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All About the Payment of Statutory Bonus

Early European employers in India gave “bakhshish,” or a gift, to their workers on holidays like “Diwali.” They probably did this because they were happy with their high profits. Bonuses are a way for employers to encourage their workers to do their best job.

The employees have a legal right to be part of the surplus employers use to pay bonuses. The employer should distribute this part among all workers based on their wages, without considering the dearness allowance or any other allowance.

Bonuses motivate employees to work at their most incredible capacity. The Payment of Bonus Act of 1965 establishes a statutory bonus. Unlike an incentive bonus, a statutory bonus is mandatory. A statutory bonus is an employee’s right under the Payment of Bonus Act, not the employer’s option.

What is a Statutory Bonus?

The Payment of Bonus Act does not define the term “bonus”. A statutory bonus is a monetary incentive received in addition to the regular payment referred to as a bonus. It is a payment employers must pay to their employees under the Payment of Bonus act, 1965.

A bonus is an extra amount of money given to an employee as a present or reward for excellent performance. The distribution of the firm’s earnings among its workers and employees is the primary purpose of bonus payments made by the company. A Statutory bonus is a part of an organisation’s profit as a direct result of the efforts contributed by its employees.

The Payment of Bonus Act, 1965

The Payment of Bonus Act is a piece of welfare legislation created to benefit labourers. The act states a company gives its employees a statutory right to share the profits with their employer.

According to the act, any employee drawing a salary or wage not exceeding ten thousand rupees per month is eligible to be paid a bonus.

A payment made on top of regular wages to an employee to inspire is known as a bonus. The Payment of Bonus Act of 1965 required businesses to provide their workers a sum each year based on the business’s success. The act allows employees to receive a share in their firm’s earnings.

Establishments covered under the Act

  • Every establishment set up in India
  • Every establishment with twenty or more than twenty employees during the preceding year (Once the Act applies to the establishment, it will continue to govern it, even if the number of employees falls below twenty)
  • Establishment consisting of different departments/undertakings/branches across India shall serve as parts of the same establishment.
  • If a separate balance sheet and profit and loss account are prepared and maintained for branches/departments/undertakings, they will serve as different establishments for computing bonuses.

What is the percentage of statutory bonus?

  • Every firm must offer qualified employees a bonus of 8.33 per cent of their salary for the accounting year.
  • Every firm must offer qualified employees a maximum bonus of 20% of their salary for the accounting year.
  • Employers may pay 8.33% to 20% of workers’ annual salaries.

Who are the eligible employees for a statutory bonus?

  • Any person employed on a salary or wage not exceeding Rs. 21,000 per month
  • As long as the employee’s earnings are at least 7000 per month or the minimum wage for such a job set by the government, the employee would be eligible for a bonus (regardless of whether the government set the minimum wage)
  • Every employee is entitled to a bonus if they have worked in the establishment for at least thirty working days during the fiscal year
  • A probationer is eligible for a bonus
  • Sweepers working part-time are also eligible for a bonus (but not in a contractor’s role).
  • Resigned employees and daily wagers are also eligible for bonuses.

Who are not eligible employees for a statutory bonus?

  • Employees of general or Life Insurance companies, Merchant, shipping, dock workers, central and state government employees, employees of Educational Institutions, Universities, Hospitals, Chambers of Commerce, Indian Red Cross, RBI
  • Employees had not worked for the preceding thirty days
  • Employees hired through contractors.
  • Employees who were dismissed for riotous or violent behaviour from service while on the establishment premises

Employees’ and Employers’ rights

Employee’ right

  • A year from the date of due payment, they have the right to pursue the government for any unpaid bonuses owed under the Bonus Claims Act.
  • Labour courts and tribunals have the power to hear any issue; nevertheless, employees who do not get bonuses cannot take their cases to these courts or tribunals.
  • Each employee has the legal right to demand information about the company’s offerings to assess if they receive a fair wage.

Employer’s right

  • Labour Courts and Tribunals have jurisdiction over any claim for interpretation of any clause of the Act.
  • A deductible bonus for misbehaviour or a previously paid festival bonus might be deducted reasonably from an employee’s pay, depending on the circumstances.
  • Employees fired for misconduct, offensive behaviour, or blocking the business’s land have the right to withhold any bonus money.

The timeframe for receiving statutory bonus payments

According to the act, employers must give the bonus to the workers within eight months after the end of the accounting year. In the event of a disagreement, however (which falls within the jurisdiction of the Industrial Dispute Act), the bonus must be paid out within one month when the settlement becomes effective.

Statutory Bonus Repayment

  • If an employee is due a bonus, he or someone authorised by him can apply to the proper authorities to reclaim the money.
  • If the government believes an employee is entitled to a bonus, it issues a certificate to the collector, who retrieves the money.
  • The employee must apply within a year of when the money becomes due. A late application may be accepted if the applicant can prove reasonable cause.

Provisions related to a newly established organisation

When companies are new, employees are eligible for Statutory bonuses as follows:

  1. Employees only get the bonus in the first five years if there are profits.
  2. Employees benefit from the allocable surplus in the sixth year, which can affect the 5th or 6th-year bonus.
  3. In the 7th year, it must distribute the bonus from the allocable surplus and can set off the 5th, 6th, and 7th year bonuses.

How is a sstatutory bbonus calculated?

  • If the basic salary + Dearness Allowance is less than Rs. 21,000, then the bonus is Payable.
  • If the Basic Salary + Dearness Allowance is more than Rs. 21,000, then the bonus is not Payable.

Conclusion

Sharing in wealth may also benefit from increasing wages for low-wage employees; helping them close the gap between their current salary and the need-based money they should be receiving is another advantage this approach provides.

Article 43 of the constitution aims to improve the standard of living for all industrial and agricultural workers. There is nothing wrong with attempting to improve the standard of living for those workers whose efforts have contributed to the profits of the organisation where they worked.

The Payment of Bonus Act of 1965 is an attempt to legitimise the practice of many businesses awarding bonuses to their employees. Statutory bonuses may be calculated objectively using this technique, which considers earnings and productivity. It allows workers to earn extra money on top of their regular salary or minimum wage.

FAQs

What Is the difference between Bonus and Ex-Gratia?

A bonus is an additional payment on top of one's income and other benefits often tied to one's level of productivity or performance.

Ex gratia payments may be made by an employer after a certain period of existence, the successful completion of a significant export order, or any other event that marks an important milestone.

Can any establishment discontinue giving bonuses after a few years?

No, once employees become eligible, it becomes necessary to give bonuses even if the establishment earns a profit.

What goes into the bonus?

Only the base salary and discretionary allowance (DA) for bonus payment are included in salaries and wages.

Should we provide bonuses to contractual workers?

The answer is negative; the employer does not have the authority to award bonuses to the independent contractors under him.

Who is eligible for a bonus?

Every employee shall be eligible for a bonus paid by his employer in an accounting year.

About Author

I am Aanchal Dhuria. I have done LLB from the department of laws, Punjab University, and an LL.M from UILS, Panjab University, wherein I have learnt research and writing skills. I have also got several research papers published. After post-graduation, I have been preparing for the judiciary, and I believe I have a good hold on all subjects of the judiciary. Presently, I have got myself enrolled for Ph.D. at Panjab university Chandigarh.