Bonus Range is between 8.33 percent to 20 percent of earning basic then how to decide what percent a company should give?

The bonus Range is between 8.33 per cent to 20 per cent of earning basic then how to decide what per cent a company should give to its employees.

The concept of bonus is based on the performance of the company, which is decided by the balance sheet where if there is profit, bonus percentage maybe increased from 8.33% to 20%, also the concept of Bonus disbursement is based on the negotiable option of the workers Union.

Sir is their any fix percentage of profit range given in the act

Hi,

The Act prescribes for the minimum bonus, that is 8.33% of the employee’s Salary/wages, which is the least percent mandatorily to be paid by every establishment or organisation covered by the act and the maximum amount of bonus shall not exceed, 20% of the salary/wages of the employees.

For employees not covered under Bonus Ex-gratia can be paid and there is no upper for Ex-gratia payment.

Please note that between 8.33% to 20% bonus can be paid based on the performance and discretion of the Employer.

If you do not make profit in five years, you are not liable to pay bonus but from the sixth year you should pay it even if your book profits is negative. At the same time if you make profit in during the five years, say in the second year itself, you should start paying bonus from that year onwards. Even if in the subsequent year you made a loss, you should pay bonus.

Bonus shall be any amount of profit after allowing for certain provisions for development activities should be paid as bonus to the workers. If the amount available for bonus is not sufficient to pay even 8.33 percent of wages, then also you should pay it from the working capital. Obviously, you can take it from the profits that you make in the next year and in the next year the amount available for bonus would be reduced by that amount and the remaining amount can be distributed as bonus to workers. The minimum percentage of bonus is 8.33% whereas depending upon the profitability you can pay more bonus calculated at higher rates. The maximum rate of bonus as per statute is 20%.

In the original post it was asked how to determine % of bonus between 8.33% to 20%. As on date the bonus is paid based on minimum wages for most of the organization. Organizations which are in business for last 10 / 15 years have SET ON & SET OFF depends on allocable surplus figure.

As minimum bonus 8.33% is a must , first of all it is essential to determine the actual amount will be required to pay minimum bonus. To determine the same, first to identify the number of employees in each grade - unskilled, semi skilled, skilled & highly skilled. All the states are publishing minimum wages mostly in every 6 months gap minimum wages of all above different category with respect to different industry and in different zone ( municipal corporation, non municipal area etc. ). As bonus is a deferred wages, minimum wages should be determined for the period bonus would be paid. Say in 2024 the bonus for the financial year 2023-24 will be paid. Therefore, average minimum wages for April, 2023 to March,2024 should be considered for determine % of bonus will be paid in 2024.

Now, after identifying number of employees in each category and the minimum average wages for the period bonus to be paid to be multiplied and total value of minimum wages will be required can be determined. Allocable surplus is already determined from available surplus and considering SET ON or SET OFF if any. If the minimum bonus to be required is less than the available surplus, Minimum bonus of 8.33% will be required to pay.

If it is more ( allocable surplus ), then by unitary method to determine % of bonus.
Say, the minimum amount is required to disburse for 8.33% is x amount and the allocable surplus is y amount, if y is less than x - then 8.33% to be paid. IF y is more than x then again by unitary method to be determined the % of bonus.
As per example above if y is more than x then the % of bonus will be x = 8.33% and then y = 8.33/x * y %.

If the amount is more than 20%, the excess amount subject to equivalent of 20% amount will be SET ON. If there is loss, the entire bonus amount will be SET OFF. This process will continue for 4 years and in the 5th year - 1st year data whether SET ON or SET OFF will be removed and back to organization's account.

S K Bandyopadhyay ( WB, Howrah )
CEO-USD HR Solutions
+91 98310 81531
skb@usdhrs.in
www.usdhrs.in