What is Bonus? #
Bonus is an additional remuneration paid to employees excluding the regular monthly salary. A bonus is also called a performance bonus or yearly bonus which is usually paid once or twice a year. Bonus is usually calculated based on the financial performance during the year and paid as per company policy. The bonus amount received is fully taxable in the hands of employees.
In recent times, IT companies & ITES companies give joining bonuses to their employees to attract skilled employees in high-demand technologies. Also, they provide successful project completion bonuses as interim bonuses to motivate the software engineers and retain them. This practice is even applied to any project-based companies where they provide project completion bonuses often to their employees. In India, factories and manufacturing companies pay their employees’ annual bonuses during the festival season mainly on Diwali.
How is the bonus calculated in India? #
As per the Payment of Bonus Act 1965, a minimum bonus of 8.33% and a maximum bonus including a performance-based bonus for a year cannot exceed 20% of the salary of an employee. This act applies to all factories and every other establishment, which employs twenty or more workmen in a year.