Bonus Calculation: Before the beginning of the festive season, many companies have announced bonuses for their employees. Whereas, many companies are going to announce bonuses. Actually, bonus is a payment given to employees in addition to their basic salary. Such payments may include additional pay or compensation over and above their normal salary. The company can give bonuses from entry level employees to senior level executives. In addition to paying bonuses to prospective employees, companies may distribute bonuses among shareholders. Let us know everything about the bonus.
What is bonus pay?
An employee receives compensation in addition to their basic salary. Bonus payments are a way for companies to show appreciation to employees or teams who have achieved important goals. Companies offer bonuses to increase employee morale, motivation and productivity. Annual income includes basic salary and any bonuses. The Payment of Bonus Act, 1965, is the primary law in India that regulates how employers must pay bonuses to workers. The Bonus Payment Act applies to all factories and businesses that have at least 20 people on their payroll on any day during the accounting period. Even if the number of employees in a company falls below 20, the Act states that bonus payment is mandatory.
How do bonus payments work?
Bonuses can be provided in various forms. However bonuses are generally performance based, that is, a company gives bonuses based on how well an employee or group of employees helps the team or company reach its goals. The manager decides to give the bonus, which indicates that the bonus is not dependent on any specific quota, level or performance. Instead, the manager is free to decide who should receive the bonus and what the amount of the bonus is. Typically, a non-discretionary bonus clause is included in an employee’s offer letter or contract.
Understand the calculation of bonus like this
According to changes in the Bonus Payment Bill passed in 2015, employers will have to pay bonuses to workers whose gross income is less than Rs. 21,000. The bonus is calculated as follows:
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If the salary of an employee is less than or equal to seven thousand rupees, then the formula for calculating bonus is: Bonus = Salary x 8.33/100.
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If the salary of an employee is Rs. If it is more than Rs 7000 then the bonus calculation formula will be: Bonus = Rs. 7,000 x 8.33/100.
Note: Salary = Basic Salary + Dearness Allowance
Example
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If an individual’s salary (Basic + DA) is Rs 2,000 then the bonus payable is calculated as: 2,000 x 8.33/100 = Rs. 166.6 per month (Rs. 2,000 per year)
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If a person’s salary (Basic + DA) is Rs. 10,500 then the bonus payable will be as follows: 7,000 x 8.33/100 = Rs. Rs 583 per month (Rs 6,996 per year)
There are many types of bonuses
Some bonuses are distributed quarterly, while other bonuses are distributed annually. The bonus may be a lump sum payment or recurring payment. Among many other factors, bonuses depend on your job, the level you’re working at, what you bring to the table, how you lead and what kind of company you work for. The most common types of bonuses are:
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annual bonus
Annual bonuses generally depend on how well the company performs overall. Therefore, the size of your bonus depends on how successful your company was that year and what was your role in the company’s success. Thus, annual bonuses are similar to ‘profit sharing’
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spot bonus
Employees who receive spot bonuses go above and beyond what the company expects from them. Such tasks include providing services that are not part of their job description. Such bonuses are typically lump sum payments based on budget, priorities, and how well the work is done.
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signing bonus
A signing bonus is a lump sum payment when an employee starts a new job. When an employee moves to a new city for a job, and the company wants to cover some of the costs, employees are paid a signing bonus. Employers can also use bonuses to make up for salary demands they cannot meet.
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retention benefits
A retention bonus is similar to a signing bonus. The company gives this bonus to retain ‘good’ employees or those who show loyalty. This bonus is usually given when a company buys another company or merges with another company or to entice an employee to stay longer if he or she is about to leave.
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referral bonus
If employees refer people to work in their firm, they are given a referral bonus. This bonus is subject to the referred employee being hired and working in the company for a certain number of months (usually 3-6 months).
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holiday bonus
Holiday bonuses are another way for employers to appreciate employees’ hard work and help them financially during difficult times of year. This bonus is usually a fixed percentage (ranging from 5% to 10%) of the employee’s annual salary.