Section 36 of COW : Section 36: Set On And Set Off Of Allocable Surplus

Explanation using Example

Imagine a manufacturing company, "ABC Manufactures," has had an excellent financial year, and the allocable surplus for bonus payments is beyond the maximum limit set by Section 26 of the Code on Wages, 2019. According to Section 36(1), the company can carry forward the excess surplus, which is within 20% of the total wages of the employees for that year, to the next year. If in the next year, the company doesn't make enough profit to pay the maximum bonus, the carried forward amount can be used to pay out bonuses to the employees.

Conversely, if "ABC Manufactures" experiences a poor financial year and cannot meet the minimum bonus requirement, as per Section 36(2), the deficit can be carried forward to the next year. If the following years are more profitable, the carried forward deficit can be set off against the future allocable surplus for up to four years.

The company needs to follow the set on and set off principles prescribed by the Central Government, as mentioned in Section 36(3), for any other scenarios regarding bonus payment that are not specifically covered by subsections (1) or (2).

When the company calculates the bonus for a year and there are amounts carried forward from previous years, as per Section 36(4), the amount from the earliest year should be taken into account first. This helps in maintaining a systematic approach to managing bonus payments.