Statutory Bonus Calculation - As per new bonus amendment 2018

I want to know the calculation of statutory bonus. For example: My Basic + DA is Rs. 12,000/- and I am working in Delhi where the minimum wages are Rs. 16,000/- for FY 2016-17. So, will the bonus be calculated on Rs. 16,000/- or Rs. 12,000/-? According to the new bonus amendment, the bonus will be calculated on a minimum of Rs. 7,000/- or the state minimum wages, whichever is higher.

You have to calculate the bonus as the actual percentage of the statutory minimum wages only, as it is higher than the notional amount of salary of Rs. 7000.

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If you have any further questions or need clarification, feel free to ask.

Dear Pawan ji,

Hope this link would help you to understand better post-amendment. For more information, please visit: https://arghaa.com/news/calculation-...-amendment/439

Dear Ranjan,

I do not agree with your Example 1. Even if the basic salary is Rs. 6,800, we should consider his basic salary as Rs. 7,000 for the calculation of the bonus as per the amended Bonus Act.

Secondly, in Example 3, the basic salary is incorrectly typed as Rs. 7,000 instead of Rs. 12,662.

Please correct me if I am mistaken.

Regards,
Suresh

Bonus calculation for basic salary is Rs. 7000/- if the basic salary is less than Rs. 7000/-, i.e., Rs. 6000/- bonus will be calculated on Rs. 6000/-.

Santosh,

How will you arrive at the minimum bonus amount of Rs.7,000/- when the bonus percentage is 8.33% and the employee's basic salary is Rs.6,000/-? Is there any special mathematical mechanism for this? If not, then we have to consider a basic salary of Rs.7,000/- in order to reach the minimum bonus amount of Rs.7,000/-.

For example, Ashok is drawing a basic salary of Rs.4,000/- per month. In this case, he will be entitled to receive an 8.33% bonus of Rs.4,000/- if he worked the whole financial year without any loss of pay. To pay him a bonus amount of Rs.7,000/-, he should be given a 14.585% bonus on Rs.4,000/-.

Instead of conducting this type of reverse calculation for employees earning a basic salary less than Rs.7,000/-, consider such cases as if they were drawing a salary of Rs.7,000/- per month when the bonus percentage is 8.33%.

Suresh

Dear friends,

At times, a multiplicity of clarifications renders the confusion worse confounded. Therefore, let us first examine Section 12 of the Payment of Bonus Act, 1965 as it stands after the 2015 Amendment:

"12. Calculation of bonus with respect to certain employees -
(i) Where the salary or wage of an employee exceeds seven thousand rupees per mansem, the bonus payable to such an employee under section 10 or, as the case may be, under section 11, shall be calculated as if his salary or wage were seven thousand rupees per mansem or the minimum wage for the scheduled employment, as fixed by the appropriate Government, whichever is higher.
(ii) Explanation.- For the purpose of this section, the expression "scheduled employment" shall have the same meaning as assigned to it in clause (g) of section 2 of the Minimum Wages Act, 1948."

Therefore, it simply follows that -
(a) When the salary or wage of an employee is more than Rs. 7000/- p.m, it shall be notionally limited to Rs. 7000/- only, and the minimum or maximum bonus payable to be calculated accordingly.
(b) In the case of any such employee who is covered under the Minimum Wages Act, 1948, the above notional wages for the purpose of calculation shall be Rs. 7000/- or the minimum wages for his employment, whichever is higher.

I do agree with the provisions and narration by Mr. Umakanthanji. I hope we should follow the provisions.

I want to know what the maximum limit for a bonus is for a central government employee.

My monthly salary is approximately $12,000 (basic + DA). I am working under a contractor who is providing services to offices under the Central Government of India. Sir, please provide me with one specific rule to calculate the bonus I am willing to earn.

How to calculate bonus in these scenarios:

1. Gross salary is 25,000/- and Basic+DA = 14,000.

2. Gross Salary Rs. 50,000 and Basic Salary Rs. 25,000.

Let's accept the fact that whoever made this amendment was mistaken. The entire fraternity is banging their heads against the wall after this amendment, and everyone is coming up with a new translation.

Dear Muhammad Asif,

Your query is on how to calculate bonuses in these scenarios.

1. Gross salary is 25,000/- and Basic+DA = 14,000.
Answer: He is eligible for a bonus on Basic+DA, i.e., on Rs. 14,000/-

2. Gross Salary is Rs. 50,000 and Basic Salary is Rs. 25,000.
Answer: He is not eligible for a bonus as per the Payment of Bonus Act since his Basic salary is > Rs. 25K. However, your company can pay him ex-gratia. No law will stop you from paying ex-gratia.

Regards,
Suresh

I have two clarifications to seek.

1. What are the implications of paying statutory bonus as part of CTC? I have read a few comments, but differing viewpoints do not provide any clear answers. Is there any government agency or labor department that could clarify this once and for all? It's understood that if the bonus is allowed to be treated as one component of salary, it will be taken into account for Professional Tax and ESI contributions.

2. Once the allocable surplus is known from the CA certificate, how is the bonus payout percentage determined within the minimum and maximum allowed?

Dear friend from Delhi,

Let me try to answer your queries, though the first one relating to the legal effect of C.T.C on the compensation clause of an employment contract entered either implicitly or explicitly between the parties to the contract has already been discussed in this forum several times. What is most unfortunate is the lack of cross-reference whenever a question on C.T.C is raised afresh.

In my own opinion, the divergence of viewpoints emerges only from the interpretation of the C.T.C as a concept. "Cost to the Company per employee" or CTC is an estimation of the overall expenditure incurred by the employer per year. This overall expenditure includes the gross wages or salary periodically paid, the fringe benefits of employment both statutory and non-statutory, the cost of training if any for the purpose of updating employment skills, etc.

Thus, C.T.C is an accounting tool of economic reality projecting the cost of labor/services rendered by the employee and payable periodically, as well as the cost of retention of labor/employees actually incurred. Therefore, just because certain economic benefits or the value of such benefits which can be computed in terms of money mentioned under the head C.T.C in an offer letter by the employer cannot be claimed ipso facto by the employee unless otherwise the statutory conditions associated with such benefits are ripe on the date of such a claim.

Statutory Bonus paid annually does not form part of the term wages as defined u/s 2(22) of the ESI Act, 1948. One has to understand the fact that the inclusion or exclusion of any item of payment to the employee in the term wage or salary depends upon the purpose of the particular Legislation only.

For your second query, I would request you to go through the provisions of Sec.15 of the Act.

Sir,

Based on my knowledge, the bonus eligibility is ₹21,000 minimum, with a percentage ranging from 8% to 20%. The slab will be ₹7,000.

If the basic wage is above ₹7,000, it should be considered as ₹7,000. The formula is [7000 * (percentage proposed by the company) * 12 months].

If the basic wage is below ₹7,000, it should be considered as earned basic. The formula is [Earned basic * (percentage proposed by the company) * 12 months].

Please correct me if I am mistaken.

Best Regards,
D. Nagaraju

Dear Nagaraju,

The notional amount of Rs. 7000/= should be taken into account only when the salary is more than Rs. 7000/= per month. When it falls below Rs. 7000/=, the actual amount should be considered for the purpose of bonus payable under the Act. So your presumption is correct.

However, the calculation would be different if the employment is covered by the Minimum Wages Act, 1948, and the minimum wages fixed are more than Rs. 7000/= per month.

Thank you.

Dear Nagaraju,

The Minimum Wages in Hyderabad (Telangana) for the unskilled category are Rs. 8,768.80 and Rs. 8,438.80 for Zone I and II respectively up to 30th September 2018. Similarly, the Minimum Wages in Andhra Pradesh for the unskilled category are Rs. 8,404 and Rs. 8,074 for Zone I and II respectively, which is more than Rs. 7,000. This means, as per the Amended 2015 Payment of Bonus Act, you are required to pay Bonus as per the payment of Minimum Wages (which is >7000).

In Delhi, the Minimum Wage is Rs. 10,374 for the unskilled category effective from 1st October 2018. Now, for calculation purposes, the salary/wage limit is enhanced from Rs. 3,500 to Rs. 7,000 and the eligibility for Bonus coverage from Rs. 10,000 to Rs. 21,000. As per the amended Bonus Act, it is mentioned to pay a Minimum Bonus Amount of Rs. 7,000 or as per the MW, whichever is higher.

According to me, there is no clarity on whether the employees drawing salaries/wages < Rs. 7,000 would get a bonus on a lesser amount or Rs. 7,000. Moreover, now the Minimum Wage for the unskilled category is > Rs. 7,000 per month in almost all States in India so they will get a Bonus > Rs. 7,000 at 8.3333%.

Regards,
Suresh

Dear Suresh Garu and Umakanth Garu,

Thank you for the valuable information. Is the bonus calculation correct if we consider the minimum wage to be more than 7,000/- as [MW*(% proposed by the company)*12 months]? Thank you for the clarification.

Best Regards, D. Nagaraju

Yes, dear, it is correct.

You should consider the actual earned minimum wages (Paid MW) for 12 months (April to March), total it, and multiply it by the declared bonus percentage to arrive at the Bonus amount.

Regards, Suresh

Hi,

Can anyone let me know if I am eligible for a statutory bonus or not? My basic salary was revised from 11000 to 12000 in the month of Nov '18, and my HRA was revised from 4400 to 4800 in the same month. I do not receive any DA. I am from Hyderabad. Kindly provide me with the calculation.

Thanks

Dear Hyderabadi,

You are eligible for a bonus amount of Rs. 7,000/- or as per the applicable Minimum Wages, whichever is higher. Please provide your designation for further processing.

Regards,
Suresh

Sir, I want to know my basic pay + DA is 12000, which is higher than the minimum wages set by the Uttar Pradesh government. Now, I would like to understand the process for calculating my bonus if my factory offers a 20% bonus.

Hey, I just want to say that the Bonus Act simply states that 8.33% of the minimum wages or 8.33% of 7000, whichever is higher. I just want to confirm that in the Payment of Wages Act, workmen can be considered under the ceiling limit of Rs. 24,000. As per the Bonus Act, every workman is eligible for a bonus, so will the Rs. 21,000 ceiling limit for bonus not be applicable here? If yes, then what is the actual amount that falls under the purview of the Bonus Act? Is special allowance also applicable when considering the ceiling limit?

1. The minimum payable bonus is 8.33%, and the maximum payable is 20%.
2. Rs. 7000 or minimum wages, whichever is higher, should be considered. For example, if the minimum wage is Rs. 8000, you have to consider Rs. 8000 and not Rs. 7000.
3. For actual wages less than Rs. 8000, and for wages equal to or exceeding Rs. 8000, Rs. 8000 should be used for calculation.
4. The bonus eligibility ceiling limit is Rs. 21000, as per the Payment of Bonus Act, similar to the PF and ESI ceiling limits.
5. The applicability of the Payment of Wages Act is Rs. 24000, and it should not necessarily be linked to the Payment of Bonus Act.
6. My suggestion is if management is willing, you can also pay the bonus as ex gratia to members above Rs. 21000, or it can be given as a VPP to staff members.
7. Wages refer to basic pay + dearness allowance only.

Please correct me if my views are incorrect.