PAYMENT OF BONUS

· PAYMENT OF BONUS

- Section 26 – Eligibility for Bonus

1. An employee is entitled to bonus if:

• · He/She earns wages below the notified limit.
• · Has worked for at least 30 working days in the accounting year.

Minimum Bonus

• · 8.33% of wages/salary or ₹100, whichever is higher.
• · Payable even if the employer has no profit.

2. If employee’s salary exceeds the notified limit, bonus is calculated as if salary were:

• · The notified limit, or
• · The minimum wage,

whichever is higher Maximum wage

3. If employer has allocable surplus, bonus is payable proportionately subject to a maximum of 20% of wages.

4. Set-on and Set-off used while calculating allocable surplus, adjustments are made under Section 36.

5. Productivity bonus -Bonus based on production/productivity may be paid through agreement or settlement, but total bonus cannot exceed 20% of wages.

6. Bonus in First Years of Establishment

Explanation

Employer is considered to have profit only after:

• · Proper depreciation is accounted for.
• · Prior losses are fully set off.

7. Goods produced during trial runs are not considered for bonus calculation. The same rules apply to departments, branches, and undertakings.

- Section 27 – Proportionate Reduction in Certain Cases

If an employee has not worked for all working days in the accounting year, the minimum bonus (8.33%) may be reduced proportionately.

- Section 28 – Computation of Working Days

An employee is deemed to have worked on days of:

• Lay-off under law/agreement/standing orders
• Paid leave
• Temporary disablement due to employment injury
• Maternity leave

- Section 29 – Disqualification for Bonus

An employee is disqualified if dismissed for:

• · Fraud
• · Riotous or violent behavior
• · Theft, misappropriation, or sabotage
• · Conviction for sexual harassment

- Section 30 – Departments, Branches and Undertakings

All departments, branches, and undertakings are treated as one establishment for bonus computation.

Purpose

• Prevent artificial splitting of units.
• Avoid bonus liability.

Separate establishment when

• Separate balance sheet is prepared.
• Separate profit and loss account is maintained.

- Section 31 – Payment of Bonus from Allocable Surplus

Bonus is payable only out of allocable surplus.

Important

• Audited accounts cannot normally be questioned.
• In a dispute, Government may ask for balance sheet.
• Financial information cannot be disclosed without employee consent.

- Section 32 – Computation of Gross Profit

Gross profit is calculated for each accounting year according to the method prescribed by Central Government for:

• Banking companies
• Other establishments

- Section 33 – Computation of Available Surplus

For the first and subsequent accounting years, available surplus includes:

• Current year gross profit minus deductions
• Adjustment relating to tax and bonus payable

- Section 34 – Sums Deductible from Gross Profit

Deductible prior charges:

• Depreciation
• Direct taxes
• Other prescribed deductions

- Section 35 – Calculation of Direct Tax

While calculating direct tax:

• · Past losses are not set off.
• · Unabsorbed depreciation is not set off.
• · Religious/charitable institutions are treated as normal employers for this purpose.
• · HUF or individual employers are taxed under the Income-tax Act.
• · Export rebates and other rebates are ignored.

- Section 36 – Set-on and Set-off

1. Set-on (Excess surplus)

If allocable surplus exceeds the amount needed for maximum bonus (20%):

• · Excess is carried forward.
• · Can be carried forward for 4 years.

2. Set-off (Deficiency)

If: There is no surplus, or

Surplus is less than minimum bonus (8.33%),

the deficiency is carried forward for 4 years.

3. The principal of Set off and Set On as provided by central govt. does not fit, apply rules prescribed

4. Where in any accounting year – when amount has been forwarded and set-off and set-on while adjusting oldest year is adjusted first

- Section 37 – Adjustment of Customary or Interim Bonus

If employer has already paid:

• · Puja or festival bonus
• · Interim/statutory bonus in advance

Such amount can be deducted from the final bonus payable.

- Section 38 – Reduction of Bonus for Misconduct

If employee’s misconduct causes loss to the employer, the employer may deduct the amount of loss from the bonus payable.

- Section 39 – Time Limit for Payment of Bonus

Bonus must be credited to the employee’s bank account within 8 months from the close

of the accounting year.

If dispute is pending -Pay within 1 month of award or settlement.

If dispute is only about higher bonus -Employer must still pay minimum 8.33% within 8 months.

- Section 40 – Public Sector Establishments

Special provisions apply to certain public sector establishments.

Non-Applicability of Bonus Chapter

This chapter does not apply to employees of:

• · Life Insurance Corporation of India (LIC)
• · Reserve Bank of India (RBI)
• · Certain public sector financial institutions
• · Seamen under merchant shipping law
• · Dock workers
• · Inland water transport crossing other countries
• · Central, State, or Local Government departments
• · Red Cross Society
• · Universities and educational institutions
• · Hospitals, chambers of commerce, and social welfare institution