Principal Employer's Liability: Are You Responsible for Bonuses if Contractors Don't Pay?

Dear Seniors,

Kindly suggest how far a principal employer is liable to pay a bonus to contractor workers if the contractor fails to do so.

Thanks in advance.
Ajay

Dear Negi Ji,

We didn't pay a bonus to the contractor, and neither did he claim it. As you mentioned earlier that the principal employer will be liable, it would be appreciated if you could provide us with any references.

Regards,
Ajay

Dear Ajay,

I could not see your post. The principal employer is responsible for wages, PF, and ESI. He is not solely responsible for bonus and gratuity. However, the contractor act is very clear in this respect, and it is clearly mentioned that the principal employer is responsible for wages. In one case law that I read, Cominco Bibani Zinck Ltd vs. Pappachan 1989, the court mentioned that bonus will not be payable by the principal employer to the workers engaged by contractors since the bonus does not fall under the purview of wages.

Regards,
J.S. Malik

Dear Ajay,

I understand the court has made it the responsibility of the contractor to pay a bonus, but there is a similar responsibility of the principal employer to provide a bonus to them by the contractor. It is clear that bonus payment is the responsibility of the contractor, but there is another law; if the contractor does not comply with legal requirements, then you can break the contract with the contractor who is engaging in illegal activities. The principal employer should put pressure on the contractor to pay bonuses to all employees.

At the time the contract is made between the employer and the contractor, one point is mentioned that the contractor will comply with all legal laws and all responsibilities related to wages and benefits are on the head of the contractor as per legal requirements. Think positively for your workers (whether permanent, contractor, temporary, etc.). Why should you allow the contractor to break the law in your premises?

Best Regards,

Sajid Ansari - Delhi

Dear Malik,

I have one more doubt regarding the bonus. We are contractors for many clients, and we have included a 20% bonus on Rs. 3500 in the gross salary. This means we pay the bonus upfront, whereas typically, employers should pay the bonus after the completion of the financial year based on the available allocable surplus amount. Could you please advise whether we are compliant with the Bonus Act?

Regards,
Keshav Reddy.

Dear Malik Sir,

Is an employer liable to give a bonus to its full-time permanent employees? Is there any such compulsion clause?

Regards,
DM

Dear HR Guide,

Your question is very amateurish, and I am sure even a simple graduate HR assistant can answer it. Kindly go through the Payment of Bonus Act.

Kindly don't have such inappropriate nicknames like HR Guide - if you don't know your way, how can you guide others?

Dear Malik Sir, kindly don't answer such silly questions. You are not here to spoon-feed everything and everyone. Let the individuals do some work on their own.

Regards.

Dear Keshav,

It is not necessary to pay a bonus after the completion of the financial year. You can pay on a monthly basis but show it as a bonus. Make sure that you have a surplus in your balance sheet to meet the expenses.

Regards,
JS Malik

Dear all,

Any type of employee who has worked more than 30 days in a financial year is entitled to get a bonus.

Regards,
JS Malik

QUOTE=HRGuide;744868]
Malik Sir,

Is an employer liable to give a bonus to its full-time permanent employees? Is there any such compulsion clause?

Regards,
DM
[/QUOTE]

Dear Ansari Sir,

I totally agree with the aspect of Malik Sir. In one case, it has been decided by the Allahabad High Court (2006) that the Principal Employer is only responsible for paying wages. According to the definition of wages, wages do not include bonuses.

Regards,
Ajay

Dear All,

As per the Bonus Act, every employee who has completed a period of continuous 30 days is eligible for a bonus for the particular period. Are the 30 days inclusive of holidays such as weekly offs and festival days? When are we supposed to pay the bonus for 30 days? Is it on a pro-rata basis, or is there any standard amount to pay in such cases? What is the calculation for pro-rata?

Regards,
Vissu

Dear,

The Contract Labour Act does not provide that the principal employer will pay a bonus to the employees of the contractor. In one case, the Kerala High Court has also held that a bonus will not be payable by the principal employer since this does not come within the definition of wages as per the Payment of Wages Act, 1936.

Prem Prakash Dagar
Manager-HR

Bonus is not the liability of the principal employer as per the case study of the Kerala High Court. According to the Payment of Wages Act 1937, bonus does not come within the purview of wages.

Thanks,
Dagar

Mr. Hansdah,

I would request you to not act as a moderator and knowledge expert in HR. You have no right to call anyone names. You might have excellent knowledge in HR and understand every jargon, but it's not the same for everyone. The query I have is because, although it is a requirement in our company, they are denying it this year for a few departments. So, I wanted to know whether it is compulsory.

For me, HR Guide doesn't mean that I am a guide; it means that Citehr is an HR guide for me. Usernames need not create controversies in your life. And please note, a person like you will only discourage employees and fellow Citehr users from asking questions. Please reserve your comments for yourself.

Hi,

Please clarify whether payment of bonus is applicable to contract workers. If it is, is it the responsibility of the principal employer or contractor.

Dear HRguide,

I apologize if your feelings have been hurt. I never claimed to be a moderator or subject matter expert on HR, but thank you for your allusions - I appreciate it with gratitude.

Now that I understand your concern, I have the following to say:

Participants should not expect others to be so omniscient as to understand their problem with full context. For example, your question was: "Is an employer liable to give bonus to its full-time permanent employees. Is there any such compulsion clause?" Had anyone else posted this, you yourself would have felt irritation, as the mere mention of the Payment of Bonus Act answers it.

But now that you have explained the problem in the context of your company, it becomes clear as to why someone would even raise this basic issue.

I understand your predicament now. If the management has decided something, then that's it. Try persuading them, point out the legalities - I wish you success. In my humble opinion, the Indian private sector (especially the small and family-owned ones) has no corporate governance at all. For them, 'might is right.' I recall what the senior people of Finance in the erstwhile Satyam told the investigators - ".. no one could dare to go against the towering personality of Mr. Raju...". Well, that is how the cookie crumbles.

About nicknames, you have given me a new insight on how people adopt nicks on the net. Well, of course, it's what one aspires to be and not what one already is.

Please don't take my comments to heart. As HR managers, we know there are all kinds of people on this earth who think in their ways - and this diversity in thought is the key to human progress. :)

Here are a few tidbits about bonuses that may be of interest to you:

- Bonus - the word is derived from the Latin root and means 'something extra' beyond what is normally agreed upon.
- It was generally given at the time of Christmas as a gift and to enable workers to tide over their festival hardships.
- In India, it started in the textile mills of Surat and Mumbai, and it was given during the Durga Puja-Diwali festivals.
- Bonus is no longer a perk; it has almost become a right.
- There is a nice character in Asterix comics called Christmasbonus. :-P

Regards.