Statutory Bonus in Nepal — Profit Working, Allocation and Distribution

The general rule for a qualifying profit-making establishment is an allocation of 10% of statutory annual net profit. Section 5(2) sets the profit basis by its prescribed Income Tax Act reference and the adjustment for excess advance bonus under section 11(3). Keep a reconciliation to that legal basis; do not assume every accounting profit-before-bonus figure can be multiplied by 10% or 10/110 without further analysis.

Section 6 ordinarily requires work for at least half the eligible annual period, counting the specified paid leave, layoff and work-accident incapacity periods. Casual and substitute employees are excluded. Calculate the pool allocation against eligible salary or wages using section 7, the section 2(ङ) definition and Rule 9 exclusion for overtime earnings.

Section 7(3) ordinarily caps individual bonus at eight months of salary or wages for employees paid up to twice the government minimum monthly remuneration, and six months for employees above that level. Apply the section 7(4) protection at the boundary; do not use basic remuneration alone as a substitute for the statutory salary/wage definition. Government-owned establishments have separate allocation, approval and individual-cap rules.

Section 9 requires cash distribution within eight months after year-end. A qualifying extension or permission to combine two years must come through the statutory Labour Office process.

Do not allocate the entire provision to a selected management group while ignoring statutory eligibility. Keep a clear reconciliation from the establishment-level amount to individual entitlements and any legally required residual treatment.

Keep the audited accounts and the statutory profit reconciliation distinct. Explain adjustments, earlier advances and any applicable special restriction before determining the pool. Where the working starts with profit before bonus, ensure the computation uses the correct statutory and tax basis; ten percent of an arbitrary management subtotal is not automatically the required provision.

Prepare a worker schedule with service period, eligible remuneration, provisional allocation, statutory ceiling, approved gross amount and payment. Explain why an individual is included or excluded and preserve evidence for disputed absences or service periods. Reconcile capped amounts and the remaining pool to the applicable welfare treatment. A residual amount should not vanish into retained earnings merely because payroll has finished.

Where an advance bonus has already been paid, reconcile it to the final entitlement and follow the legal treatment of any difference. Obtain approval of the final schedule, provide a comprehensible calculation to each recipient and keep payment and withholding evidence. This makes the calculation reviewable when accounts are revised or the people preparing it have changed.

Assume the reviewed statutory working determines NPR 1,000,000 available for bonus. Lawful individual allocations total NPR 850,000 and leave NPR 150,000. Under the ordinary section 13(1) residual rule, NPR 105,000 goes to the statutory establishment welfare fund and NPR 45,000 to the national welfare fund. Government-owned establishments instead have the separate 20%/80% residual rule; the ordinary split must not be applied to them.

Account for the full NPR 1,000,000. Show gross individual bonus, employment-tax withholding and net payment separately. Send the prescribed distribution statement to the Labour Office within seven days after distribution. Rule 12क requires the ordinary 30% national-welfare amount to be deposited within one month after distribution. Keep the relevant remittance and acknowledgement.

Document the accounts used, reviewer, decision authority, distribution schedule and payments. Where the profit calculation is revised, assess the effect on the bonus provision and employee entitlements. A provision in the financial statements is not proof that the payment or welfare remittance has been completed.

Before distribution, confirm current law, regulations, applicable deadlines and tax treatment. Resolve disputed service periods and eligibility through a documented process. Preserve the calculation and worker-level schedule so the establishment can explain both the aggregate allocation and each employee's amount. A statutory bonus compliance file should survive personnel changes and later audit.