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Statutory Bonus under The Payment of Bonus Act 1965 – Webinar FAQs

Posted by: on 25 September 2018 in Amendments, HR, Human Capital Management

ADP India hosted a webinar on Statutory Bonus under The Payment of Bonus Act 1965 on 19 September 2018. The speaker was Anandan Subramaniam, National Manager – Statutory Compliance, ADP India’s Centre of Excellence. The webinar recording can be viewed below.

There were many interesting questions that came up during and after the webinar. While Mr. Anandan answered several of them during the webinar, there were some questions that he did not have the time to answer. We have drafted these questions and answers into a quick Frequently Asked Questions (FAQ) format, for the benefit of everyone. If you have further questions, please comment below and we’ll answer as soon as we can.

Frequently Asked Questions

1. Minimum wages is Gross Salary, then how to limit Rs.21000 -Basic + DA? Do you have any such type of case study or notification who cleared that limitation of Rs. 21000 is Basic + DA?
In every State of India, Minimum wages is always Basic + Dearness Allowance. If an establishment is paying any other monitory benefits as allowance or reimbursements, which is not part of Minimum Wages, it sums-up to Gross. For Payment of Bonus, the eligibility is to be determined with the Basic + DA. If the Basic+DA is 21000 or less, the employee is eligible.

2. In our case, for Public and Shareholders our Financial Year is Jan – Dec and for Income tax purposes the financial year is Apr – Mar. So in such a scenario, which period should we consider for filling the bonus returns?
Filing of Bonus returns in any case shall be (1) Bonus disbursement within 8 months of closing of Profit and Loss Account and (2) Return in Form D shall be filed within 30 days of disbursal of such Statutory Bonus.

3. Definition of Accounting year: Can we have accounting year as January to December or is it precisely defined as March to April?

Also, we pay bonus every month. Can we consider it while deciding eligibility of ESIC?
As per Section 2 (1) Accounting year means,
(i) In relation to a corporation, the year ending on the day on which the books and accounts of the corporation are to be closed and balanced;
(ii) In relation to a company, the period in respect of which any profit and loss account of the company laid before it in annual general meeting is made up, whether that period is a year or not;
(iii) In any other case—
(a) the year commencing on the 1st day of April; or
(b) if the accounts of an establishment maintained by the employer thereof are closed and balanced on any day other than the 31st day of March, then, at the option of the employer, the year ending on the day on which its accounts are so closed and balanced: Provided that an option once exercised by the employer under paragraph (b) of this sub-clause shall not again be exercised except with the previous permission in writing of the prescribed authority (Labour Commissioner) and upon such conditions as that authority may think fit

Monthly Payment of Bonus cannot be considered for determining eligibility of ESIC coverage/out-of-coverage.

4. If an employee earns Rs 40,000 total monthly salary, but Basic + DA is Rs 20,000, is the employee eligible for Statutory Bonus?
Yes, such employee is eligible for payment of Statutory Bonus.

5. If a company is engaged only in export of services, is it still required to pay Statutory Bonus?
Yes, the establishment, once attaining applicability, is covered and Statutory Bonus is to be paid for eligible employees.

6. If the MW basic is 10,000 for which bonus comes to 9,996, is it fine if we pay only 7,000 as bonus?
No, Statutory Bonus to be paid is Rs. 9,996.

7. Which companies are mandatorily complied to pay this bonus? What about IT companies?
As per Section 15 of the Act, “Establishment in private sector” means any establishment other than establishment in public sector. IT companies also mandatorily need to pay statutory bonus for eligible employees.

8. What is the procedure to pay bonus now, since the employer not paid so far from the date of incorporation (in the year 2010)?
This establishment has to pay Statutory Bonus for eligible employees for the Accounting Year 2017-18. Further from the Accounting year, from completion of infancy period, Statutory Bonus arrears are to be paid to the eligible employees, with applicable interest (Infancy period – which is the first 5 Accounting years following accounting year in which the employer sells the goods produced or manufactured in the establishment are sold or services are rendered by the establishment as the case may be).

9. Can an employer not pay bonus in first five (5) years even after making profit?
It is non-compliance and will attract penal provisions under the Act.

10. If the company has performance bonus as part of the regular salary for all employees, will the Statutory Bonus still apply? Can the variable performance bonus be treated as payment against this liability?
No. As performance bonus is based on the skills of the individual, it cannot be considered as Statutory Bonus.

11. If 12(3) settlement is in place, shall it supersede the Statutory Bonus?
12(3) settlement is on some matters of dispute which would be arrived at, in course of the conciliation proceedings. If payment of Statutory Bonus is also a dispute and needs to be arrived at after conciliation, then it shall supersede.

12. If any employee is absent for 60 days for ESIC Leave, will he be eligible for the bonus for the period on which he was on leave?
60 days shall not be covered in that Accounting Year for arriving at the final Statutory Bonus, as the Insured person is availing benefit from ESIC. There is no clarity from the provisions of Act, similar to Maternity Benefit, which would be deemed as worked days.

13. Does Statutory Bonus apply to interns also?
Yes, they are not excluded under the Act.

14. Are Trainees under Standing Order ACT eligible?
Yes, they are eligible.

15. Could there be more than one rate of bonus in a company? Can bonus rate be reduced if existing payment of bonus is maximum, i.e. 20%?
NO. It should be equal for all eligible employees. Statutorily, it is required to be between 8.33% and 20%. Percentage of Bonus can be different each Accounting year, as it is on the profit earned.

16. How is the bonus calculation done for Unscheduled Establishments?
Eligibility for employees – All those employees who are drawing Rs.21,000 per month or less (Basic+DA).
Wage to be considered for calculation of Bonus for such eligible employees is Rs.7,000 only (For every employee whose Basic+DA is between 7000 and 21000).

You can access ADP India’s previous webinar recordings here.

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