Are companies veering away from practice of festive season bonuses?

Diwali, the festival of lights, not only cheers up individuals personally but this traditional fanfare also lightens up employees’ faces as their payroll swells with festive bonus. A fatter paycheck adds value to the traditional flavour of sweets, parties, gifts and excitement of crackers.

The culture to give bonuses to the employees during Diwali is gradually fading away and companies, which are reeling under the pressures of bleak economic outlook, resurging inflation, are moving away from a fixed bonus paid during the festive season.

According to HR pundits, on the wake of high inflation and shrinking profit margins both private and public sector companies are shying away from handing out bonuses this year.

Earlier, the culture of Diwali bonus was in rife in the traditional companies like manufacturing and consumer goods particularly in the blue-collar workers. Already, the corporates have done away this perk from white-collar employees, but the ongoing crisis indicates that blue-collared workers may also have to bid adieu to this perk.

What law says

Bonus is basically a reward that is paid to an employee for his/her good work towards the organisation. Offering bonus is not an optional choice, rather it is an obligation in India as there is a principle law relating to this procedure of payment of bonus to the employees and that principle law is named as Payment of Bonus Act, 1965.

As per the law, Bonus is required to be paid every year, which is related to the salaries. Every employee not drawing salary/wages beyond Rs 10,000 per month who has worked for not less than 30 days in an accounting year, shall be eligible for bonus for minimum of 8.33 per cent of the salary/wages even if there is loss in the establishment whereas a maximum of 20 per cent of the employee's salary/wages is payable as bonus in an accounting year.

However, in case of employees whose salary/wages ranges between Rs 3500 to Rs 10,000 per month, for the purpose of payment of bonus their salaries/wages would be deemed to be Rs 3500.

Although, the bonus concept still exists for the unionised workforce as this headcount is governed by separate code of conduct and they still get the Diwali bonus every year as per the guidelines. The executive cadre do not come under the unionised workforce. Earlier, there was a practice of giving bonus to those at managerial-level, but now many companies have done away with the bonus culture.

Bonus practice getting replaced by performance incentives

Over the years, some transformation has been noticed in the way employees rewarded. The practice of rendering bonus packages has been replaced by performance-linked incentives. Rather, in case of multinational companies (MNCs), Diwali bonus practice is hardly seen. Such companies offer performance-based incentives to their employees during the year instead of Diwali.

Festive bonus offering varies from sector to sector

The festive bonus practice varies from sector to sector as the manufacturing sector still strongly believes in the bonus culture, while the IT sector is not seen much inclined to this practice. However, such companies provide 'performance-based incentives' during the year so as to motivate the employees.

Diwali bonus v/s Office parties and gifts

A trend to organise office parties during Diwali is in now-a-days, rather than announcing bonus. But the practice of annual bonus not only adds volumes to the employees festive spirit but also increases their cash flow.

Some corporates also offer some functional gifts to their employees like home appliances, electronic items, kitchenware and other useful items.

Some other Diwali gifts include table clock, office use products, photo frames, lifestyle products, household items, radio, stationery, calculators & world timers, torches & LED lights, lunch boxes, wall clocks, card holders, table calendars, branded wrist watches and more.

According to a recent survey conducted by the industry body ASSOCHAM, Indian corporates will cut their budget for Diwali gifts by about 50 per cent this year due to high inflation and shrinking profit margins.

“This year, business houses are bracing for a muted Diwali affair evidently as majority of respondents have tightened their purse strings and have slashed their budgets for Diwali gifts significantly,” the survey said which interviewed 150 companies, Of this, nearly 30 of them have decided to entirely do away with gifting concept this year.

The majority of the participants was of opinion to spend less on gifts for their corporate connections this year on the back of drastic decline in balance-sheets.

Prevailing economic slowdown both in India and abroad together with decelerating industrial growth, spiralling inflation, are some of the major reasons highlighted by corporates for drooping operating profits, thereby restricting them in offering Diwali bonus during this festive season.

On the contrary, in an exclusive communication, employers said they have already doled out festive bonuses to our employees as it is a big booster for the employees. Offering bonus to the employees is a best way to recognise and acknowledge the efforts of an individual and also to retain employees.

A survey conducted by MyHiringClub dot com, says that 65 per cent of private sector employers and 95 per cent PSUs are planning to give bonus to their employees this festive season.

Firms like Nokia and TVS group firm Wheels India have paid 20 per cent bonus to their factory workers. Wheels India's bonus policy has remained constant for abut half a century. Foxconn, a supplier of mobile phone parts, has paid 20 per cent bonus.

Conclusion

Handling bonuses well is vital for businesses in order to improve the chances of success in a tough economic environment. It gives a holiday cheer to the employees, who form the backbone of a company. They not only contribute to labor, but also intellectual capital to an organization. The companies should pay special attention towards them in order to emerge as an effective organisation.