Interpreting Payment of Bonus (Amendment) Act, 2015 – Simplifying or Complicating Compliances

Payment of Bonus (Amendment) Act, 2015

Posted by on August 27, 2016

On December 31, 2015 President of India gave consent to the Amendment of Payment of Bonus Act 1965. Following were the key amendments to the Act:

  • The wage threshold was revised from 10,000 to 21,000 per month to expand the coverage of the act
  • The ceiling of 3500 per month for calculation of the bonus was double to 7000 or applicable minimum wages as fixed by the appropriate government whichever is higher. So instead of 8.33% of 3500 the minimum bonus was revised to 8.33% of revised ceiling. Similarly instead of 20% of 3500 the maximum bonus was revised to 20% of revised ceiling.
  • The impact of the change was to be made retrospectively from 1st April 2014.

Payment of Bonus Act is applicable to all companies that employ 20 or more workers. Payment of bonus is not linked to the performance. All employees earning less than 21000 per month and have worked for at least 30 days are eligible for bonus.


The Complexity

There is a lot of confusion in terms of determining the amount as the bonus as the minimum wages is different in different states and revisions to the minimum wages will also revise the minimum bonus amount.

In Haryana, the minimum wages are 7,976 whereas as per the latest amendment in Delhi it is 14,052. The minimum monthly bonus for Haryana will now be 665 per month and for Delhi it will be 1171 per month. Before the revision it was 292 across all states. The payroll computation for each state needs to take this into account after this amendment. This has caused an increase in accounting and payroll computation complexities for the businesses.

Every time there is a revision to the minimum wages with retrospective effect it will require further complex calculations of bonus arrears.

In order to truly make India business friendly government need to think of simplifying the compliance requirements.



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