Umakanthan53
Labour Law & Hr Consultant
Saswatabanerjee
Partner - Risk Management
Mahr
Head - Human Resources
Ganijohn
Executive Hr & Admin At Pena4 Tech

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Dear Seniors,
i'm working in a company currently having 300+ employees(Service Sector).It is 5 years old company and Operational in 2 states of India.
i would be very happy if i can get solutions to below queries.
1. I would like to know whether the Payment of Bonus Act is applicable to this ITES/KPO?
2. Also please mention if any start up company can get ignored from the act from some period of time?
3. I also heard that some companies do adjust the bonus with monthly Salary Perks like in Special Allowance component, how far it can be possible?
i would appreciate for your time spent on this regards.Thank you and awaiting for your valuable answers.
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Dear Ganijohn,
1)Since the total no of employees is more than 20, the Act is applicable.
2) Since your Company is a 5-year old ITES/KPO industry, the question of gestation and its consequential concession provided for u/s 16(1-A) of the Payment of Bonus Act,1965 for payment of bonus to employees is not available.
3) Bonus is a statutory amount payable to the eligible employees based on the over all performance of the establishment and the total earnings of the employees during a stretch of 12 months period called as Accounting Year within 8 months from its end. Therefore, it is a deferred payment. Hence, normally it would not be possible to pay it earlier on monthly basis on guess. However, those employers of establishments who are very certain about their positive performance and strictly adhering to the maximum rate of bonus may pay it on monthly basis in the name of interim bonus to be adjusted against the actual bonus later.
Hi Ganijohn,
Many employers along with employees strongly believe that the entire labour law in India does not apply for IT & ITES sector. However, it is purely that a software professional/software engineer/IT employee can be termed as an employee or a workman is entirely a question of fact, the answer to which depends on a number of factors such as the nature of work of the individual, his remuneration, his decision making powers, use of mental faculties, extent of involvement with the business of his company, power of supervision etc. Almost many IT/ITES/Bio Tech companies does not pay bonus as defined under "Payment of Bonus Act".
There are yearly payments like Performance Linked Bonus, Variable Pay, etc. however they are not paid according to the act. Also Bonus payments cannot be made monthly as it is purely based on whether the company had made profit for that year, even for StartUps.
Many companies have been paying bonus on monthly basis.
However, while the act is silent on this, a normal and sane reading of the provisions would indicate you can't do it.
For one thing, it is based on profitability
For another, it is payable w9thin 8 months of the end of the financial year.
There is a provision of setting off customary bonus. Which obviously can be bonus paid once, not 12 times in a year.
Again, under the rules (e.g. In ESIC), and as decided by various courts, any amount paid each month Or even by-monthly is a part of salary. So then this monthly bonus becomes a component of your monthly salary structure and breakup and you will be liable again to pay bonus separately
Dear All.. Thank you for your valuable replies. But still im not sure that i got an understaing upon said topic. please help me out, if any more information available on the same. Thank you
Basically,
If you have more than 10 employees, bonus is applicable
If you are not more than 5 years old, and have made a loss in each of the 5 years, you are exempt (till you cross 5 years as an organisation)
Paying bonus on monthly basis is a bad idea.
Dear Ganijohn,

Human nature is either we understand or misunderstand and not in between.The right effort to understand is, therefore, leaving our misunderstanding first and becoming as receptive like an empty slate next. So let me try once more and see whether I am able to make your understanding sure.

1)" The object of the Payment of Bonus Act,1965 is to maintain peace and harmony between labour and capital by allowing the employees to share the prosperity of the establishment reflected by the profits earned by the contributions made by capital, management and labour " - Supreme Court of India in Jalan Trading Company Pvt. Ltd v Mill Mazdoor Sabha... AIR.1967 S.C.691. Sec.1(3) of the P.B Act makes it applicable to (a) every factory and (b) every other establishment in which 20 or more persons are employed on any day during an accounting year subject to the condition that the Appropriate Govt can specify this number not less than 10 in respect of any establishment by means of a notification. Since your ITES/KPO Industry is an establishment having more than the minimum no. of employees specified, the Act is applicable.

2) The term " Start-up" used in your query actually refers to a "newly-set-up" establishment mentioned in the Act whose employees also entitled to be paid bonus in accordance with the provisions of ss (1-A),(1-B) and (1-C) of Sec.16(1) of the Act. Sub cl.(1-A) provides for concessional treatment to newly set-up establishments in matters relating to payment of bonus. In the case of newly set up establishments, during the first five years from inception, bonus is payable only from the accounting year in which the employer drives profits from the establishment or sells the goods produced or manufacured by him or renders services as the case may be, from the establishment, WHICHEVER IS EARLIER without applying the principles of set on and set off contemplated u/s 15.

3) Regarding your 3rd query, I think that my previous answer is suffice.

If still not clear, you can ask further.
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