Payment of Bonus & Eligibility
Authored by - Ashish Nagpal
Keywords - Reward, profit earned, statutory bonus, employees, productivity.
Bonus in its general meaning refers to a reward that is paid to an employee for his good work towards the organization. The basic purpose to give bonuses is to divide the profit earned by the organization between the employees and staff members. The Payment of Bonus Act,1965 is an Act that has been quite historic in its enactment and has surely brought waves of happiness among the working-class society at that time. This Act was enacted to provide for the payment of statutory bonus to persons employed in certain establishments based on production or productivity and for matters connected therewith. This Act, therefore, is a principal law regarding the procedure of payment of bonuses to the employees. This article seeks to give an understanding of the laws relating to the payment of bonuses in an organization.
In India, the practice of paying bonuses originated during the First World War when some of the textile mills granted 10% of wages as a war bonus to their workers in 1917. Further in certain cases of industrial disputes, demand payment of bonuses was also included. Later in 1950, the full bench of the Labour Appellate evolved a formula for the determination of bonuses, and a plea was made to raise that formula in 1959. At the second and the third meetings of the Eighteenth Session of Standing Labour Committee held in Delhi in March/April 1960, it was agreed that a commission will be appointed to go into the question of bonus and evolve certain suitable norms. A Tripartite Commission was set up by the Government of India to consider this comprehensively, the question of payment of bonus based on profits to employees employed in establishments and further to make recommendations to the government. Finally, the Government of India accepted the recommendations of the commission concerning some modifications, and the Payment of Bonus Ordinance, 1965 was promulgated on 29th May 1965.
The objective of this payment of bonus Act can be defined as under:
To impose a legal responsibility upon the owner or employer of the establishment covered by the Act to pay the bonus to the employees.
To provide a redressal mechanism
To prescribe an universal formula for calculating bonus
To designate the maximum and the minimum percentage of bonus
Applicability of the Act
The Payment of Bonus Act implements to the following establishments which fall under any of the reasons listed below:
It applies to any factory or establishment which had 20 or more employees during any day in the assessment year.
This Act does not apply to non-profit making organizations.
It excludes establishments like LIC or hospitals which are included in Section 32 of this Act.
This Act is also not applicable to establishments where employees have signed an agreement with the employer.
It does not apply to establishments exempted by the state governments also.
Eligibility for Bonus
An employee is eligible for a bonus under Section 8 of the said Act if the following conditions are satisfied:
The employee receiving salary or wages up to Rs. 10,000 per month which has been increased to Rs. 21,000 per month as per the 2015 amendment.
The employee engaged in any of the work whether skilled, unskilled, managerial, etc.
The employee who have worked not less than 30 working days in the same year.
Disqualification for Bonus
The disqualification for Bonus is defined under Section 9 of the said Act. This Act says that notwithstanding anything contained in this Act, an employee shall be disqualified from receiving bonus under this Act if he is dismissed from service for:
Riotous, disruptive, or violent behaviour while on the place of the establishment; or
Theft, misappropriation, or destruction of any property of the establishment.
Time Limit for Payment of Bonus
It is mentioned in the Act that all amounts payable to an employee by the means of bonus are to be paid in cash. It should further be paid within 8 months from the closing of the accounting year. An exception to when there is a dispute regarding payment of bonus unsettled before an authority (Under Industrial Disputes Act) within 1 month from the date on which the award becomes executable or settlement comes into operation, in respect of the dispute.
Payment of Maximum & Minimum Bonus
The payment of minimum and the maximum bonus are defined under Section 10 and 11 respectively
The minimum bonus thus stipulated under this Section will be 8.33% of the salary during the year, or 100 rupees will be given to employees above 15 years and 60 rupees in case of employees below 15 years whichever is higher
The maximum bonus is further 20% of the salary of the accounting year.
Rights of Employee
The Said Act defines the rights available to the employees as defined below:
Right to claim bonus due under the Act and to request an application to the government for the redemption of bonus amount which is unpaid to them within one year of it being due.
The right to address any dispute to the Labour Court/ Tribunal, however, it is important to note that those employees who are not eligible for a bonus cannot contest any right to the Labour Court/ Tribunal for the same.
The right to seek clarification and obtain information on any items in the name of the establishment so that they have the right to know if they are fully remunerated according to their services or not.
Rights of Employer
The rights available to the Employer against any exploitation or the protection of their business are given below:
Rights to notice any disputes relating to the application or interpretation of any provision of the Act to the Labour Court/Tribunal
Right to make a valid deduction from the bonus due to an employee on the account of such bonus already paid as a festival bonus or in case of financial loss created by the misbehaviour of the worker
The right to take the bonus of an employee who has been dismissed from the service for misbehaviour, violent behaviour, or sabotage of any property of the establishment.
Offenses & Penalties
The penalty in case of violation or failure to comply with the provisions under the Act is defined under Section 28 of the said Act and is deemed to be imprisonment for 6 months or a fine of Rs. 1000 or both whereas in case of offenses by the companies, firms, body corporate or association of individuals, its director, partner or a principal or officer responsible for the conduct of its business, should be considered to be guilty of that offense, unless the person bothered proves that the crime was performed out of his knowledge or that he exercised all due diligence.
The Payment of Bonus (Amendment) Act, 2015
In September 2015, Sh. Bandaru Dattatreya, then Minister of State for Labour and Employment took on record of the 12 demands put forth by various trade unions and provided assurance that the Central Government is emphatically working towards solving at least 9 of such demands. Among others, the trade unions had insisted that for the motive of payment of bonus, the wage eligibility limitation and calculation ceiling be amended to meet current economic trends. The trade unions proposed that the wage eligibility limit should be increased from Rs.10,000 to Rs. 21,000 and the calculation ceiling from Rs. 3,500 to Rs. 7,000 or the minimum wage informed by the appropriate Government for that category of employment, whichever is higher. Taking into due concern the demands provided by the trade unions concerning amendments to be carried out to the Payment of Bonus Act, 1965 (Principal Act), the Payment of Bonus (Amendment) Bill, 2015 (Amendment Bill), was introduced in the Lok Sabha on 7 December 2015 and was passed on 22 December 2015. Without much delay thereafter, the Amendment Bill came to be passed by the Rajya Sabha on 23 December 2015, and is called the Payment of Bonus (Amendment) Act, 2015 (Amendment Act), received the assent of the President of India on 31 December 2015.
It is critical that the Government issues clarifications and exemptions to ease the operational complexities with the retrospective amendments. The requirement to consider the minimum wages under the Minimum Wages Act while calculating bonuses will create uncertainty and disparity around bonus payments, which was best avoided at this stage. Hopefully, other labour reforms in the pipeline such as the Government's ambitious plan to reduce the number of labour laws by codifying laws related to industrial relations and social security under uniform codes, will also take into account the employer's interest and provide them with sufficient leeway to prepare and effectively deal with any retrospective amendments such possible.
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2. Payment of minimum and maximum bonus – Payment of Bonus Act 1965, Act 23 of 1976 (September 25, 1975).
3. Ajay Raghavan, The payment of Bonus (Amendment) Act, 2015 Employment Law Alliance, Jan24, 2016 at A1. https://www.ela.law/firms/trilegal/articles/the-payment-of-bonus-amendment-act-2015.
4. Vinod Gulvady, Payment of Bonus Act: Applicability, Calculation & eligibility, greythr (Jan 19, 2016) https://blog.greythr.com/payment-of-bonus-act-applicability-calculation-eligibility.
5. Payment of Bonus Act: applicability and calculations, Saralpaypack (Feb 24, 2018) https://www.saralpaypack.com/blogs/payment-of-bonus-act/.