Example 2: If Brandon’s Salary is Rs. 7000/- than bonus payable to Brandon =583 per month (Rs. 6996/- per year). Employers pay bonus as an instrument to motivate their employees to work to the best of their capabilities. The Payment of Bonus Act, 1965 provides for the payment of a Statutory Bonus, which is often confused with the incentive bonus paid by employers. Unlike incentive bonus, which is an ex gratia payment, Statutory bonus is a compulsory payment by law. Payment of statutory bonus under the Payment of Bonus Act is not a matter of choice of the employer but rather a matter of right of the employee. The provisions under the Payment of Bonus Act, 1965 are applicable to every factory and establishment which employs 20 or more persons. ‘Establishments’ has the same meaning as under the Shops and Establishments Act of various states and includes departments, undertakings, branches etc. The materials on this website are intended for informational purposes only. They are neither intended to be nor should they be interpreted as, legal advice or opinion.
Example 1: If Bella’s Salary is Rs. 6000/- than bonus payable to Bella shall be = 6000 x 8.33/100 = 500 per month (Rs. 6000/- per year). In certain circumstances payment of minimum bonus can be exempted by the appropriate government by taking into consideration relevant circumstances of concern factory or establishment which is in losses and may be given for a certain period only. The relevant factors may be, the reasons for occurrence of losses to company, reasons and ingenuity in consecutive occurrence of losses. The factors must be justifiable and there should not be intention to avoid payment of bonus by creating fake losses (mens rea). The Act contemplates that a minimum bonus of 8.33% of the salary or the wage earned by the employee during the accounting year or Rs. 100 whichever is higher should be paid to an employee.
Example 3: If Bipasha’s Salary is Rs. 15000 than bonus payable to Bipasha shall be = 7000 x 8.33/100 = 583 per month (Rs. 6996/- per year). The minimum quantum of Statutory Bonus payable to an employee should be in conformity with the rates and calculations specified under the Payment of Bonus Act. The Act in no manner expects an employer from payment of a higher amount of bonus voluntarily to his/her employee.
All amounts payable to the employee as bonus under the provisions of the Act should be paid in cash. Which means that the employer cannot guise bonus as perquisites or allowances. Startups and New establishments have been given a respite from payment of bonus for the first five years. In the first five (05) years following the accounting year in which the operations of the new establishment/ startup commence, employer can pay Statutory Bonus only in the years in which the employer derives profits. Since bonus is paid out of the allocable profits of the establishment, if in a year the allocable surplus exceeds the amount of minimum bonus payable to the employees, the employer should pay a higher bonus. It is pertinent to note that the Act stipulates an upper limit of 20% of the salary or wage earned by the employee during an accounting year for the payment of maximum bonus. Statutory Bonus should be paid within 8 months of closing the book of accounts. For instance, the accounting year ending 31st March 2019 bonus shall be paid before 30th November 2019.