Bonus is a reward for the employees for theirgood work towards the business organisation. In India The Payment of Bonus Act,1965 is the principal act regarding the procedure of the payment of bonus to employees. Thebasic objective for the bonus is sharing the profit earned by the organisationwith the staff members and employees. Traditionally, this bonus was given around Diwalitime thus popularly known as the Diwali bonus. Eligibility: As perthe law all employees who earn a basic salary of 21,000 rupees month or less and have completed 30 days in an accounting year in an organisation areeligible for the bonus.
The bonus can range from 8.33% to 20% of an employee’sannual basic salary. Applicability: allcompanies who have completed more than 5 years, at least have 20 employees andmade an profit that year are applicable to pay bonus as per the Bonus Act. This can be at any time of the financial year In case an employee has committed fraud, theft,violent behaviour in the company, damaged to company property, etc then the employer can deny him/her the bonusfor that year. The bonus needs be paid within 8 months of the completion of theyear. As the financial year in India ends in March, payments to be made by October end of the next fiscal year.
Employees whose salaryis more than INR 21,000/- BASIC + DA per month are not eligible for bonus as per the law. Over the years as companies have increasingly veered away from the conceptof Diwali bonuses particularly for managers.Somecompanies follow giving a flat bonus to all employees at fixed % of their basic monthlysalary. I believe that this practice of a standard Diwali bonus given everyyear makes employees take for granted and This does not provide them with anyincentive to improve their work performance. This acts only as a temporarymotivator.
Even today the in companies like in manufacturingand consumer goods, the concept of Diwali bonus is prevalent. There, too, companies have restrict the Diwalibonus only to blue-collar workers to be in line with the regulations. Many big Indian companies and MNC pay bonusesto the factory workers around Diwali. But the management staff in those companiesare given performance and productivity-linked bonuses.
I believe that it is best if you can link thebonuses or managerial compensation be linked to performance and contributionsmade by the employee for year. The nature of managerial compensation havechanged over the past 10 years. A lot ofperformance and productivity linked incentives have come in place. Earlier, they were non-existent. Making the concept flat Diwali bonus lessrelevant today.In this globally competitive age,performance-based bonuses best help motivate employees as they are earned andnot just given out.