Is a 15-Year-Old Partnership Firm Required to Pay Bonuses Despite Ongoing Losses?

Dear All,

Thanks in advance for considering this as important. I want to understand whether a partnership firm that has been operating for 15 years in a metro city with more than 100 employees is liable to pay bonuses and gratuity to its employees. Two years ago, they obtained registration under the Shop and Establishment Act and have been functioning as a retail company but have not yet paid any bonuses to their employees. The firm has been consistently showing losses on its balance sheet since its inception.

Please do the needful.

It is quite astonishing that Ahmadshad raises this question just now when the firm has been in existence for the last 15 years, that too in a metro with more than 100 employees, and the law relating to bonuses has been in vogue since 1965! For the generality of application of the Payment of Bonus Act, 1965, the constitution of the establishment has no relevance. Similarly, continuous losses incurred by the establishment cannot be a reason for non-payment of bonuses to its employees—minimum bonuses have to be paid.

Dear Sir,

You will find that in Mumbai, many factories and establishments are not following the Labour Laws. No minimum wage is being followed, no PF, no ESI, and no Bonus are being provided. This lack of compliance is prevalent even in the organized sector. Enforcement authorities only seem to visit such factories and establishments to collect bribes periodically. What is most astonishing is that many HR professionals and consultants are not well-versed with the labor laws. I have observed numerous companies deducting PF on incomes as low as INR 3000 to INR 4000.

Thank you.

I do not understand how or why a firm would exist for 15 years doing business with losses in all 15 years. I suspect you have incorrect information.

Bonus Eligibility

A bonus is payable only to those with wages less than ₹10,000 per year. If you have employees earning below ₹10,000, then you need to pay them a bonus. If you have a loss, the bonus is only ₹3,500 per year, which is not a large impact.

Gratuity Payment

Gratuity is payable for all employees with at least 5 years of continuous work. If you have worked for more than 5 years, you will get gratuity upon leaving your job.

But what is your actual question? What exactly is the "needful" you want members of the forum to do?

"You will find in Mumbai also that many factories/establishments are not following the labor laws. No minimum wage is being followed. Despite this, the government aims to remove the inspector raj. Lack of monitoring will result in non-compliance with labor laws. Without checks, inspectors may demand bribes, and in the absence of oversight, owners take advantage. This situation is a tragedy for our nation.

Suggestions for Addressing Non-Compliance

Moving on to the original poster's query, here are my suggestions:
- File a complaint with the labor officer regarding law violations.
- Report the issue to the Registrar of Firms and request a special audit to investigate how a firm has been running at a loss for 15 years continuously, or if there are discrepancies in the accounting records."

Thank you for addressing my concern regarding the loss of the company. I had a question about the CA of the company - why aren't employees receiving gratuity and bonuses? The CA explained that the company has not been profitable for the last 15 years, yet they are still operational. This explanation was also difficult for me to accept.

To gain a better understanding from senior management, I used the word "needful."

I hope the answer given by Rao and myself has resolved your problem.

Dear, the minimum bonus that has to be paid is for those whose basic salary is less than 10k per month. There is a provision in the Bonus Act where you are exempted from paying a bonus for the initial period of five years if you are in a loss. However, from the 6th year onwards, you have to pay a bonus regardless of profit or loss. Gratuity does not have any relation with the company's financial status, and it has to be paid.

Please let me know if you need further clarification or have any other questions.