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Meaning & Definition

Bonus

Bonus is a financial compensation that is above and beyond the normal paycheck of the recipient. Bonuses may be awarded to both entry-level employees and to senior level executives. Bonuses may be dangled as incentives to prospective employees and can also be distributed to a company's shareholders. A company may use bonuses to reward achievements, to show gratitude to the employees who meet longevity milestones, or to entice not-yet employees to join a company's ranks.

Frequently Asked Questions (FAQ's)

  1. To whom does the Bonus act apply?

    The payment of bonus act applies to every factory and establishment which employs not less than 20 persons on any day during the accounting year.

  2. What component of wages are used to calculate Bonus?

    Only the basic salary and DA components are applicable for bonus payment.

  3. How the bonus is calculated?

    With a min rate of 8.33% and max rate of 20%, when wages or salary exceeds ₹7000 or the minimum wages fixed by the government, bonus will be payable on ₹7000 or the minimum wages as fixed by govt., whichever is higher.

  4. Who is eligible for Bonus?

    Employees drawing ₹21000 per month or less (basic + DA, excluding other allowances) and have completed 30 working days in that financial year are eligible for bonus payment.

  5. What is the minimum bonus prescribed by the Act?

    Bonus should be paid at a minimum rate of 8.33%.

  6. What is the maximum bonus payable under the Act?

    Bonus should be paid at a maximum rate of 20%.

  7. Which employees are eligible for Bonus under the Act?

    Employees drawing ₹21000 per month or less (basic + DA, excluding other allowances) and have completed 30 working days in that financial year are eligible for bonus payment.

  8. What is the time limit for an employer to pay the bonus?

    It needs to be paid within 8 months from the close of the accounting year.

  9. Can an employer hold or deduct the bonus payable to an employee.

    Employers can hold bonus payable to an employee if the employee is disqualified and dismissed on the basis of fraud, misconduct, or even absenteeism

  10. How do we settle bonuses if an employee exits the organization before the completion of the financial year?

    Bonus needs to be paid as part of the settlement to the employee on a pro rata basis, when he or she exits before the completion of the financial year.

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