Diwali Bonus: Don't Be A Cheapskate

Gargi Banerjee

Now is not the time to play Scrooge. Even small entrepreneurs can reward their employees with a generous Diwali bonus. Think about it – who really keeps the wheels turning, slaving away while you keep your eye on the bottom line? Besides, handing out a bonus will also earn you the goodwill and loyalty of your staff, which are unmatchable assets. Here’s another reason you should give your employees reason to smile. To date, the hopes and aspirations of the Great Indian Middle Class ride on the bonus the breadwinners bring home. Disappointing your staff might actually earn you some resentment. And you don’t want that! So, what’s your strategy to tackle this contentious issue? When and how should you plan to dole out bonuses? Here are some questions entrepreneurs and other business owners ask this time of the year. Can I afford it? That’s not the point, really. Sure, affordability depends on your company’s cash flow and annual profit margins but it’s not as simple as that. A Diwali bonus is a strong motivational tool. So unless you launched your venture recently or are yet to break even, the gesture will go a long way even if you’re a small entrepreneur. But if you are in the manufacturing business and have 20 or more employees whose salaries are Rs 10,000 or less, the law gets to decide. It is mandatory for these entrepreneurs to give their staff an annual bonus under the Payment of Bonus Act. And what better time than Diwali? The minimum bonus payable under the Act is 8.33 per cent and can go up to as much as 20 per cent, at your discretion. A word of caution. Even if your profits have you laughing all the way to the bank, refrain from going overboard this year and giving nothing but a box of sweets the next, because your profit expectations have not been met! You don’t want to disappoint loyal employees. Does everyone deserve the same? A cash bonus is the happiest option for your employees but it can cause discontent if there are disparities. Sometimes, business owners tend to offer ‘performance oriented’ Diwali bonuses. While this may work in a large corporate set-up, small entrepreneurs should refrain from this practice. Rest assured your staff is a close group and discuss salaries and bonuses. And you will have trouble brewing soon. Rewarding each employee equally (even the temporary ones) is the best policy. Also, when deciding how much, remember that an annual cash bonus is tax-free for you but fully taxable for your employees. Do vouchers make me a cheapskate? Cash or vouchers? Some entrepreneurs try to get off lightly by handing out vouchers instead of cash. Does that make them a cheapskate? Well, it all depends. Pratik Singhi, CEO Lakhsya Consulting, believes that small businesses who cannot afford cash bonuses may consider vouchers. “It is important to remember that a Diwali bonus is a tool to building goodwill and motivating your employees.” Singhi suggests that you put in some thought and dole out vouchers according to the demographics of your staff. While the younger lot will love retail vouchers from international brands, the older ones may appreciate a weekend travel voucher, a visit to a water park, or meal vouchers that give them the opportunity to spend some quality time with their family. Nowadays, some private sector banks have gift vouchers that can be used across many outlets. Gift vouchers cost-effective for you and are a great way to make your Diwali bonus tax-free for your employees. The key here is to be sensitive to your demographics. What if I can afford neither cash nor vouchers? If you only recently launched your venture or are in absolutely no position to give out either cash or gift vouchers just yet, you could offer your employees some extra paid leave during Diwali – a couple of days off or an extended weekend they could use to spend with their families and friends. If they understand that you could not afford a bonus but still wanted to reward them for their contribution to your business, it will work wonders. You can send your feedback to smementor@moneycontrol.com or simply post comments below