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What is a Statutory Bonus?
Statutory bonus is the minimum bonus an organisation needs to pay to its eligible employees each year under the Payment of Bonus Act. This amount is paid irrespective of the employer’s financial performance or profitability. It is usually paid in October or November every year.
Statutory Bonus is paid over and above the basic salary that an employee receives. It is meant to offer them a share in the company’s prosperity and encourage productivity. The bonus amount ensures that even employees in loss-making units receive a reasonable reward for their hard work throughout the year.
Eligibility for Statutory Bonus
For an employee to qualify for a statutory bonus, their salary should not exceed Rs. 21,000 per month. In addition, they must have worked for at least 30 days in an accounting year under the concerned establishment.
However, some categories are excluded such as seasonal factories working for less than 120 days, managerial or supervisory staff and employees below such designation. Organizations employing 20 or more persons for the major part of the accounting year also become eligible to pay this bonus amount as per the Act’s provisions.
However, there are many more aspects related to it that you must know. We are going to highlight one such element covering the deductions that come from the bonus payable.
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Disqualifications to Statutory Bonus Eligibility
We have discussed the eligibility criteria to get the statutory bonus above. However, there are some situations where the employee can be disqualified from receiving a statutory bonus.
- Any employee who has been dismissed for serious offences like any misconduct or fraud will not be eligible for the bonus.
- Any employee who engaged in riotous or violent behaviour while on premises
- Any employee who has engaged in theft, misappropriation or sabotage of business assets.
Deductions from the Bonus Payable
While the maximum bonus payable is 20% of the salary, some permissible deductions can lower the actual payout.
- Authorised deductions following the Payment of Wages Act can be made like provident fund, income tax etc.
- The number of days of unauthorised absence or loss of pay due to disciplinary action may also be deducted on a pro-rata basis.
- Total deductions cannot exceed 10% of the salary to ensure employees get a minimum bonus of 8.33% of their salary. Any unauthorised deductions can be challenged by employees.
To make it easy for you to get the overall idea of your bonus this year, below we have an example of a statutory bonus calculation.
Statutory Bonus Calculation with Example
The formula to calculate statutory bonus is:
(Salary/30) x Number of days worked in the year.
Let’s take the example of an employee drawing a Rs. 15,000 salary per month and working for 10 months (300 days) in a year.
Step 1) Total annual salary is Rs. 15,000 x 12 = Rs. 1,80,000. This is the amount upon which statutory bonus will be calculated.
Step 2) Maximum Bonus = 20% of Rs. 1,80,000 = Rs. 36,000
Step 3) Bonus per day = Rs. 1,80,000/30 = Rs. 600
Step 4) Days worked in the year = 300. Therefore, actual Bonus = Rs. 600 x 300 days = Rs. 18,000
Since it is less than the maximum, the actual bonus payable is Rs. 18,000. So, in summary, the formula ensures a fair and standard bonus calculation.
This shows that the Payment of Bonus Act protects employees’ interests by ensuring a minimum yearly bonus as per statutory guidelines. Both employers and workers should be well aware of their rights and obligations under this law.
To streamline bonus and payroll calculations, most businesses choose to automate their payroll processes with solutions like RazorpayX Payroll.
How is the Statutory Bonus Paid?
Statutory bonus can be paid in advance or in arrear. Here are the four ways in which statutory bonus can be paid to employees
Advance payment with salary
The bonus may be included as a separate head under the employee’s salary structure. The statutory bonus then gets automatically processed with payroll.
Advance adhoc payment
Payment of statutory bonus can be made on an adhoc basis if it is not included with regular payroll.
Advance payment in bulk
Bonus can also be paid in bulk during the year, where the employer can pay statutory bonus calculated as a percentage of wages.
Arrear payment in bulk
Bonuses can also be paid at the end of the financial year as an arrear payment. This is done in March, once the employee has received his regular payroll.
Read more: All About Payment of Bonus Act
FAQs
Is the statutory bonus paid on basic pay only?
No, for computing bonuses, an employee's salary is considered including all remuneration.
Are there any exemptions under the Act?
Yes, certain establishments like hotels, mines and those exempted by the Government through notification are not required to pay statutory bonuses.
What if the employer refuses to pay a bonus citing losses?
Statutory bonuses must be paid and cannot be denied even in losses as per the Act. So, you can always lodge the claim with all the supporting documents and seek intervention.
What is the limitation period for claiming an unpaid bonus?
An employee can raise a bonus payment dispute within 8 months from the last date of the accounting year in which the bonus became payable.
What details should be mentioned in the bonus payment receipt?
The receipt should mention the employee's name, the period for which the bonus is paid, total salary, deductions made and net bonus amount paid.