Regarding Bonus Payment to employess

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Baldev Kumar (Querist)

17 December 2008 Respected Sir,
Can anyone confirm me about if a newly established company earning Profits is liable to pay bonus to its employees (if its time of establish is less than 5 yrs) kindly explain rules and regulations about the Payment of Bonus.

Thanx in advance

Ravikumar.G

Ravikumar.G (Expert)

17 December 2008 The Payment of Bonus Act, 1965, gives to the employees a statutory right to a share in the profits of his employer. Prior to the enactment of the Act some employees used to get bonus but that was so if their employers were pleased to pay the same.

The Act enables the employees to get a minimum bonus equivalent to one month's salary or wages (8.33% of annual earnings) whether the employer makes any profit or not. But the Act also puts a ceiling on the bonus and the maximum bonus payable under the Act is equivalent to about 2 1/2 months' salary or wage (20% of annual earnings).

It is to be noted that employees drawing salary or wage exceeding Rs. 10000.00 per month are not entitled to get any bonus under the Act. (w.e.f. 1 April 2006)

Ravikumar.G

Ravikumar.G (Expert)

17 December 2008 Applicability of Act

Every factory where in 10 or more persons are employed with the aid of power or an establishment in which 20 or more persons are employed without the aid of power on any day during an accounting year.

Establishment

Establishment includes Departments, undertakings and branches, etc.

Ravikumar.G

Ravikumar.G (Expert)

17 December 2008 Computation of available surplus

a. Income taxes and direct taxes as payable.
b. Depreciation as per section 32 of Income Tax Act.
c. Development rebate, investment or development allowance. {Section 5}

Components of Bonus

Salary or wages includes dearness allowance but no other allowances e.g. overtime, house rent, incentive or commission. {Section 2(21)}

Ravikumar.G

Ravikumar.G (Expert)

17 December 2008 Eligibility of Bonus
An employee will be entitled only when he has worked for 30 working days in that year. {Section 8}

Time Limit for Payment of Bonus
Within 8 months from the close of accounting year {Section 19}

Eligible Employees
Employees drawing wages upto Rs.10000.00 per month or less.
For calculation purposes Rs.3500.00 per month maximum will be taken even if an employee is drawing upto Rs.10000 per month. {Section 12}

Ravikumar.G

Ravikumar.G (Expert)

17 December 2008 Act not applicable to certain employees of Life Insurance Corporation, General Insurance, Dockyards, Red Cross, Universities & Educational Institutions, Chambers of Commerce, Social Welfare Institutions, Building Contractors, etc. {Section 32}

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