SKP Business Alert
9 January 2016 | Volume 7 Issue 4
Legislative department issues notification amending the Payment of Bonus Act 1965

The Ministry of Law and Justice (Legislative Department) has issued a notification on 1 January 2016 amending the Payment of Bonus Act 1965 (the Act) with retrospective effect from 1 April 2014. The highlights of the amendment are listed below:

The Act provides for the payment of an annual bonus to employees of certain establishments. Under
the Actbonus is calculated on the basis of the employee’s salary and the gross profits of the establishment.

The highlights of the amendment
  1. The eligibility of the employees has been changed
    Present basic wage ceiling of INR 10,000 per month has been raised to INR 21,000 per month for the eligibility of bonus. It implies that the payment of bonus is now mandatory for all employees whose monthly salary (basic + dearness allowance) is less than or equal INR 21,000 (previously INR 10,000).
  1. The amount of bonus payable has been changed
    The maximum salary considered for bonus calculation is revised to INR 7,000 per month or the wage notified under the Minimum Wages Act, 1948 (whichever is higher) against INR 3,500 per month, which was the earlier ceiling.


    The bonus should be paid at a minimum rate of 8.33% (on a maximum of 20% of the salary). The percent of bonus should be decided on the basis of the gross profit/available surplus/allocable surplus for the financial year.
  2. Retrospective effect
    The notification has come into force with effect from 1 April 2014.
  3. The due date for payment
    The due date for the payment of revised/differential bonus has not yet been clarified by the labour office.
  4. The due date for filing the revised return
    The due date for filing the revised returns (Form D) has not yet been clarified by the labour office.
The implications of the Act
  • Identify the employees who get covered under the revised ceiling of INR 21,000 per month under the Act (for employees with salaries more than INR 10,000 but less than or equal to INR 21,000). Statutory bonus should be calculated and paid for the period April 2014 to March 2015.
  • Pay a differential bonus to employees, who were eligible earlier and who received a bonus according to the old Act (i.e. those employees whose salary was more than INR 3,500 but less than INR 10,000).
  • Recalculate the allocable/available surplus, the bonus percent and set-on/set-off.
Snapshot of the implications
 
Salary (per month in INR) Current Implication Revised Implication Remarks
Bonus Eligibility Maximum Bonus Bonus Eligibility Maximum Bonus (subject to minimum wages)
Less than 3,500 Yes (Earned Salary) x (Bonus %) Yes (Earned Salary) x (Bonus %) No Change
More than 3,500 but less than 7,000 Yes 3,500 x (Service period in months) x (Bonus %) Yes (Earned Salary) x (Bonus %) The differential bonus should be calculated and paid
More than 7,000 but less than 10,000 Yes 3,500 x (Service period in months) x (Bonus %) Yes 7,000 x (Service period in months) x (Bonus %) The differential bonus should be calculated and paid
More than 10,000 but less than 21,000 No NA Yes 7,000 x (Service period in months) x Bonus %) Bonus should be calculated
More than 21,000 No NA No No No change
 
Illustration
Assumptions:
Bonus %: 8.33%
Service period: 12 months

 
Salary (per month in INR) Current Implication Revised Implication Differential  Bonus in INR
Bonus Eligibility Maximum Bonus in INR Bonus Eligibility Maximum Bonus in INR (subject to minimum wages)
Less than 3,500 3,000 Yes 3,000 Yes 3,000             -
More than 3,500 but less than 7,000  5,000 Yes 3,500 Yes 5,000 1,500
More than 7,000 but less than 10,000 9,000 Yes 3,500 Yes 7,000 3,500
More than 10,000 but less than 21,000 15,000 No             - Yes 7,000 7,000
More than 21,000 22,000 No             - No             -             -

 

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