Statutory Bonus & Gratuity

Indian labor law mandates two additional compensation components beyond regular salary: Statutory Bonus under the Payment of Bonus Act, 1965, and Gratuity under the Payment of Gratuity Act, 1972. Both are significant financial obligations for employers and important benefits for employees. Udyamo HRMS provides dedicated models for configuring, calculating, and tracking both components.

This chapter covers the rules governing statutory bonus and gratuity, how to configure each in Udyamo HRMS, and how they integrate with payroll and full-and-final settlement.

What You Will Learn

• Statutory Bonus: applicability, calculation, and configuration
• Gratuity: eligibility, calculation formula, and configuration
• How to set up the StatutoryBonusComponent in Udyamo HRMS
• How to configure the Gratuity model
• How bonus and gratuity appear in payroll
• Integration with full-and-final settlement
• Compliance requirements

Prerequisites

Required: Before configuring bonus and gratuity:

• Salary components and structures are configured (see Salary Components)
• Payroll module is enabled (see Running Payroll)
• Employee records include accurate date of joining and salary details

Part 1: Statutory Bonus

Understanding Statutory Bonus

What is Statutory Bonus?

The Payment of Bonus Act, 1965 mandates that establishments employing 20 or more persons must pay an annual bonus to eligible employees. The bonus is a share of the organization's profits distributed to employees as a statutory right.

Applicability

Excluded Categories

The following are typically excluded from bonus:

• Employees of LIC, seamen, dock workers, universities, and certain government establishments
• Employees employed through contractors for building operations
• Apprentices under the Apprentices Act

Bonus Rates

Tip: The default bonus percentage in Udyamo HRMS is set to 8.33% (the statutory minimum). You can increase it up to 20% based on your organization's bonus policy and allocable surplus.

Payment Timeline

Configuring Statutory Bonus in Udyamo HRMS

Step 1: Navigate to Statutory Components

1. From the sidebar, click Settings.
2. Under the Payroll section, click Statutory Components.
3. Locate and click Statutory Bonus.

Step 2: Configure Bonus Parameters

The StatutoryBonusComponent model provides the following configuration fields:

1. Set the Bonus Percentage. The minimum is 8.33% and the maximum is 20%.
2. Select the Payment Frequency:
   • Annual: Bonus is accumulated and paid once a year (typically after the close of the accounting year).
   • Monthly: Bonus is calculated and included in each monthly payroll as a separate component.
3. Enter the Minimum Wage applicable in your state. This is used as the wage ceiling for bonus calculation if it exceeds Rs 7,000.
4. Toggle Enable to On.
5. Click Save.

Warning: Ensure the bonus percentage complies with the Payment of Bonus Act. Setting it below 8.33% is not permitted for eligible employees. Setting it above 20% is allowed as an ex-gratia payment but has different tax treatment.

Step 3: Verify Configuration

After saving:

1. Return to the Statutory Components list.
2. Confirm that Statutory Bonus shows as Enabled with the correct percentage and payment frequency.

Bonus Calculation

Calculation Logic

1. Identify all eligible employees (salary up to Rs 21,000/month, minimum 30 days of service).
2. For each employee, determine the bonus-eligible wage:
   • Actual salary or Rs 7,000/month or the minimum wage — whichever is higher (but capped at the actual salary if lower).
3. Calculate bonus: Bonus-eligible wage x Bonus percentage x Number of months worked / 12.

Example — Annual Bonus

Example — Monthly Bonus

Viewing Bonus on Payslips (Monthly Frequency)

If the payment frequency is set to Monthly:

1. Navigate to Payroll > Payslips.
2. Select the month and open an employee's payslip.
3. The Earnings section includes a line item for Statutory Bonus.

If the payment frequency is set to Annual, the bonus appears as a separate payment when processed.

Part 2: Gratuity

Understanding Gratuity

What is Gratuity?

Gratuity is a lump-sum payment made by the employer to an employee as a gesture of gratitude for long service. It is governed by the Payment of Gratuity Act, 1972, which applies to every factory, mine, oilfield, plantation, port, railway, and every establishment employing 10 or more persons.

Eligibility

Gratuity Calculation Formula

The statutory formula for employees not covered under the Payment of Gratuity Act (or covered employees in a non-seasonal establishment) is:

Gratuity = (Last drawn salary x 15 x Years of service) / 26

Where:

Gratuity Cap

Tip: Employers may pay gratuity above the statutory maximum as a goodwill gesture, but the excess amount is not exempt from income tax for the employee.

When is Gratuity Paid?

Gratuity is paid when an employee:

Configuring Gratuity in Udyamo HRMS

Step 1: Navigate to Gratuity Settings

1. From the sidebar, click Settings.
2. Under the Payroll section, click Statutory Components.
3. Locate and click Gratuity.

Step 2: Configure Gratuity Parameters

1. Toggle Enable to On.
2. Confirm or adjust the Minimum Service Years (default is 5).
3. Verify the Calculation Formula is correct.
4. Confirm the Maximum Gratuity cap.
5. Click Save.

Step 3: Enable Early Gratuity (Optional)

Some organizations choose to pay gratuity even before the employee completes 5 years. If your organization offers this benefit:

1. In the Gratuity configuration, look for an Early Gratuity or equivalent option.
2. If available, enable it and set the minimum service period to your organization's policy.
3. Click Save.

Warning: Early gratuity (before 5 years) is not a statutory obligation. If you enable it, it is treated as an ex-gratia payment for tax purposes. Consult your tax advisor.

Gratuity Calculation Examples

Example 1 — Standard Gratuity

Example 2 — Gratuity with Partial Year

Example 3 — Gratuity Exceeding Cap

Gratuity in Full-and-Final Settlement

When an employee exits the organization and is eligible for gratuity, the amount is included in the full-and-final (F&F) settlement. See Offboarding & Full-and-Final for details on the F&F process.

F&F Settlement Workflow for Gratuity

Gratuity in Ongoing Payroll

While gratuity is typically paid at the time of exit, some organizations provision for gratuity as a monthly cost in their books. Udyamo HRMS can include a gratuity provision line in the payroll cost reports:

• The monthly provision is calculated as: (Basic + DA) x 15 / 26 / 12 per employee.
• This does not result in a deduction from the employee's salary.
• It appears in the employer's cost reports for financial planning purposes.

Reports

Bonus Reports

Gratuity Reports

Generating Reports

1. From the sidebar, click Reports.
2. Select Statutory Bonus Report or Gratuity Report.
3. Choose the relevant period (month, quarter, or year).
4. Click Generate.
5. Review and Export in Excel or PDF format.

Tax Treatment

Bonus

Gratuity

Tip: For employees who have received gratuity from a previous employer, the combined exemption limit of Rs 20,00,000 applies across all employers. The employee should declare any previously received gratuity.

Compliance Checklist

Warning: Failure to pay statutory bonus within the prescribed time attracts a penalty of imprisonment up to 6 months and/or a fine up to Rs 1,000 under the Payment of Bonus Act. Failure to pay gratuity within 30 days attracts interest at 10% per annum.

Troubleshooting

Next Steps

• Set up Loan Management — see Loan Management
• Review the full payroll workflow — see Running Payroll
• Understand offboarding and F&F — see Offboarding & Full-and-Final