Calculation of bonus
This query is : Resolved
06 November 2018
if company distributed divided in particular FY, will this effect calculation of bonus, if Yes please share calculation sheet.
09 November 2018
kindly clarify your question
14 November 2018
Dear Sir,
In Rajasthan for calculation of Bonus maximum basis pay should be less then Rs 21000/-
if Company is showing profit in balance sheet then they have to pay bonus @ 20.20% but if Company is in loss then they have pay bonus @8.33%.
my concern is my company is in profit and in same FY they have paid divided, but paid bonus @8.33% saying they applied rule of Set on & set off
i want to know what is Set on & set of rule and it is right they have distributed bonus @ 8.33%
In Rajasthan for calculation of Bonus maximum basis pay should be less then Rs 21000/-
if Company is showing profit in balance sheet then they have to pay bonus @ 20.20% but if Company is in loss then they have pay bonus @8.33%.
my concern is my company is in profit and in same FY they have paid divided, but paid bonus @8.33% saying they applied rule of Set on & set off
i want to know what is Set on & set of rule and it is right they have distributed bonus @ 8.33%
18 July 2024
In Rajasthan, the payment of bonus to employees is governed by the Payment of Bonus Act, 1965. Here's a detailed explanation regarding the "set on and set off" rule and whether it applies correctly in your situation:
### Payment of Bonus Act, 1965 Overview:
1. **Applicability of the Act:** The Payment of Bonus Act applies to every factory and every establishment wherein 20 or more persons are employed on any day during the accounting year.
2. **Calculation of Bonus:**
- **Minimum Bonus:** If an employer has allocable surplus (which is the available surplus after deducting depreciation and other allowable deductions) and the employees are eligible, the minimum bonus is 8.33% of the salary or wage earned by the employee during the accounting year, or Rs. 100, whichever is higher.
- **Maximum Bonus:** The maximum bonus payable under the Act is 20% of the salary or wage earned by the employee.
3. **Set on and Set off:**
- **Set on:** This refers to the allocation of the surplus available for payment of bonus in a particular year. If the allocable surplus in any accounting year is less than the amount of minimum bonus payable to the employees under the Act, the difference is carried forward to the succeeding accounting year, known as "set on."
- **Set off:** This is the process of setting off the deficit in one accounting year against the surplus of another accounting year. If in any accounting year, the allocable surplus exceeds the amount of minimum bonus payable, the excess is set off against the amount of minimum bonus payable in the succeeding accounting years.
### Addressing Your Query:
Based on the information provided:
- **Company Profitability:** Your company is showing a profit in the balance sheet.
- **Bonus Payment:** Despite profitability, the company paid a bonus at the rate of 8.33%.
### Understanding the Situation:
- **Rule Application (Set on and Set off):** The "set on and set off" rule allows companies to adjust the bonus payment based on the availability of allocable surplus in different accounting years.
- **Payment at 8.33%:** If the company has carried forward deficits from previous years (set on) and applied them against the current year's surplus, it may result in a lower percentage of bonus being paid, even if the company is currently profitable.
- **Legal Compliance:** The Payment of Bonus Act allows for such adjustments through the set on and set off provisions. However, the company must ensure that it complies with the Act's provisions and correctly calculates the bonus based on the allocable surplus and other statutory requirements.
### Steps to Take:
1. **Review Company Policy:** Check the company's bonus policy and understand how the set on and set off provisions are being applied.
2. **Seek Clarification:** If you believe there is an error or discrepancy, discuss the matter with your HR department or management to understand the rationale behind the bonus calculation.
3. **Legal Advice:** If necessary, seek legal advice or consult with a labor law expert to ensure that the company's actions are in compliance with the Payment of Bonus Act and other relevant labor laws.
In summary, while the set on and set off rule allows companies to manage their bonus obligations over multiple accounting years, it is essential to ensure that the calculations are done correctly and in accordance with the provisions of the Payment of Bonus Act, 1965. If you have concerns about the bonus payment rate, it is advisable to seek clarification from your company's management or legal counsel familiar with labor laws.
### Payment of Bonus Act, 1965 Overview:
1. **Applicability of the Act:** The Payment of Bonus Act applies to every factory and every establishment wherein 20 or more persons are employed on any day during the accounting year.
2. **Calculation of Bonus:**
- **Minimum Bonus:** If an employer has allocable surplus (which is the available surplus after deducting depreciation and other allowable deductions) and the employees are eligible, the minimum bonus is 8.33% of the salary or wage earned by the employee during the accounting year, or Rs. 100, whichever is higher.
- **Maximum Bonus:** The maximum bonus payable under the Act is 20% of the salary or wage earned by the employee.
3. **Set on and Set off:**
- **Set on:** This refers to the allocation of the surplus available for payment of bonus in a particular year. If the allocable surplus in any accounting year is less than the amount of minimum bonus payable to the employees under the Act, the difference is carried forward to the succeeding accounting year, known as "set on."
- **Set off:** This is the process of setting off the deficit in one accounting year against the surplus of another accounting year. If in any accounting year, the allocable surplus exceeds the amount of minimum bonus payable, the excess is set off against the amount of minimum bonus payable in the succeeding accounting years.
### Addressing Your Query:
Based on the information provided:
- **Company Profitability:** Your company is showing a profit in the balance sheet.
- **Bonus Payment:** Despite profitability, the company paid a bonus at the rate of 8.33%.
### Understanding the Situation:
- **Rule Application (Set on and Set off):** The "set on and set off" rule allows companies to adjust the bonus payment based on the availability of allocable surplus in different accounting years.
- **Payment at 8.33%:** If the company has carried forward deficits from previous years (set on) and applied them against the current year's surplus, it may result in a lower percentage of bonus being paid, even if the company is currently profitable.
- **Legal Compliance:** The Payment of Bonus Act allows for such adjustments through the set on and set off provisions. However, the company must ensure that it complies with the Act's provisions and correctly calculates the bonus based on the allocable surplus and other statutory requirements.
### Steps to Take:
1. **Review Company Policy:** Check the company's bonus policy and understand how the set on and set off provisions are being applied.
2. **Seek Clarification:** If you believe there is an error or discrepancy, discuss the matter with your HR department or management to understand the rationale behind the bonus calculation.
3. **Legal Advice:** If necessary, seek legal advice or consult with a labor law expert to ensure that the company's actions are in compliance with the Payment of Bonus Act and other relevant labor laws.
In summary, while the set on and set off rule allows companies to manage their bonus obligations over multiple accounting years, it is essential to ensure that the calculations are done correctly and in accordance with the provisions of the Payment of Bonus Act, 1965. If you have concerns about the bonus payment rate, it is advisable to seek clarification from your company's management or legal counsel familiar with labor laws.
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