As the calendar flips to November, employees across India find themselves standing at the intersection of anticipation and uncertainty. The festival season is just around the corner. However, what was once a period of unbridled excitement and eager planning for lavish feasts and vibrant gifts has now become a season of financial contemplation.
The looming expenses, from fireworks to sumptuous celebratory meals to an abundance of gift-giving, have cast a shadow of concern over these corporate warriors. Their hopes and aspirations hang in the balance as they wait with bated breath for their Diwali bonus—a financial lifeline that may not be assured.
A bonus is like extra money that companies can give to their workers as a reward for their hard work. But companies in India do not need to provide Diwali bonuses to every employee, as it's not mandatory, legal experts told Moneycontrol.
To be sure, there is no such designated bonus associated with Diwali as per law. It is rather a practice among most Indian corporations to hand over this extra sum ahead of Diwali.
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As per the Payment of Bonus Act, 1965, profitable companies have to pay this sum—which is a percentage (minimum 8.33 percent) of the salary—within eight months from the close of the accounting year. This eight-month period ends on November 30 for all companies following the normal April-May financial year.
“Thus, even though the employers are liable to pay this statutory bonus within eight months, however, if this bonus is paid around October-November (when Diwali falls), this bonus gets called ‘Diwali Bonus’,” said Shashank Agarwal, an advocate with the Delhi High Court.
Which companies will give bonuses?
The act governing bonuses in corporations is only applicable to establishments with 20 or more employees in every factory and every establishment.
However, it does not apply to certain institutions such as hospitals, chambers of commerce and social welfare institutions, the Indian Red Cross Society, and universities and other educational institutions.
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Now, even if the company is not on the exceptions list, it may still not need to pay bonuses. “A relaxation has been granted to the newly set up establishments whereby such establishments, in their first five years, may pay bonus in respect of the accounting year in which the employer derives profit,” Agarwal said.
Further, similar relaxations have been given for subsequent sixth and seventh years.
Which employees are eligible for Diwali bonuses?
If the employer is off the exempt list and is profitable for more than five years, the employees may not receive bonuses if they themselves are new to the company. An employee should be part of the organisation for at least 30 days to qualify for a bonus and earn less than Rs 21,000 per month.
“Companies are required by law to provide bonuses to employees earning up to Rs 21,000 per month and have worked for a minimum of 30 days under Section 8. Those earning above this threshold are not assured a bonus; it's at the employer's discretion. The minimum bonus is set at 8.33 percent of the annual wage or salary as per Section 10,” said Nalini Mishra, partner at Singhania & Co.
It is important to note that a part-time employee is also an employee under the bonus act.
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As per the definition given under the act, “salary” means the basic salary and does not include other emoluments like house rent allowance, travel concession, bonus, provident fund contribution, retrenchment compensation, gratuity, etc.
However, dearness allowance and city compensatory allowance are included in the definition of "salary".
Qualified but still did not get a bonus?
Though employers are obligated to pay bonuses within eight months from the close of the accounting year, the authorities can give more time to the employer if they ask for it and have a good reason. This extra time can be as long as the government thinks is not against the law, but it should not be longer than two years in total.
However, if a company does something wrong under this law, the company and the people in charge when the wrongdoing happened can be considered guilty of the offence.
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According to Agarwal, Section 21 of the act provides that a grievance can be raised by the employees to the central government or its authorities. In fact, the Ministry of Labour and Employment has launched the SAMADHAN portal where the employee can lodge complaints, including non-payment of bonuses.
“The bonus act has also provided for a penalty in case of non-compliance by an employer. Section 28 of the act provides that in case of non-compliance, the person concerned shall be punishable with imprisonment for a term which may extend to six months or with fine which may extend to Rs 1,000, or both,” said Siddharth Nigotia, associate, SKV Law Offices.
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