Non-Payment of Bonuses to Third-Party Employees: Is It Legal and What Can Be Done?

I have a query regarding the non-payment of bonuses to all TPC employees. I am under a third-party contract in an organization, and our contractor does not pay bonuses to us. Is it legally right to do so? Can any legal action be taken against this?

Thank you.

Well, the policy for bonuses differs from company to company and is decided by the owner or the board of directors. Most often, companies allow bonuses for their permanent or on-roll employees and may choose to offer the same to their contract employees. This decision entirely depends on the company's discretion—some companies provide bonuses while others do not.

Understanding the Payment of Bonus Act, 1965

Let us first see what a bonus means under the Payment of Bonus Act, 1965, and how it comes into play. The bonus, though not defined in the Act, would mean partial sharing of profit that the employer has earned during an accounting year. The POB Act has evolved a formula for calculating the bonus, and companies have to adhere to that formula. Accounting terms such as available surplus, allocable surplus, etc., are used, and with the Profit and Loss statement of the Company, one has to calculate the percentage of bonus for that year. When there is no profit, then also a minimum bonus of 8.33% of earnings during the accounting year is payable.

The act is applicable to factories and establishments employing 20 or more persons. However, some states like Maharashtra have made this Act applicable when there are 10 or more persons employed.

In the case of a new establishment, there is an exemption from the payment of bonus for the first five years or until it earns a profit, whichever is earlier.

There is also a ceiling on the salary drawn by the employee and a notional limit for the calculation of the bonus.

These are some of the features of the Payment of Bonus Act.

Now, considering all these aspects, you can just imagine how difficult it is to answer a query, "I am in a Third Party contract in an organization. Our contractor does not pay a bonus to us. Is it legally right to do so? Any legal action can be taken against it?"

Well, unless all details are received, how can one answer the question?

Thank you for all the replies from the seniors. I have a query regarding whether the contractor should pay a bonus to us. As all the statutory compliances, i.e., P.F., E.S.I., are handled by the contractor, why is he not eligible for the bonus? The Bonus Act is applicable to all. Should I approach the principal employer for this?

Regards,
Namit

Bonus Eligibility and Legal Responsibilities

First of all, remove the tag of Third Party. You are an employee for your employer. If your job particulars fulfill the eligibility for a bonus, then the bonus should be paid to you as per the Act, and you deserve it. This is the first point.

Third Party (Contractual) Matters

Now, the second point, the Third Party (Contractual) matter. In this case, if your employer doesn't pay you the bonus, then it is the responsibility of the Principal Employer to ensure that the contractor pays all the legal benefits to the deployed employees. If the contractor doesn't pay and the Principal Employer also doesn't take interest in it, then you can lodge a complaint with the Labour Commissioner against both of them under The Payment of Bonus Act.

Because the employer is covered under PF and E.S.I., it does not indicate that he is automatically covered under the Payment Bonus Act. In fact, each act has its own scope, applicability, and coverage. Hence, coverage under one act does not imply that the other acts are also applicable.

So, even if your firm is covered under ESI and PF acts, it does not necessarily imply that the Bonus Act is also applicable, and therefore, one is entitled to a Bonus.

Eligibility for Bonus

Regarding the eligibility for Bonus, any employee drawing a salary up to Rs. 10,000 per month is entitled to receive a statutory bonus as if his salary is Rs. 3,500 per month. Obviously, those who earn more than Rs. 10,000 per month are not covered by the Bonus Act and thus will not be entitled to a Bonus under the Payment of Bonus Act.

In the majority of cases, contractors do not pay bonuses to the manpower deployed by them and justify it by saying:

1. "They don't have enough profit margin."
2. "If the employer agrees to pay him, only then will he disburse; otherwise, NO."

Employers also do not take any interest in pressurizing the contractor.

Statutory Procedure and Guidance

As per statutory procedure and as suggested by Mr. B.C. Arya, if any of the contractor's employees individually or collectively lodge a complaint with the DLC, what will be the outcome of the DLC's intervention?

- Is the DLC authorized to force the contractor to disburse bonuses to its employees?
- If the contractor satisfies the DLC that he could not disburse due to low profit margin or any other justified reasons, what would be the action or decision of the DLC? Can the DLC instruct or order the employer to disburse the bonus on behalf of the contractor or as a principal employer? Is the DLC's decision binding on any of the parties (employer or contractor), or can they approach higher authorities?

Seniors, please guide as this is a common situation in almost all private sector organizations.

Is there any case law on this? If yes, please provide a reference.

Regards,

Thank you for all the replies. From this discussion, I have concluded that the payment of a bonus is solely decided by the employer. An employee cannot force the employer to provide a certain bonus amount.

Regards,
Namit