There’s no doubt that employees get excited when they hear the word ‘bonus’ as it is often seen as a well-deserved reward from their employers. But what is statutory bonus? Is it more than just a performance-based reward or a legal compliance mandated by the law? In this blog, we’ll have a deep dive into understanding the compliances around bonuses, answer some burning questions like ‘who is eligible for statutory bonus in India?’ and learn how to calculate statutory bonus.
First, let’s clarify one important factor about bonuses. Not all bonuses are the same or created equally. Sure, some of them are performance-based or discretionary, but they are also mandatory under the law. Now, let’s understand the law the mandates bonuses.
Confused about statutory bonus compliance?
Now that we have answered the question, what is statutory bonus, it’s time to talk about the purpose and importance of the statutory bonus. The Payment of Bonus Act was created with a clear intention of facilitating a fair income distribution and to reward employees for their hard work and contributions to the company’s success, however, the employer benefits this Act entails are often neglected.
Statutory bonus eligibility is laid out very clearly in the Payment of Bonus Act, 1965, which provides clear guidelines based on the salary limits, employment tenure, and the organization size.
Bonus Amount = (Monthly Gross Salary x Bonus x percentage) x 12
Now let’s understand how to calculate statutory bonus with this example.
From this statutory bonus calculation, it is clear that an employee can get at least one month of his/her salary as statutory bonus each year.
Ensure error-free statutory bonus calculation with Vishaal Consultation Services!
While statutory bonuses are required by the law, a lot of companies go the extra mile by providing performance bonuses to motivate their employees. Even though these aren’t legally necessary, they’re crucial for acknowledging and rewarding outstanding contributions. Let’s have a quick overview of what performance bonuses really mean!
A performance bonus is a special reward that employers give out for based on certain KRAs (Key Result Areas), KPIs (Key Performance Indicators), hitting certain targets or for outstanding work. Unlike rigid rules around statutory bonus calculation, the performance bonuses are entirely up to the company’s discretion and can differ from one organization to another.
When it comes to calculating bonuses, there are four key forms, each with its own role, that the employers must submit. These are:
It is very important for employers to keep up with statutory bonus regulations to steer clear of any legal issues and penalties.
From a tax standpoint, statutory bonuses are treated as part of the employee’s taxable income.
Properly understanding what is statutory bonus, who is eligible for statutory bonus in India, and its calculations, is important for both employees and employers. For employees, it may be about securing the payout they deserve, but for employers, it’s all about staying compliant to the mandated laws.
