Umakanthan53
Labour Law & Hr Consultant
+1 Other

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Please clarify the following query regarding applicability of payment of bonus. If the company has been incorporated in 2010 and has been under loss till 2017 the still does it need to pay bonus under payment of bonus act to all employees drawing a basic salary below 10 k and 21k.
If the company is liable to pay bonus but has not paid such amounts then what recourse does it have with the applicable penalty if any.
What can the company do right now to ensure past compliance is adherence.
Please clarify as it is an urgent matter.
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Dear Ms.Anuradha,
To understand the statutory responsibility of the employer of any establishment covered by the Payment of Bonus Act,1965 to pay annual bonus under the Act to his/her employees, I think that you should carefully read the provisions of sections 8, 9,10,11,12,15,16,19,21,22 and 28 of the Act in particular and understand their import in order to get appropriate answers to your queries.
Incurring losses ever since inception is not a criterion for exempting the establishment from paying bonus to its employees as a statutory obligation is cast upon the employer to pay minimum bonus @ 8.33% even in the absence of any allocable surplus in a year.
Similarly, the concession granted to newly established establishments u/s 16 (1) is controlled by the rider clause of sub section (I-A) of sec.16.
Sec.19 of the Act fixes the time-limit for payment of bonus. It can be extended up to 2 years by the authority viz., the Commissioner of Labor on proper application u/s 19(b).
The modes of recovery and penalties for any violation are provided for in sections 21,22 and 28 respectively.
Your management may consider paying arrears of minimum bonus to all eligible employees under the Act for the past years.
Most Respected Umakanthan ji
Thank you for your clarifications...I shall study the prescribed sections of the act and work accordingly.
Thanks once again and much appreciated.
Warm Regards
Anuradha
Most Respected Umakanthan ji
In continuation of your elaborate response I have a specific query.
As per sec 16(1) of the payment of bonus act will not be applicable for first 5 years to the establishment.
However if the number of employees remains less than 20 for the first 3 years post incorporation then will this grace period of 5 years start from the day the act is applicable or from the date of incorporation.
I would be greatly indebted by your thoughtful consideration.
Much Obliged
Anuradha
Ms.Anuradha,
The five year period has to be reckoned with from the actual date of inception of the establishment as a new one and not from any subsequent date on which the PB Act becomes applicable or the date on which there occurs any change. in its ownership due to contingencies like sale, conversion of its Constitution etc.
Thanks once again Umakanthan ji
Most Respected Umakanthan ji
Greetings
I have read Sec 21 , 22 and 28 of Payment of Bonus act. The problem here is that the startup was unaware of its obligations to pay Bonus to its employees and could not pay the same without any ill intention.
Now i.e in 2018 it has realised that beyond the five year period for which there was no applicability of Payment of Bonus act it needs to pay bonus for the last 3 years mainly 2015-16,16-17 & 17-18.
As per the act the bonus needs to be paid within 8 months of the close of the eight months of the close of the AY.
But here the company has missed that window of opportunity for the preceding two AY .
To set its record right the company wants to pay the bonus of the AY 2015-16 & 16-17 but is unable to understand if it can do the same with a penalty or anything adverse.
The company in question is also in deep financial losses since inception in the 6th 7th and 8th year too. Hence considering the perennial accumulating losses suffered by the company can it plead for exemption of min statutory bonus of 8.33% in the 6th ,7th & 8th year.
My humble plea to your esteemed authority is to let us know if possible how can the company correct this unknowing error and if there is a penalty it will to what extent as sec 28 a fine of Rs 1000 and or 6 months imprisonment.
Thanking You
Warm regards
Anuradha
Dear madam,
First and foremost, ignorance of law can not be a defence for non-compliance of a legal liability. Before any action is taken against such a lapse, you can correct it suo motu.
Secondly, pl ensure exactly from which year the liability to pay bonus actually arises following the year of inception for it varies according to the type of the establishment basing on which it can function as a full-fledged business entity. Establishments such as large-scale manufactury, mines etc., have long gestation periods whereas shops, commercial establishments and the like do start their business operations soon after inception. Therefore, the concession granted u/s 16 of the PB Act,1965 can not be unconditionally enjoyed by a newly set-up establishment during the entire stretch of consecutive 5 years since its inception. Simply put, bonus has to be paid only for those years in which profits are there during the first five years without applying the provisions of set on and set off as in Sec.15.
If your statement about the company incurring losses from its inception is true and also correct as per the audited accounts of the company, now, you can pay bonus at the minimum rate from the accounting year 2015-16 as arrears to all the eligible employees.
Do not worry about the penal action u/s 28 if you comply with at least now.
Also,remember to start maintaining the registers prescribed under the Payment of Bonus Rules,1975.
Rightly Explained, But what about the bonus amount whether the payment will be made alon with the interst rate ? If so what is the percentage and calculation ?
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