Bonus Calculation and act

We wait for our bonus, sitting in our cubicles around Diwali time, waiting anxiously for our bonus. But have you ever wondered about your bonus calculations?  And no, your bonus does not depend on how much your boss likes you! In fact, the PAYMENT OF BONUS ACT, 1965 decides bonuses for a lot of the working population.

In this blog we’ll try to answer some commonly asked questions about bonuses and the bonus act:

• What is the bonus act?
• How much of a bonus will you get?
• Is your company eligible for the bonus act?
• Are you eligible for the bonus act?
• When do you receive a bonus?

THE PAYMENT OF BONUS ACT

In 1965, the government of India implemented the payment of bonus act, which guaranteed a minimum bonus per month to people whose salaries were below a certain limit.

As stated by the Act, “Every employer shall be bound to pay to every employee in respect of the accounting year commencing on any day in the year 1979 and in respect of every subsequent accounting year, a minimum bonus which shall be 8.33 percent of the salary or wage earned by the employee during the accounting year or one hundred rupees, whichever is higher, whether or not the employer has any allocable surplus in the accounting year.”

This means that 8.33% of your (BASIC + DA) wage is the minimum bonus you are liable to receive, with 20% being the maximum. However, INR 7000 is the maximum calculated bonus. And, your bonus will only be calculated at INR 7000 regardless of whether your salary is INR 10,000.

Calculation of Bonus

Let’s explain some terms further:

• Basic pay: This is the core of the salary, without any extras being added or taken off, such as reductions due to salary sacrifice schemes or increments due to overtime work, etc.
• Grade pay: Government employees receive grade pay depending on their position in the government.
• Allowance: It is the amount the employee receives in addition to salary, to meet some service requirements such as commute, housing, health, etc.
• DA(Dearness Allowance): The DA is a cost of living adjustment to allowance, it is a fraction of your (basic pay + grade pay). It may increase or decrease depending on inflation.

Let’s illustrate this with a couple of examples:

1: Assume your basic + DA is INR 5000, then your minimum bonus is 8.33% of 5000, which is 416.5.

2: Assume your basic +DA is INR 8000, and you live in Rajasthan where the minimum wage is INR 5720 per month, then your minimum bonus will be 8.33% of INR 7000.

3: Assume your basic +DA is INR 8000, and you live in Delhi where the minimum wage is INR 13,000 per month, then your minimum bonus will be 8.33% of INR 13,000, this is because the minimum wage is higher than INR 7,000.

Bonus eligibility 2018 for companies

Now, knowing whether your company is eligible or not is crucial, so if your company has the following criteria then it is eligible:

• It should be at least 5 years old.
• It should be a profitable company.
• There should be a minimum of 20 employees in the company.

Bonus eligibility 2018 for employees

But are you eligible for the bonus? If you satisfy the following criteria, then you are.

• You must have a monthly salary of less than INR 21,000 per month.
• You must be present at work for at least 30 days a year.

The maximum time by which you should get a bonus under the bonus act

As per government policy, after the end of every financial year, bonuses are given out for around 8 months. So, in India, where the financial year ends in March, bonuses are usually due around October-November. This is why companies prefer to give them out during Diwali.