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1. What is a Statutory Bonus?

A statutory bonus is a mandatory payment that certain employers are required to make to their eligible employees under the Payment of Bonus Act, 1965. This bonus is in addition to the regular salary and is meant to reward employees for their contribution to the company’s profits or productivity.

Key points:

• It’s a legal requirement, not a voluntary benefit

• It’s separate from other bonuses like performance bonuses or festive bonuses

• The purpose is to share the company’s prosperity with its workforce

2. Who is eligible to get a statutory bonus?

Eligibility criteria for statutory bonus:

a) Employee’s salary: Those earning up to ₹21,000 per month are eligible.

b) Employment duration: Employees must have worked for at least 30 days in the accounting year.

c) Employer criteria: The Act applies to establishments with 20 or more employees. For factories, it applies if they have employed 10 or more persons.

Note: Even if an employee’s salary exceeds ₹21,000 during the year, they remain eligible if they were below this threshold at the beginning of the accounting year.

3. How is statutory bonus calculated?

The calculation of statutory bonus involves several factors, including the employee’s salary or wage, minimum wages, and the company’s allocable surplus. Here’s a detailed breakdown:

1. Salary Consideration:

• The bonus is calculated on the salary or wage earned by the employee.

•  Salary includes basic pay and dearness allowance but excludes other allowances.

2. Minimum Wage Consideration:

• If an employee’s salary is below the minimum wage for that category of employment, the bonus is calculated based on the minimum wage, not the actual salary.

• This ensures that lower-paid workers receive a fair bonus.

3. Salary Ceiling:

• For bonus calculation purposes, the maximum salary considered is ₹7,000 per month or the minimum wage, whichever is higher.

• Even if an employee earns more, the bonus calculation is capped at this amount.

4. Percentage of Bonus:

• The minimum bonus is 8.33% of the salary (or minimum wage, if applicable).

• The maximum bonus is 20% of the salary (or minimum wage, if applicable).

5. Allocable Surplus:

• The actual percentage of bonus depends on the company’s allocable surplus.

• Allocable surplus is 60% of the available surplus in case of companies other than banking companies, and 67% for banking companies.

Calculation Steps:

1. Determine the applicable salary:

• Use the actual salary if it’s above minimum wage but below ₹7,000.

• Use minimum wage if the actual salary is below it.

• Use ₹7,000 if the actual salary exceeds this amount.

2. Calculate the minimum bonus:

• Minimum bonus = Applicable salary × 8.33%

3. Calculate the maximum bonus:

• Maximum bonus = Applicable salary × 20%

4. Determine the actual bonus based on the company’s allocable surplus:

• The actual bonus will fall between the minimum and maximum, depending on the company’s profitability.

5. Ensure the bonus is not less than ₹100:

• If the calculated bonus is less than ₹100, the employee should receive ₹100 as bonus.

Let us understand through an example:

It’s important to note that while this calculation method ensures a fair bonus for all eligible employees, the actual amount can vary based on the company’s financial performance and the specific provisions of the Payment of Bonus Act as applicable to the organization.

4. When should the statutory bonus be disbursed to employees?

The Payment of Bonus Act specifies the timeframe for bonus payment:

• The bonus must be paid within 8 months from the close of the accounting year.

• For example, if the accounting year ends on March 31, the bonus should be paid by November 30.

• In case of a dispute regarding the bonus amount, it must be paid within one month of the award becoming enforceable.

5. Can an employee take an advance on the statutory bonus?

Yes, employees can receive an advance on their statutory bonus under certain conditions:

• The advance can be given during the financial year

• It should not exceed 75% of the bonus amount the employee is likely to be entitled to

• The final bonus payment will be adjusted against this advance

Employees should note that taking an advance is not a right, and it’s subject to the employer’s discretion and company policies.

6. Can the statutory bonus be paid to employees every month?

No, the statutory bonus cannot be paid monthly. The law specifies that it should be an annual payment. Here’s why:

• The bonus is calculated based on the company’s annual profits

• It’s meant to be a lump sum reward for the year’s work

• Monthly payments would complicate the calculation and adjustment process

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