Are Principal Employers Responsible for Bonuses When Contractors Don't Pay?

Dear All,

I am working in a leading construction company where we undertake numerous construction projects by contracting with different contractors. We are the principal employer, and we also have contract employers. My question is, if a contract employer does not pay the bonus to their employees, is the principal employer liable to pay the bonus?

Looking forward to your valuable reply.

Regards,
SAI

Dear Saikiruba,

Your contractor or agency is an independent entity for the purpose of the Payment of Bonus under the Payment of Bonus Act. Hence, it depends on the financial position of the agency/contractor whether workers engaged by the contractor would be entitled to such payments, i.e., allocable surplus and available surplus of the contractor's firm.

The second criterion could be the terms and conditions of the contract/agreement your company has with the contractor. Normally, the principal employer considers such liability while awarding (part of the cost) work/contract to the agency. Therefore, it is the principal employer's responsibility to ensure such disbursement if it is considered as a part of the agreement.

Hope this is clear.

Regards,
ACCHR

Dear Acchr,

Thank you for your reply.

As you said, it is the responsibility of the principal employer to ensure before giving the contract. The contractor agrees and signs the agreement, stating that he will be liable to pay a bonus as per the bonus act. However, if he doesn't pay the bonus, then in this situation, the principal employer is liable to pay. What are the ways to sort out the issues?

Regards, SAI

In this case, the principal employer can directly debit the bonus amount from the outstanding payments to the contractor and disburse the same to the contract employees. If there are no outstanding payments to be made to the contractor, the same can legally be recovered from the contractor. It would be more appropriate to take this up with your legal advisor.

- Saravana Rajan