Payment of Bonus Eligibility

At the start of the bonus scheme era, the distribution of bonus was followed as a customary or rewarded for whims. Further, a statutory law called Payment of Bonus Act, 1965 was enacted by the parliament to ensure the minimum bonus must be available without failure to all the labours working under a unit/company. Bonus is the supplemental amount added with the normal salary provided by the proprietor to the labourers when there arises more profit with an increase of production in a certain unit. The labours who earn a salary of Rs. 21, 000/- with all dearness allowances come under this act. Under this Act, a minimum sum of 8.33% and maximum sum of 20% is received as a bonus by the labourers. These bonuses are eligible only when the labourers are worked for a period of not less than thirty days in the accounting year.

Introduction

The tradition of paying a bonus to the labourers who are hired by the proprietors has been traced at the period of World War-I in 1917. It was said that a textile mill awarded 10% of the payment as a credit of bonus to their workmen. So, every hard-working labour is entitled to the bonus from the profit for which the company gained by them. As to ensure that the bonus is credited to all the workers without failure the Indian Government enacted the Payment of Bonus Act, 1965.

Further, a Labour Appellate Tribunal was formed and derived a standard formula in 1950. The formula ascertained by the Full Bench Appellate was to regulate the working of payment regarding bonuses. Then it was pleaded to increase the working of formula in 1959. In 1960, a committee consists of three parties (tripartite) was directed by the Congress Party (Indian Government) to give recommendations upon the settlement of bonus act for the skilled/unskilled workers engaged under productivity associated with the profit-making unit. Based on the recommendations given by the committee with the exclusion of a few suggestions a bill was passed by both the houses of the parliament. On September 25th of 1965, the bill gets the ascent of President Dr Sarvapalli Radhakrishnan and renounced as the Payment of Bonus Act in 1965.

Meaning & Need for Bonus

Meaning:

It is to be presumed that bonus is the supplemental amount added with the normal salary provided by the proprietor to the labourers when there arises more profit with an increase of production in a certain unit. This act failed to mention any definition of bonuses even in the recently added amendments. Since the scope of bonus is quite comprehensive where remuneration can be given based on the performance of their exceptional hard work; can be given as an appreciation amount which makes them perform better and not to quit the unit; can be as a one-time amount for the accomplishment of a specific task. Thus, it becomes a little difficult for the owners/proprietors of the establishment to figure out what is the actual bonus and when it should be given?

Need:

Every labourer’s hard work must no go in vain. Every company should give equal respect in monetary payment to their labourers. When production increases the profit of the firm is also increases. So, it righteous to give the earned more profit as a bonus to their labourers. During festival times the work will be more in food department firms. The firm should ensure that the hard work of its workers is paid precisely. And the need for payment of bonus act is mentioned in the preamble of that act.

“An Act to provide for the payment of bonus to persons employed in certain establishments based on profits or based on production or productivity

and for matters connected therewith” [1]

It clarifies that the need for the act is to make licit binding on the production firm in working on the bonus formula given by this act. To make sure that the extra monetary payment is available to all workers (whose salary within Rs. 21,000/- and worked for 30 days) without any delay.

Important Definitions

Certain terms must be cleared to everyone who comes under this act before they exercise their right of bonus under this act. There are 22 sub-sections mentioned in section 2 of the Payment of Bonus Act, 1965 which defines the important terms under the act. Some of the basic important terms are as follows:

Accounting Year: –

Section 2(1) of the act defines ‘accounting year’. The accounting year is classified into three categories that refer to the public and private authorities. There are three sub-sections available under section 2(1) to explain the three categories of accounting year namely,

  • Accounting year concerning corporation [s. 2(1)(i)] refers to ‘the last day of t end of the year or any day when the books and accounts are closed’
  • Accounting year concerning a company [s. 2(1)(ii)] means ‘the session in which the profit or loss account of the firm or company is submitted before when the annual general meet happens’
  • Accounting year other than the company and corporation refers to ‘the year commencing on the first day of April’[2] [s. 2(1)(iii)(a)] or [s. 2(1)(iii)(b)] ‘if the accounts of an establishment maintained by the employer thereof are closed and balanced on any day other than the 31st day of March, then, at the option of the employer, the year ending on the day on which its accounts are so closed and balanced’[3].Without getting prior permission from the pre4scribed authority the manager/employer cannot change the submitting day under [s. 2(1) (iii) (b)].

Allocable surplus [s. 2(4)]: –

In India except for the banking company a manager/employer of any company with the balance sheet but not declared the dividend payable mentioned under the s.194 of Income Tax Act the calculation of the accounting year of the allocable surplus will be sixty-seven percent of the available surplus [s. 2(4)(a)]. And for other sectors, the calculations will be only sixty percent of the available surplus [s. 2(4) (b)].

Available surplus: –

Section 2(6) describes clearly that the available surplus is the calculation process mentioned in the sub-section 5 of the Payment of Bonus Act. The provision of sub-section 5 defines the Appropriate Government as:

  • in relation to an establishment in respect of which the appropriate government under the Industrial Disputes Act, 1947 (14 of 1947), is the Central Government, the Central Government [s. 5(1) (i)];[4]
  • in relation to any other establishment, the Government of the State in which that other establishment is situate [5(1)(ii)];[5]

Salary [S. 2(21)]: –

[Salary includes all remunerations capable of being expressed in terms of money, which are payable to an employee for the work done in such employment with dearness allowance but does not contains the following –

  • any other allowance which the employee is for the time being entitled to.
  • the value of any house accommodation or supply of water, medical attendance or of any service or of any concessional supply of foods etc.
  • any traveling charges.
  • any bonus.
  • any contribution paid by the employer to any pension fund or provident fund or for the benefit of the employee under any law for the time being in force.
  • any retrenchment compensation.
  • any commission paid to the employee][6]   

Binding & Application

Section 1 of the act clears that it is binding on whole the territory of India except for the State of Jammu and Kashmir. However, the State of Jammu and Kashmir may include in this act after the cancellation of their special status under article 370 of the Indian Constitution. Section 1(3) answers to whom this act is pertinent? Sections 1(3) (a) & 1(3) (b) says that this act comprises of entire factories (in this sense the respected factory must have identical explanation mentioned under s. 2(m) of the Factories Act,1948); comprises of entire organizations or establishments or companies (in this sense the particular company should have the same explanation mentioned under s.3 of Companies Act, 1956 and s. 591of the same act if it is a foreign company ) where the working of labours on any day, in an accounting year must not be less than twenty.

Even with 10 and not less than 10members may provide by the appropriate government a factory or establishment comes under this act. Before the grant of such order, the government must renounce an official notice in an official journal or newspaper of that firm not less than two months the intention of such an establishment with the specified members.

Role of Employee in this Act

Under section 2(13) of the act, employee is the person who is hired by an organization with a regular monetary payment. The regular payment must not exceed Rs. 21,000/- to claim his right of the bonus if not issued. Such employees may be skilled or unskilled labour or supervisor, manager, technician. Except for apprentice, all the employers working under an organization will be benefited from this act. The nature of work hired may be empress or implied. Employees working under the Center, State, or local authority or any other corporation maintained by the state or educational or hospital institutions or seamen mentioned under Merchant Shipping Act or daily-wage labours working in construction sites under a contractor will not be added and benefited under this act.

Role of Employer in this Act

The employer is defined under s. 2(14) of this act. The employer is the owner/proprietor or agent or legal heir of the owner/proprietor. It is essential that the employer must be owned with a firm and has a supreme authority or full control of all affairs. He must be renounced as the manager of a firm as explained under section 7(1) (f) of Factories Act, 1948.

The employer must make the account of all works done and remuneration given to workers in a register. He must enumerate the amount of profit and must grant a bonus to his labours. He is vested with all rights under s.18 of this act to make the bonus subtracted from the original bonus amount if found guilty of any miss-conduct with his worker or loss caused due to him.

Maximum & Minimum Bonus

Minimum Bonus:

Every employer is obliged to remunerate his worker with a bonus in every accounting year. The bonus must be paid by the employer whether the existing organization has gained profit or not. For allocation of bonus minimum sum of 8.33% (or Rs. 100/-) must be paid of the earnings by the labour in that respective accounting year. In the case of labour under fifteen years or not turned the age of fifteen in the accounting year also paid with a minimum sum of 8.33% or with Rs. 60/- mentioned under section 10 of the act.

Maximum Bonus:

Under s.11 of the Payment of Bonus Act, 1965 when the profit of the company increased with its production in an accounting year. Then the allocable surplus also increases. So, it is easier for the proprietor to give the bonus to all his labours. Since there is an increase in amount gained a reasonable value of 20% is fixed as the maximum percentage of bonuses to be paid. In reference to s.12 of the act, a person is entitled to a maximum amount of bonus with Rs.7000/-. If such profit gained exceeds the limit of 20% when there is a chance to give more percentage, it cannot be exercised by the proprietor. To govern with such activity s.15 of the act describes the set-off and set on of the allocable surplus. So that the exceeding bonus amount can be calculated to the succeeding accounting year. Hence the maximum limit of 20% can be not overruled by any organization.

Computation of Payment of Bonus

To Find Gross Profit:

The gross profit must be determined and maintained by the proprietor as per the guidelines explained in section 4 of the act. To enumerate gross profit of the accounting year for the banking company net profit should be associated with schedule-I [s.4(a)] given in the act. The schedule-I is made as per certain adjustments relating to the Income-tax Act. And to calculate the gross profit of the accounting year other than banking companies’ net profit should be associated with Schedule-II [s.4(b)] of the given Act.

To Find Available Surplus:

The available surplus is determined based on the guidelines given in section 5 of the act. The calculation of available surplus for the accounting year is done with gross-profit determined under s.4 of the act by subtracting the three sums mentioned in section 6 namely, depreciation, development rebate, investment allowance, and by subtraction of except the following three sums only from direct taxes mentioned in section 7 of the act namely, any loss sustained by an employer in a previous accounting year, arrears of depreciation, exception on s.84 of the Income Tax Act.

Eligibility

All the labourers whose remittances are on or below Rs. 21,000/- only with a maximum of 20% and a minimum of 8.33% are entitled to bonus. As per the provisions mentioned under section 8 of the act, they should be performed their duties sincerely in their respective work for a total of thirty days in an accounting year. For that, they are eligible and guaranteed with the bonus from their proprietor.

Disqualification

Any working member of the firm under a manager can be terminated under the grounds explained in section 9 of this act. There are three grounds of disqualification. They are as follows: –

  • Disqualification of any fraudulent activity.
  • Disqualification of any unlawful assembly which leads to riot and any vicious behavior with the disturbance caused to the unit/company.
  • Disqualification of any theft or wreck act committed to any possessions owned by the company.

Time Limit [S.19]

For any dispute regarding the remuneration of bonus where the labour approached the court or tribunal. If that tribunal granted with a bonus must be paid to the labour. So that the employer must ensure that bonus is paid to the labour after one month of the order given by the court [s.19(a)]. If not approached through judicial proceedings the maximum time-period is of eight months to pay the bonus [s.19(b)]. If the appropriate government allowed such a bonus can be paid but not extended for more than two years.

Legal Sanction [S.28]

Whoever violates any of the provisions and regulations mentioned in this act [s.28(a)]  and failure to perform their duties assigned or directed in this act [s.28(b)] will be held liable and punishable with 6 months of incarceration (imprisonment) or with the charge of fine which may not less than one thousand or with both.

Case studies

In Midhani Workers and Staff Union v. Mishradhatu Nigam Ltd., [(2000) ILLJ 698 AP], the court stated that according to section 10 of the Payment of Bonus Act, 1965 a minimum bonus must be paid by the owner/proprietor to his labour. It is considered as one of the statutory duties confers on the employer/proprietor. In failure to do so, the court has the authority to invoke a writ of mandamus to make sure that statutory duty is performed [7].

Phoenix Mills Ltd. v. The State of Maharashtra.,[1] the owner of the mill pleaded for the exemption under section 36 of the act. The Court granted the petitioner’s plea due to uncontrollable fire which caused more damages to his factory. There arises a financial crisis for which he cannot pay a bonus to the whole labours. But the concerned minister refused the order made for the exemption without considered even it is valid and declares the order given is not a proper one. The minister canceled all the similar exception pleaded by other mills on another hearing of the case [8].

In East Asiatic C (P) Ltd. v. Industrial tribunal [AIR 1961 Cal 160], the court held that the work done by a retrenched employee who has been fired by the company/establishment. He is also entitled to some bonus, which he must be engaged in his duty sincerely for a minimum period of qualification [9].

General Manager, Hissor v. Presiding Officer, LAbour Court, Hissor,[2] the Court held that this act of 1965 does not refer to the Haryana State Roadways and not liable to pay the bonus since it comes under the State’s authority [10].

H.P. State Electricity Board v. Ranjeet Singh,[3] in this case the Court clarifies that if any dispute arises among the labours and proprietors for such disputes the labour court is not allowed to decide the cases only industrial tribunal has the power of jurisdiction for the same [11].

In the case of Godrej Soaps Ltd. v. Baban Baburao Nemane,[4] it was decided that the labour is not entitled with the right of ex-gratia bonus. It may be given by the wish of his owner. Since ex-gratia bonus is not mentioned in the act he no right to plead before the court of law [12].

Pandiyan Roadways Corporation Ltd. v. Labour Court,[5] in this case a bus conductor lost his privilege of qualification for bonus. Because the bus conductor was found guilty of re-distribution of the old bus tickets which has already been sold [13].

Conclusion

The way of bonus scheme started as a whim and practiced as a tradition. Now it has legal enforceability on it if failure of performance. So that this act ensures all the labours under an employer is benefited from his hard work done by him whole the year including the festival periods. At the same time the provisions of the Payment of Bonus Act, 1965 refers only to the labours whose salary under Rs.21, 000/- and must be worked in a respective firm for a total of not less than thirty days in a year.

Due to the economic crisis in India, the rates of every commodity increase hence the middle-class sectors are gets affected. Since most of the population in India is of middle-class sectors, they may earn a maximum amount up to Rs. 15, 000/- per month. Such amount is not enough to run life with dignity. However, India is developing slowly in all spheres of economic matters. Today the fact is if one’s life may be economically below at least the current earning is protected to the extent. Thus, pay of bonus shall help the labours to live a peaceful life for the short-term. Every employer/proprietor must ensure that the correct or minimum bonus is protected and paid to their labors without failure.

FAQs

Q.1. What Is A Bonus?

Bonus is the supplemental amount added with the normal salary provided by the proprietor to the laborer’s when there arises more profit with an increase of production in a certain unit

Q.2. What Is the Need for A Bonus Act?

The need for the act is to make licit binding on the production firm in working on the bonus formula given by this act. To make sure that the extra monetary payment is available to all workers (whose salary within Rs. 21,000/- and worked for 30 days) without any delay.

Q.3. What Is the Maximum and Minimum Percentage for The Calculation Bonus?

At the Maximum can be calculated by 20% of salary with all dearness allowance and with minimum sum of 8.33%

Q.4. Who Are Eligible for A Bonus Under the Payment of Bonus Act?

As per the provisions mentioned under section 8 of the act, an eligible person should be performed his duties sincerely in their respective work for a total of thirty days in an accounting year.

Q.5. What Is the Penalty or Legal Sanctions Mentioned in The Act?

Whoever violates the provisions of this act shall be held liable and punishable with 6 months of (imprisonment or with the charge of fine which may not less than one thousand or with both.

Q.6. Describe the Guidelines for The Disqualifications?

      There are three grounds of disqualification. They are as follows: –

  • Disqualification of any fraudulent activity.
  • Disqualification of any unlawful assembly which leads to riot and any vicious behavior with the disturbance caused to the unit/company.
  • Disqualification of any theft or wreck act committed to any possessions owned by the company.

 

References

[1]https://www.vakilno1.com/bareacts/paymentbonus/paymentofbonusact.html

[2]https://www.advocatekhoj.com/library/bareacts/paymentofbonus/2.php?Title=Payment%20of%20Bonus%20Act,%201965&STitle=Definitions

[3]https://www.advocatekhoj.com/library/bareacts/paymentofbonus/2.php?Title=Payment%20of%20Bonus%20Act,%201965&STitle=Definitions

[4]https://www.indiacode.nic.in/show-data?actid=AC_CEN_6_6_00002_196521_1517807317816&sectionId=24429&sectionno=2&orderno=2

[5]https://www.indiacode.nic.in/show-data?actid=AC_CEN_6_6_00002_196521_1517807317816&sectionId=24429&sectionno=2&orderno=2

[6]https://www.advocatekhoj.com/library/bareacts/paymentofbonus/2.php?Title=Payment%20of%20Bonus%20Act,%201965&STitle=Definitions

[7] http://www.whatishumanresource.com/the-payment-of-bonus-act-1965

[8] http://paymentofbonusact1965.blogspot.com/2011/04/case-laws.html

[9] https://www.slideshare.net/Manisha_D_Vaghela13/payment-of-bonus-act-1965-15970594,

    (Slide 30 of 41)

[10] http://paymentofbonusact1965.blogspot.com/2011/04/case-laws.html

[11] http://paymentofbonusact1965.blogspot.com/2011/04/case-laws.html

[12] http://paymentofbonusact1965.blogspot.com/2011/04/case-laws.html

[13] http://paymentofbonusact1965.blogspot.com/2011/04/case-laws.html


[1] (1993) III LLJ 844 Bom.

[2] (1996) 2 PLR 727.

[3] 2008 LLR 766 (SC).

[4] (2003) 98 FLR 569.

[5] (2000) I LLJ 1147 Mad.

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