What is Bonus 

It is a sum paid over and above the regular salary for good performance, project achievement, or other reasons, depending on the company’s payroll policy. In most companies, the employees receive bonuses on special occasions like festivals. Employee performance determines the bonus structure in certain firms. Employee rewards are determined by how well they work for the company. Employees benefit from increased productivity, sales, and market share and a strong sense of teamwork. The employee-centric strategy makes sure that every team member is motivated to work at the highest level by tying compensation to performance.

A bonus is primarily a monetary benefit or incentive paid to employees in addition to their regular salary. The word originates from the Latin word Bonus. It can be given for special skills, risk-taking, extra work, promotions, setting an example for others, etc. There can be many other reasons for paying bonuses. In India, it is common among private and foreign companies when they are doing well.

Types of bonuses

The bonuses are of different types depending on the situation.

  • Discretionary Bonus: A discretionary bonus is a payment given to an employee in addition to their usual salary because of their performance or sale of the product.
  • Nondiscretionary Bonus: A nondiscretionary bonus is a payment given as promised in the offer letter.
  • Signing Bonus: Signing Bonuses are given to employees after they accept the job offer. They can receive them in the first month or at the end of the probation period.
  • Non-cash Bonus: This Bonus is not a monetary reward, but it can take various forms, such as a certificate, trophy, coupons, etc.
  • Profit-sharing Bonus: Employees get this type of Bonus when the company makes a profit.
  • Referral bonus: Employees who refer new hires are given a referral bonus.
  • Holiday bonus: Companies can give employees bonuses during holidays like Christmas or Diwali.
  • Annual Bonus: Employees are given a yearly Bonus based on their performance at the end of a year.


Who is eligible for the Bonus Act in India?

The Bonus Act applies to every organization and establishment that employs at least twenty people on any day during the accounting year. However, this Act does not apply to establishments employing fewer than 20 workers if half of the workers were laid off for more than four weeks in the preceding twelve months or were suspended for more than four weeks.

What component of wages are included in calculating the Bonus?

Bonus components are the basic wage, DA, and the productivity-linked incentive payment (PLIP).

How is the Bonus calculated?

The Bonus will be calculated on Basic Pay and other pay specified in the Payment of Wages Act, 1936, established by the Government of India. The Central Government will decide the Bonus rate and publish it every year for the Financial Year in the Gazette of India. It could be between 8.33% and 20%.

Who is eligible for the Bonus?

The Bonus Act applies to persons drawing a monthly salary of ₹21000/- or less (Basic + DA, excluding other allowances) and have completed 30 days in a calendar year.

What is the minimum Bonus that the Act prescribes?

The Act requires the Bonus to be paid at a minimum rate of 8.33%.

What is the maximum bonus payable under the Act?

The maximum bonus payment will be 20% of the employee’s monthly salary.

What is the time limit for employees to receive the Bonus?

The bonus is paid within eight months from the close of the accounting year.

Can an employer hold or deduct the Bonus from an employee?

In addition, an employer can also deduct the Bonus from an employee who is disqualified or dismissed based on fraud, misconduct, or substantial absenteeism.

Are bonuses the same as salary?

No, bonuses are paid on top of an employee’s salary. Bonuses are additional income rather than salary.

How do we settle bonuses if an employee leaves the organization before the end of the financial year?

Employee incentives and bonuses are vital to an employer’s human resources policy. Understanding the nature of employee benefits, their legal requirements, and the goals behind implementing the program is essential. A bonus can be paid as part of the settlement to the employee pro-rata when they exit before completing the financial year.

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