Diwali bonus: what is optional and what the law makes employers pay
A festival bonus is at an employer's discretion, but the annual statutory bonus under the Code on Wages, 2019 is an employee's right if the conditions are met.
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As Diwali nears, every salaried person wonders whether a bonus will come this year. Some companies give cash, some give gifts and some give sweets. Many people believe an employer must give a Diwali bonus. Is that so? Here is a simple explanation.
There are two kinds of bonus: a festival bonus and the bonus given under law.
The bonus given at Diwali is called a festival bonus. It is entirely at the company's discretion. The company may give it or not, and employees cannot press for it because it is not a legal right. If the company has made a profit and is doing well, the owner may choose to give it.
The second is the statutory bonus, called the annual bonus. It was earlier paid under the Payment of Bonus Act, 1965 and now comes under the Code on Wages, 2019. Sections 26 to 41 lay down all its rules. A company must pay this bonus.
Under the law, a company has to pay a bonus of at least 8.33 per cent and at most 20 per cent. But it is not calculated on the full salary. The government has set a ceiling for the calculation. Even if a salary is Rs 50,000, the bonus is computed on a ceiling of Rs 7,000 or the minimum wage of the state, and the 8.33 per cent is worked out on that. So even where the salary is higher, the bonus is paid on that ceiling.
The rule does not apply to every company. The law applies only to establishments with 20 or more employees. A small shop with 10 people is not covered. An employee's salary must also fall within a set limit to be eligible.
On tax, many people think a bonus is not taxed, but that is wrong. A bonus paid by a company is treated as part of salary. It is added to the year's total income and taxed according to the employee's tax slab. So a bonus is not entirely tax-free.
If you meet all the conditions and work in a company with more than 20 employees but the company is not paying the bonus, do not panic. There are steps you can take. First, read your appointment letter carefully and see what it says about bonus. Keep your salary slips safe. Then ask HR or your boss in writing why the bonus was not paid, by email or letter and not verbally.
If there is still no reply, you can go directly to the labour office. You can complain to the Deputy Labour Commissioner of your area, or file a case in the labour court.
The Diwali gift bonus is at the company's discretion, but the annual bonus under law is your right. So keep your papers safe and stay aware of your rights.
