I had a query from a member company who wsa looking for some advice on the Compensation structure and wanted to understand more about Bonus..
I am providing the query and an HR consultant who has provided some advice...I would appreciate if someone from the group could share more insights on the subject. Appreciate any inputs so that more members can benefit:
The Query:
We are considering restructuring the compensation structure. One of the things we wanted to understand was with regard to Bonus. As you may already be aware, this applies (as per Bonus Act) to employees drawing a salary upto Rs.10,000/- p.m.
We have been advised by our Consultants that the Bonus amount needs to be an annual (or semi-annual) amount and cannot be included in the monthly salary of an employee. However, in order that the employees get a higher amount on a monthy basis (rather than having to wait for 6 - 12 months), we would prefer to estimate the max. annual Bonus amount, divide the figure by 12 and include the amount so arrived, in the monthly salary of the employee.
I am sure NASSCOM must be receiving queries like this from other member companies and may have a knowledge repository that comes in handy for everyone. I would appreciate if you could please help us understand the following:
1. Is it Ok if we included the Bonus amount in the monthly salary of the employees (drawing salary upto Rs.10,000/- p.m), as described above?
2. If we were to do this:
* Would PF be applicable on the Bonus amount?
* Would ESI be applicable on the Bonus amount?
I look forward to hearing from you. In case you are not able to help us with this, would it be possible for you to connect us with someone who would be able to resolve this confusion for us?
Reply from a HR Consultant
First while it is not prohibited to pay bonus on a monthly basis, but organizations prefer to pay it after 12 months when accounts are closed. It acts as a retention factor. It is also linked to the profits made. as per the act.
I have not found any provision in the act that specifically dictates that bonus can be paid only annually or six monthly.
17. Adjustment of customary or interim bonus against bonus payable under the Act. -
Where in any accounting year - (a) An employer has paid any puja bonus or other customary bonus to an employees ; or
(b) An employer has paid a part of the bonus payable under this Act to an employee before the date on which such bonus becomes payable;
Then, the employer shall be entitled to deduct the amount of bonus so paid from the amount of bonus payable by him to the employee under this Act in respect of that accounting year and the employee shall be entitled to receive only the balance.
Also I give below the extract from the bonus act that defines what comes under calculation of bonus and exemptions therein
(21) "Salary or wage" means all remuneration (other than remuneration in respect of overtime work) capable of being expressed in terms of money, which would, if the terms of employment, express or implied, were fulfilled, be payable to an employment or of work done in such employment and includes dearness allowance (that is to say, all cash payments, by whatever name called, paid to an employee on account of a rise in the cost of living, but does not include -
(i) Any other allowance which the employee is for the time being entitled to ;
(ii) The value of any house accommodation or of such of light, water, medical attendance or other amenity or of any service of any confessional supply of food grains or other articles;
(iii) Any traveling concession ;
(iv) Any bonus (including incentive, production and attendance bonus) ;
(v) Any contribution paid or payable by the employer to any pension fund or provident fund or for the benefit of the employees under any law for the time being in force ;
(vi) Any retrenchment compensation or any gratuity or other retirement benefit payable to the employees or any ex gratia payment made to him ;
(vii) Any commission payable to the employee.
(viii) Any commission payable to the employee
I also give below the defition of wages under the PF act that mention what all is excluded from the wages while coputing bonus.That is self explanantory. I understand that PF and ESI are not to be deducted from the bonus amounts , but TDS is deductable if applicable.
Employee's Provident Fund and Miscellaneous Provisions Act - Definition
Section 2B:
Basic wages
All emoluments which are earned by an employee while on duty or on leave or on holidays with wages in either case in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include-
(i) the cash value of any food concession;
(ii) any dearness allowance (that is to say, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living), house-rent allowance, overtime allowance, bonus, commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment;
(iii) any presents made by the employer;
I just hope this helps. I have not found anything in the ESI act that mentions that ESI needs to be deducted from the bonus amounts computed. But I will check this out and revert to you about ESI
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