Earn up to ₹21,000 a month? Know your annual bonus eligibility, calculation and payment deadlines as per Code on Wages

Last month, the Labour Ministry issued two notifications on bonus eligibility and calculation. Employees earning up to ₹21,000 per month may qualify for bonuses, subject to conditions.

For employees earning above this limit, bonus payments are not mandatory under these statutory provisions. The Code on Wages, 2019, explains eligibility, payment deadlines and remedies for unpaid bonuses.

To qualify, employees must work at least 30 days during the employer’s accounting year. An accounting year is the yearly period used for the employer’s financial accounts.

The minimum bonus is 8⅓% of wages earned, or ₹100, whichever is higher. Generally, employers must pay this minimum even when no money is available for distribution as bonuses. However, special rules apply to newer businesses.

Your full monthly wage may not be used to calculate your bonus. The government sets a separate wage amount for this calculation. When your wages exceed that amount, the Code specifies how the calculation works. It uses the government’s calculation amount or your applicable minimum wage, whichever is higher.

The eligibility limit determines qualification. The calculation amount determines how much bonus is payable.

Suppose your bonus is calculated at ₹10,000 per month for all 12 months. The yearly amount used would be ₹1,20,000. At 8⅓%, your minimum annual bonus would be ₹10,000. At 20%, it would be ₹24,000.

The higher payment depends on the bonus funds available after the Code’s required calculations. The statutory bonus cannot exceed 20% of the wage amount used. Bonus agreements linked to productivity must also follow this limit.

New businesses have special rules during their early years. Bonuses depend on profits during the 5 accounting years following the year when sales first begin. Different adjustment rules apply during the 6th and 7th years.

Employers must transfer bonuses directly into employees’ bank accounts. Normally, payment is due within 8 months of the end of the accounting year. Employers can request more time by explaining their reasons. Approval must come from the government or an authorised authority. The total payment period, including approved extensions, cannot exceed 2 years.

When a bonus dispute is pending before an authority, a different deadline applies. Payment is due within one month after its decision becomes enforceable or a settlement starts.

However, demanding a higher bonus does not allow employers to withhold the minimum. They must pay that minimum within the usual 8 months.

Unpaid bonus

Employees can approach the government-appointed authority to claim unpaid bonuses. Their registered union or an Inspector-cum-Facilitator can also apply. Claims normally need to be filed within 3 years although justified delays may be accepted.

Compensation can reach 10 times the approved claim in addition to the unpaid amount. Unpaid awards can also be recovered through the Collector’s office.

Underpayment can attract fines up to ₹50,000. After conviction, similar offences within 5 years can result in a tougher punishment. This includes imprisonment up to 3 months, fines up to ₹1 lakh, or both.