It is a sum of money 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 different bonuses on special occasions like festivals. In some companies, the Bonus structure is based on employee performance. Employees are rewarded based on their performance levels in the organization. This helps employees increase sales, market share, and productivity levels and creates a great team spirit. By linking pay to performance, the employee-centric approach ensures that every team member is driven to deliver the best.

The concept of a bonus is a monetary benefit or incentive paid to employees in addition to their regular salary. The word has its origin in 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 can be discretionary or nondiscretionary, depending upon the situation.
  • Discretionary bonus: A discretionary bonus payment is a type of 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 type of payment given as promised in the offer letter.

Who is eligible for the bonus Act?

Bonus Act applies to every organization and establishment that employs not less than twenty persons on any day during the accounting year. This Act does not apply to establishments employing less 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 and fitment factor established by the Govt. of India from time to time. 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% to 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 must be prescribed by the Act?

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

What is the maximum bonus that is 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 payed within 8 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.

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

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

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