Archive | November 2017

Statutory Bonus

Applicability of Bonus Act

  1. The company has been in operations for 5 years and employs at least 20 employees
  2. The employee’s wages are not more than 21,000 every month.
  3. The employee must have worked for minimum 30 days in the calendar year.

Salary and wages

Wages as per bonus act means Basic + DA

It does not include:

  • Allowances
  • Commission
  • Travelling concession
  • Ex-gratia payment
  • Retrenchment compensation, gratuity or other retirement benefits.
  • Any amenity, service, or concessional supply of food grains or other articles
  • Employer’s contribution to PF or other pension fund
  • Remuneration in respect of overtime work.

Time Limit for payment

The payment of Bonus for a financial year has to be made within 8 months of closing the book of accounts.  As financial year ends in March, payments are made by the end of October. Most companies generally pay the statutory bonus during Diwali.

Bonus needs to be paid even for exited employees. The pending bonus for exited employees is done in their F&F settlement.

Bonus Limits

  • Maximum Limit: 20%
  • Minimum Limit: 8.33%

 Bonus Wage Ceiling

  • Where the salary or wage of an employee exceeds seven thousand rupees or the minimum wage per month(whichever is higher), the bonus payable to such employee shall be calculated as if his salary or wage were seven thousand rupees or the minimum wage (whichever is higher)
  • So If basic and DA is more than 7000 or minimum wages (whichever is higher), then the bonus will be paid on that ceiling amount and not on actual Basic and Da.
  • Where the salary or wage of an employee is less than seven thousand rupees or the minimum wage per month (whichever is higher), the bonus payable to such employee, shall be calculated on his actual wages.

There has been a lot of confusion with regards to the calculation method based on this amendment made. But note that the amendment of Rs 7000/- or minimum wages is made in Section 12 of bonus act.

Section 12 of bonus act pertains to a salary (basic +da) more than the prescribed limit( which in our case is Rs 7000/- or Minimum wages – whichever is higher)

Disqualification of Bonus

  • An employee who is dismissed from service on the grounds of fraud/theft, riotous or violent behavior at the premises of the establishment or for misappropriation or sabotage of any of the property of the establishment can lead for disqualification of bonus.

 

KRA and KPI

KEY RESULT AREA

Key result area (KRA) are strategic factors where in positive results must be realized in order to achieve the organizations strategic goals. They are used to denote the assignments of task and duties to employees.

Each employee is given a set of KRA (generally 4-5). KRA gives an individual a clarity to his role. The employee is hence aware of what are the expectations of the superior has towards him/her.

KRA is a strategic area where excellent performance is required. Key result areas are also referred to “critical success factors”.

The various KRA are given weightage. Weight of each KRA is determined based on the scale of priority. Total of all the weights should be equal to 100%.

KEY PERFORMANCE INDICATORS

Key Performance Indicators (KPIs) are quantifiable metrics, which provides an indication as to whether the organization is making progress towards achieving that KRA.

For each KRA there are dedicated KPI(s). These are set at the beginning of the assessment period. At the end of the performance period the employees’ achievement towards that objective is measured.

The weight of each KRA is divided among its KPI.

Each KPI will have a target score.

KPIs are subsets of KRAs. Once you have a KRA in place, you can get a definitive and measurable KPI.

EXAMPLE

KRA: Recruitment ( if weightage is 45 %)

KPI:

  • Time to fill (15%)
  • Qualified Candidate per hire (10%)
  • Quality of Hire (10%)
  • First year retention rate (10%)

For each KPI we have a target and we measure the employee performance against that target.

e.g Time to fill we have a target that a TAT achievement above 90 % will give a 5 rating. So 90 % = 4.5 rating as 100 % = 5 rating.

So our target is 4.5. We then calculate the recruiter TAT % and find out his/ her rating.

So a TAT% of 70% will give us a rating of 3.5.

  • Target: 4.5
  • Achievement: 3.5
  • Achievement percent: 3.5/ 4.5 = 78%

The weightage for time to fill is 15%. So the weighted score is 12% (78% * 15%)

So all other KPI(s) in recruitment will be calculated to get their individual weighted score.

Summation of all the KPI weighted scores will give us the score for recruitment KRA.