict compliance with the provisions of set-on and set-off, and most importantly, the employer's commitment to fulfilling their promise despite the possibility of unforeseen business downturns beyond their control.
Furthermore, the bonus amount paid monthly with the salary or wage should not constitute a component of the wage or salary structure, except for the purpose of CTC.
Best regards,
[Your Name]
From India, Salem
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However, this practice may be more convenient if there exists a standing settlement, whether bilateral or tripartite, allowing for the predetermined annual bonus strictly in adherence to the Act's provisions concerning minimum or maximum bonuses based solely on performance during its term. Additionally, it could serve as a strategic move by the employer to gain an advantage in the collective bargaining process for wage revision or to evade the annual demand for bonus. Success in this approach hinges on several positive factors such as the employer's confidence in the stability and profitability of their operations, strict compliance with the provisions of set-on and set-off, and most importantly, the employer's commitment to fulfilling their promise despite the possibility of unforeseen business downturns beyond their control.
Furthermore, the bonus amount paid monthly with the salary or wage should not constitute a component of the wage or salary structure, except for the purpose of CTC.
Best regards,
[Your Name]
From India, Salem
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I agree with Mr. Umakanthan. The bonus element, whether it is accounted and paid monthly or annually at once, is one and the same, as long as the parameter is maintained and properly recorded.
Thanks everyone
From India, Thane
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Thanks everyone
From India, Thane
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Monthly Bonus Payments: A Risky Practice
Any amount paid monthly is counted as part of the salary or wages of the employee. As such, any bonus paid monthly is considered part of the salary and not a bonus at all. The bonus again becomes payable at the end of the year (or more correctly, 8 months after the end of the financial year). The argument of "setting off customary bonus or preliminary bonus" is also not applicable, as monthly bonus payment is not considered.
In the end, it's a bad and risky practice as the company is open to the risk of being asked to pay the same again. Lawyers may argue the matter in different ways in court, but are you willing to take the risk to see if your lawyer's point of view prevails?
From India, Mumbai
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Any amount paid monthly is counted as part of the salary or wages of the employee. As such, any bonus paid monthly is considered part of the salary and not a bonus at all. The bonus again becomes payable at the end of the year (or more correctly, 8 months after the end of the financial year). The argument of "setting off customary bonus or preliminary bonus" is also not applicable, as monthly bonus payment is not considered.
In the end, it's a bad and risky practice as the company is open to the risk of being asked to pay the same again. Lawyers may argue the matter in different ways in court, but are you willing to take the risk to see if your lawyer's point of view prevails?
From India, Mumbai
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The payment of bonuses, particularly the percentage, is linked to the profitability of the company. This is why an eight-month period from the closing of the financial year is allowed for its disbursement. There is nothing wrong with paying the bonus on a monthly, quarterly, or half-yearly basis, which is called an "interim bonus." At the end of the year, when the bonus is calculated, the interim bonus disbursed during the year can be adjusted, and the remaining amount is released.
If you go through the contents of Form C (disbursement register), it allows deductions from the payable bonus on account of "interim bonus or bonus paid in advance," "amount of income tax deducted," and "deduction on account of financial loss caused by misconduct of the employee."
Regards, P K Sharma
From India, Delhi
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If you go through the contents of Form C (disbursement register), it allows deductions from the payable bonus on account of "interim bonus or bonus paid in advance," "amount of income tax deducted," and "deduction on account of financial loss caused by misconduct of the employee."
Regards, P K Sharma
From India, Delhi
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Dear Sir,
If the bonus is paid monthly, it will attract ESIC, or employees will miss out on benefits if the limit is exceeded. Moreover, monthly payments will impact the company's profitability, and the percentage of bonus to be declared annually will be affected.
The above points need consideration as well.
Thanks,
V K Gupta
From India, Panipat
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If the bonus is paid monthly, it will attract ESIC, or employees will miss out on benefits if the limit is exceeded. Moreover, monthly payments will impact the company's profitability, and the percentage of bonus to be declared annually will be affected.
The above points need consideration as well.
Thanks,
V K Gupta
From India, Panipat
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Dear All, kindly let me know bonu scalculation is based upon only (basic+da) or should take gross salary(HRA+Travel Allow+Medical Allow etc)
From India, Bhiwadi
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From India, Bhiwadi
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Dear All, kindly let me know bonus scalculation is based upon only (basic+da) or should take gross salary(HRA+Travel Allow+Medical Allow etc)
From India, Bhiwadi
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From India, Bhiwadi
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Components of Salary for Bonus Calculation
Salary for the purpose of calculating a bonus should include all components agreed upon as part of the remuneration. There has been a practice of considering only the Basic and DA (Dearness Allowance) for the calculation of bonuses. If you do not pay DA, only the Basic salary is considered. Therefore, if traveling allowance, house rent allowance, and medical allowance are fixed components paid without any conditions, they should also form part of the salary.
The same treatment should be applied when deciding eligibility for a bonus. If you use the gross salary for calculating the amount of bonus payable, the same should be the salary for deciding whether the employee is eligible for a bonus or not.
Regards, Madhu.T.K
From India, Kannur
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Salary for the purpose of calculating a bonus should include all components agreed upon as part of the remuneration. There has been a practice of considering only the Basic and DA (Dearness Allowance) for the calculation of bonuses. If you do not pay DA, only the Basic salary is considered. Therefore, if traveling allowance, house rent allowance, and medical allowance are fixed components paid without any conditions, they should also form part of the salary.
The same treatment should be applied when deciding eligibility for a bonus. If you use the gross salary for calculating the amount of bonus payable, the same should be the salary for deciding whether the employee is eligible for a bonus or not.
Regards, Madhu.T.K
From India, Kannur
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Yes, an employer can pay the statutory bonus on a monthly basis through the salary as an advance towards the statutory bonus, as long as it complies with the Payment of Bonus Act, 1965. The bonus payment must be clearly indicated on the payslip, with the component labelled as "Advance towards Statutory Bonus."
The employer must calculate the earned bonus at the end of the accounting year, in accordance with Sections 8 and 10 of the Act and settle the final bonus payment before the due date specified in Section 19.
Key Provisions:
1. Section 8 states that every employee who has worked at least 30 working days in an accounting year is entitled to a bonus.
2. Section 10 mandates that employers must pay a minimum bonus of 8.33% of an employee’s salary or wages, even if the company is not making profits.
3. Section 11 requires that if there is allocable surplus in the company’s profits (beyond what is needed for the minimum bonus), the employer must pay a bonus in proportion to the employee’s salary, up to a maximum of 20% of their annual wages or salary.
4. Section 17 allows employers to adjust any part of the bonus already paid (such as customary bonuses or interim bonuses) from the final bonus payable at the end of the accounting year.
5. Section 19 stipulates that the bonus must be fully settled within 8 months from the end of the accounting year. If any advance towards the bonus has been paid monthly, the employer must deduct this amount from the final bonus payable.
Conclusion: An employer may pay the statutory bonus on a monthly basis as an advance, but the final computation and settlement must occur at the end of the accounting year. The final bonus, calculated based on allocable surplus, must be disbursed within 8 months, ensuring compliance with the provisions of Section 19. Any advance paid is adjusted as per Section 17 to ensure that the correct amount is paid according to the company’s financial performance.
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The employer must calculate the earned bonus at the end of the accounting year, in accordance with Sections 8 and 10 of the Act and settle the final bonus payment before the due date specified in Section 19.
Key Provisions:
1. Section 8 states that every employee who has worked at least 30 working days in an accounting year is entitled to a bonus.
2. Section 10 mandates that employers must pay a minimum bonus of 8.33% of an employee’s salary or wages, even if the company is not making profits.
3. Section 11 requires that if there is allocable surplus in the company’s profits (beyond what is needed for the minimum bonus), the employer must pay a bonus in proportion to the employee’s salary, up to a maximum of 20% of their annual wages or salary.
4. Section 17 allows employers to adjust any part of the bonus already paid (such as customary bonuses or interim bonuses) from the final bonus payable at the end of the accounting year.
5. Section 19 stipulates that the bonus must be fully settled within 8 months from the end of the accounting year. If any advance towards the bonus has been paid monthly, the employer must deduct this amount from the final bonus payable.
Conclusion: An employer may pay the statutory bonus on a monthly basis as an advance, but the final computation and settlement must occur at the end of the accounting year. The final bonus, calculated based on allocable surplus, must be disbursed within 8 months, ensuring compliance with the provisions of Section 19. Any advance paid is adjusted as per Section 17 to ensure that the correct amount is paid according to the company’s financial performance.
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Practical Response to Monthly Bonus Payments in Compliance with the Payment of Bonus Act, 1965
In response to Saunee's query about the benefits and regulations of monthly bonus payments, it is essential to understand the relevant provisions of the Payment of Bonus Act, 1965. Here's a structured explanation:
- Employers can indeed provide the statutory bonus on a monthly basis as an advance payment, as long as it aligns with the regulations of the Payment of Bonus Act, 1965.
Key Provisions:
1. Section 8 mandates that employees who have worked a minimum of 30 days in an accounting year are eligible for a bonus.
2. Section 10 requires that a minimum bonus of 8.33% of an employee's salary be paid, irrespective of the company's profitability.
3. Section 11 stipulates that if there is surplus profit, a bonus up to 20% of the employee's annual salary can be paid.
4. Section 17 allows adjustments of any interim bonuses against the final bonus.
5. Section 19 specifies that the bonus must be settled within 8 months from the end of the accounting year.
- Employers need to clearly mention the bonus component on payslips as 'Advance towards Statutory Bonus' when paid monthly.
- The final bonus calculation, based on the company's financial performance, must be done at the end of the accounting year to ensure compliance.
- To adhere to the Act, employers must disburse the final bonus within the specified timeframe, considering any advances paid earlier.
In conclusion, while monthly bonus payments can be beneficial for employees, it is crucial for employers to follow the provisions of the Payment of Bonus Act, 1965 diligently to ensure transparency and compliance with statutory regulations.
From India, Gurugram
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In response to Saunee's query about the benefits and regulations of monthly bonus payments, it is essential to understand the relevant provisions of the Payment of Bonus Act, 1965. Here's a structured explanation:
- Employers can indeed provide the statutory bonus on a monthly basis as an advance payment, as long as it aligns with the regulations of the Payment of Bonus Act, 1965.
Key Provisions:
1. Section 8 mandates that employees who have worked a minimum of 30 days in an accounting year are eligible for a bonus.
2. Section 10 requires that a minimum bonus of 8.33% of an employee's salary be paid, irrespective of the company's profitability.
3. Section 11 stipulates that if there is surplus profit, a bonus up to 20% of the employee's annual salary can be paid.
4. Section 17 allows adjustments of any interim bonuses against the final bonus.
5. Section 19 specifies that the bonus must be settled within 8 months from the end of the accounting year.
- Employers need to clearly mention the bonus component on payslips as 'Advance towards Statutory Bonus' when paid monthly.
- The final bonus calculation, based on the company's financial performance, must be done at the end of the accounting year to ensure compliance.
- To adhere to the Act, employers must disburse the final bonus within the specified timeframe, considering any advances paid earlier.
In conclusion, while monthly bonus payments can be beneficial for employees, it is crucial for employers to follow the provisions of the Payment of Bonus Act, 1965 diligently to ensure transparency and compliance with statutory regulations.
From India, Gurugram
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