New labour code: Up to 20% bonus for these staff

The Ministry of Labour and Employment has announced two notifications offering potential benefits to employees. Employees earning up to Rs 21,000 per month can receive a bonus from their employer, subject to specific conditions. However, employees earning above Rs 21,000 per month are not obligated to receive this bonus. The annual bonus for eligible employees can range from 8.33% to a maximum of 20% of their wages.

To qualify for the statutory bonus, an employee must have worked for at least 30 days in the accounting year, as per Section 26(1) of the Code on Wages, 2019. If an employee's monthly wages exceed Rs 21,000, they fall outside the statutory bonus framework, and their employer has no legal obligation to pay them.

The bonus calculation is based on the higher of Rs 7,000 per month or the applicable minimum wage. For example, if an employee earns Rs 15,000 per month but works in a state where the minimum wage is Rs 10,000, then the bonus will be calculated based on Rs 10,000. This calculation cap helps limit the employer's liability and the employee's entitlement.

In Scenario A, an employee earning Rs 15,000 per month with a minimum wage of Rs 10,000 would receive a bonus of Rs 9,996 per year (8.33% of Rs 10,000 multiplied by 12 months). In Scenario B, an employee earning Rs 20,000 per month with a minimum wage of Rs 9,000 would receive a bonus of Rs 8,996.40 per year (8.33% of Rs 9,000 multiplied by 12 months). If the employer's allocable surplus allows, the maximum bonus could be 20%, which would be Rs 21,600 per year in Scenario B.

The bonus must be paid within eight months from the close of the accounting year, unless the employer requests an extension for up to two years with valid reasons. If there is a dispute regarding the bonus payment, the employer must pay the undisputed minimum bonus of 8.33% within the standard eight-month period. Failure to pay the statutory bonus can lead to legal proceedings for the employee and penal consequences for the employer, as per Section 45 of the Code on Wages, 2019.