Can Employers Legally Pay Different Bonus Rates to Permanent and Temporary Workers?

Is it legally possible to pay a bonus at different rates for different categories of workmen? For example, for permanent employees, 20% and for temporary and contract employees, 8.33%, being the common principle employer.

The rate of bonus payable is related to the performance of the establishment in a particular accounting year and the amount that can be set off from the accumulations in this regard in case of a shortfall, if any.

Since the temporary employees are also on the rolls of the establishment and their contribution to the performance cannot be undermined by the nature of their employment, it is not fair to grant them a bonus at a reduced rate.

Contract Labor Bonus Responsibility

Insofar as the contract labor is concerned, basically the responsibility to pay a bonus rests with the contractor as it is a separate entity. However, it is the common practice in vogue to quantify the commitment of a bonus at the minimum rate of 8.33% to add up to the contractors' charges. However, it is open to the Principal Employer to grant a higher rate of bonus to contract labor too on par with the regular employees. The legality of the rate of bonus in this regard is solely dependent on the profits earned by the contractor as a separate entity.

Regards

Dear Sir,

Thank you for your inputs. However, I need clarification on the payment of Bonus. As a contractor, being a separate entity, if they pay a bonus on a monthly basis, is it okay? What is the role of the principal employer in this case?

Rahul

In a sense, the gap between principle and practice exists everywhere, including in the Contract Labour System. Since a contractor is a separate entity for all legal purposes, it is open to him to rotate the services of contract labour among various Principal Employers' establishments depending on work requirements. He may charge different rates for the services rendered to each Principal Employer. At times, due to unforeseen circumstances, he may incur losses in a particular contract work. Hence, his liability to pay a bonus to his contract workmen under the Payment of Bonus Act, 1965, remains irrespective of their place of actual engagement during the particular accounting year. This is the principle.

But in practice, the contractor secures the contract first and, depending on the rates of service charges approved, determines the number of people required and mobilizes them accordingly. Unfortunately, the applicability of the Minimum Wages Act, 1948, and the Contract Labour Act, 1970, come into play, imposing legal compulsion on both the contractor and the principal employer. Sections 20 and 21 of the CLRA Act create vicarious liability on the part of the principal employer in case of failure by the contractor in respect of welfare and pecuniary measures.

In order to protect the interest of contract labour and ensure the payment of their statutory dues, some High Courts have fixed the ultimate responsibility of bonus and gratuity payments on the Principal Employer based on the principles of vicarious liability and social justice. My suggestion would be to discourage the practice of monthly bonus payments and make it annually.

Thank you for your attention to this matter.

Sincerely, [Your Name]

In addition to what Mr. Umakntan said, the Bonus Act 1965, to my knowledge, does not provide for the payment of bonuses in monthly installments, though it mandates the payment within 8 months from the closing of the accounting year.

B. Saikumar