Navigating the Payment of Bonus Act: Seeking Clarity on Penalties and Responsibilities

Hi All,
I have posted this query in other thread but didn't get any response.I have few more doubts about Payment of Bonus Act:

• Penalty of non payment of bonus is 6months imprisonment or fine up to 1000 as per the Act….is it the updated one?
• Which department is responsible for maintaining register or record for available or allocable surplus? Is it HR or Accounts?
• Is it acceptable if a company pays 8.33% of 3500 to employees who's basic is less than 10,000 without maintaining any register or record for available or allocable surplus?
• Which Gov. Dept. can enquire for payment of Bonus? …Shops & Establishment Inspector? or Sales Tax Officer?

I look forward for expert's opinion.

Dear HR department,

It has come to our attention that the A&B register of bonuses is not being maintained by the accounts department as required. Bonuses are to be paid based on the allocable surplus of the past five years. It is important to note that labor authorities may request the balance sheet for verification purposes.

Thank you,
J. S. Malik

Thank you for your response. I have a few more queries as stated below:

I am working in a software company where the employee strength is more than 100, and more than 50% of the employees are earning below 10,000/- as a basic salary. Bonus is not provided. Can the employees demand the same? What are the consequences of non-payment of bonus? As a newly joined HR professional, what should be my role in such a situation?

Statutory Bonus at 8.33% shall be demanded by those whose monthly salary (basic + DA) does not exceed Rs 10,000. They will be eligible for a bonus on their salary of Rs 3,500 only. The rate of the bonus shall be fixed according to the profitability and following an agreement with the employees in this regard.

Failure to comply with statutory provisions is an offense as per any Act, but the fine or imprisonment provisions cannot be taken as final but are subject to the decision by the competent authority. What is to be ensured as an HR person is to avoid penal provisions attached to any enactment. Though much of the calculations involve Accounts and Profit & Loss accounts, the responsibility of getting the bonus calculated and disbursed lies with the HR person only. When a complaint for non-payment of the bonus is made before the competent authority, the District Labour Officer, it is not the Accountant who has to give a reply but the HR person will be answerable. An HR person should not wait for the employees to come and demand a bonus; rather, he should take the initiative to work out the amount.

Regards,

Madhu. T.K

Sir,

Is 3500 fixed or does it vary based on the Basic + DA? For example, if 6000 is the Basic + DA, the calculation would be 6000 * 12 * 8.33%. Even if he gets 6000 as basic, should we consider 3500 * 12 * 8.33% as a minimum? Which one is correct?

Please guide me; I am waiting for your kind reply.

Regards, Karthik

An employee who receives a salary (Basic + DA) up to Rs 10,000 (not Rs 10,001) will receive a bonus calculated based on a salary of Rs 3,500. This calculation is done as follows: 3,500 X 12 X rate of bonus (8.33% or as agreed).

Regards,
Madhu.T.K

But it is never said in the Bonus Act that an employee who is earning Rs. 10,000 or more is not eligible for a bonus. As per the act "8. Eligibility for bonus. — Every employee shall be entitled to be paid by his employer in an accounting year, a bonus, in accordance with the provisions of this Act, provided he has worked in the establishment for not less than thirty working days in that year." Can anybody clarify further on this?

Regards,
Venkat

Bonus Calculation for Contractor Employees

I have a query, please reply.

1. As the bonus is calculated by Allocable Surplus and Set On and Set Off (A+B Register), the bonus figures provided by the HR Department are entered in the balance sheet. Now, suppose we have engaged some contractor employees. Should the HR Department also calculate the bonus for contractor employees or only for those employees who are directly engaged by the PE? Secondly, the bonus amount for contractor employees is entered in which balance sheet (PE or Contractor)?

2. As the Allocable Surplus and Set On and Set Off register is maintained by the balance sheet, but the bonus figure by the HR Department is provided before finalizing the balance sheet. Suppose the HR Department calculates the bonus at 20%, but when the balance is finalized and the Allocable Surplus is calculated, it is realized that no profit has been made. At that time, can the bonus amount be reduced for that year as the HR Department has already maintained "Form C"?

Regards,
Dinesh Kumar

We are only concerned about direct employees, and the bonus for contract employees is to be provided by the contractor in his balance sheet. It is true that if the contractor fails to pay bonuses to his employees, the principal employer is obligated to pay statutory bonuses to the workers who work for him, thus becoming his liability. However, any amount disbursed will not appear in the forms since it is not an expense for him; instead, it is recoverable from the contractor.

Allocable Surplus and Bonus Provision

Allocable surplus is to be determined only after the preparation of the balance sheet, and HR cannot provide for the bonus before knowing the exact liability. It is purely a function of the Finance department and not the HR department. If HR has already given its estimate of a bonus at the rate of 20%, it is only a provision. If the available surplus is less, a lesser bonus should be paid.

Regards,
Madhu.T.K

I think Mr. Madhu and others have answered your questions very patiently. Still, the fact that many doubts spring from the given answers indicates that what is needed is the proper understanding of the concept of bonus. Only then can we read in between the lines and cull out the logical ideas behind each and every provision of the Enactment. So, let me briefly state the following to help us refresh our understanding:

Understanding the Concept of Bonus

The dictionary meaning of the term "bonus" is that anything pleasant that is extra and more or better than expected. In the Indian labor-management relations context, it acquired significance initially as an extra gratuitous periodical payment to workmen beyond their normal wages.

Interestingly, the Payment of Bonus Act, 1965, an exclusive special legislation on the subject matter of bonus which inter alia refers to various provisions of the Companies Act and the Income Tax Act, does not define the term "bonus." This is obviously because of the conflicting notions of "profit-sharing" and "gratuitous payment" that existed then in the minds of the workers and employers respectively during the two World Wars. That's why the Bonus Commission constituted in the year 1961 to advise the Government of India refrained from defining the term "bonus" and confined itself to construe the concept of bonus as sharing the profits of the establishment by its workers.

Historical Context of Bonus in India

It all started with the textile industry in Bombay and Ahmedabad in the year 1917. The Mill Owners who made good profits due to war conditions granted a 10% increase in wages to their workmen as "war bonus," which was later termed as "special allowance" on account of the hike in the prices of foodstuffs and increased to 15%. The recession following World War I and the boom during World War II gave rise to many disputes in all industries nationwide. After independence, the Industrial Policy 1948 recognized the principles of (1) fair wages to labor, (2) fair return on capital, (3) reasonable reserves for maintenance and expansion of the undertaking, and (4) labor's share of the surplus profits, calculated on a sliding scale normally varying with production after provision for (2) and (3) above.

Judicial Interpretation and Current Provisions

Taking note of the prevalence of low wages across the country and in tune with the spirit of Article 43 of the Constitution which enjoins upon the State to secure "living wages" to all workers, the higher judiciary began to interpret the term "bonus" as "deferred wages." That's why there is a provision in the Act for the compulsory payment of minimum bonus even in the absence of profits. Initially, it was 4% or Rs. 40/- whichever is higher, but subsequently increased to 8.33% or Rs. 100/- whichever is higher in respect of the accounting year 1979 onwards. Computation of available surplus as explained in Section 5 of the Act will show that it is the work of the Financial Expert to arrive at what is allocable as a bonus and it is the duty of HR to determine the quantum of the maximum bonus in consultation with the workmen.

Regards.