Understanding Work Bonus and Its Nitty-Gritty

Table of Contents

If you think that you provide bonuses and incentives to employees just because you have to, to stay compliant with the government, you might be mistaken. You also might think that providing a bonus isn’t your company’s budget. If so, ask yourself this question:

Are your employees losing their productivity?

Is something turning employees’ morale down?

Are they distracted from the targets?

That is where the bonus comes into play. Every employee gets demotivated by not receiving acknowledgment for their roles and achievements, which becomes the main reason for the above-asked questions. Compensation and benefits is thus a fundamental function of human resource to look about.

A bonus is a variable pay that an employee receives one time a year as per their performance to achieve the charged targets. There are many recognition and employee appreciation ideas that are admired, and the bonus is one of them.

Here we have included a descriptive discussion encircling the importance of bonuses for employees and other related doubts.

What is the need for a bonus in an organization?

As we already discussed, a bonus is one of the prime appreciation that an employee receives for their extraordinary performance. According to the legislative laws, the bonus has become a compulsory option for employers to keep their employees’ morality alive.

A regular bonus, whenever you provide, makes employees feel encouraged, and it will trigger them to bring more impact to the organization’s success. It will eventually improve the future targets for the organization.

What are the Government regulations for providing Bonus to employees?

In India, the government has primarily implemented the Payment of Bonus Act for compulsorily providing bonuses to employees. It can either be a part of their payroll management or a part of off-cycle payments. They are worthy of receiving a reward for the accounts of their immense roles in any organization.

The Payment of Bonus Act stated in 1965 as a part of statutory guidelines, is compulsory to be followed by the organizations and establishments having no less than 20 employees. The amount selected under this act is a minimum of 8.33% on the fixed pay of an employee receiving a minimum of ₹10,000 per month.

Is it mandatory to offer bonuses to employees?

The general rules state that an organization must provide its employees with a bonus that is a minimum of 8.33% of their salaries, which included basic pay and DA.

Reverting to this question, Anirudh Nagodra, CEO and Co-founder of FactoHR, said: ‘A startup organization is excluded from providing wages to employees up to five years from its establishment. But the same organization can provide a bonus if it receives good profits from its sales.’

Moreover armadacare.com says, about 49% of the employees believe that a proper benefits plan improves the corporate image of the organization.

What are the requirements for employees to be qualified for a bonus?

The bonus is not a mere quantity to be categorized. Whether full-time, contractual, probationary, confirmed, or part-time, every employee is worthy to receive the bonus. Even these employees must have a basic pay of less or equal to ₹21,000 and the company’s attendance should reveal their presence for at least 30 days in the financial year.

Can the bonus calculation be included in the ESIC calculation in the monthly salary?

The answer to this is no. ESI calculation includes salary components that are repeated every month on a variable or fixed basis. These components include gross salary, various allowances, tax deductions, etc. The bonus being a one-time payment is not included with ESI calculations.

Which institutions are free from providing a bonus according to the Payment Act?

Social welfare, environmental, financial, and educational institutions have the option of not providing benefits to employees under Section 32 of the Act.

To be more precise, examples of such institutions are:

Indian Red Cross Society
Life Insurance Corporation of India
Chambers of Commerce
Reserve Bank of India
Unit Trust of India
Industrial Development Bank of India

When is the employee not qualified to receive a bonus?

There are situations where employees could be disqualified from receiving the bonus, though it is mandatory by the government. These situations include fraud, asset theft or sabotage, and inappropriate behavior in the organization environment.

Know These Bonus Related Stats Now

The minimum bonus set to the eligible employees is 8.33%, while the maximum is 20% of their salary for the given accounting year.
More than 65% of the employees prefer bonuses offered on their performance’s basis.
Practically, 53% of the workforce prefer bonuses on a monthly basis, while 47% of the workforce prefer it to be on a yearly basis.
During the end of the financial year 2019-2020, more than 40% of the private industries gave nonproductive bonus access to their workers. This included vivid bonus types such as holiday bonus, cash profit sharing, end-of-year bonus, and so on.
To the employees at the top 25th percentile of salaries, the access to bonuses are 2X greater, i.e., 52% compared to those in the lower quartiles, i.e., 26%

Conclusion

This series of discussions will meticulously summarize the need for a bonus for employees and organizations. Though it is a one-time payment every year, taking care of the bonus specifications and calculation is the nitty-gritty for an organization that pours an essence into organizational productiveness.

Grow your business with factoHR today

Focus on the significant decision-making tasks, transfer all your common repetitive HR tasks to factoHR and see the things falling into their place.

Request Free Trial