Understanding Bonus and Ex-gratia Payments: Can They Offset Arrears from 2014-15?

Bonus Bill and Ex-gratia Payments

Recently, the Bonus Bill has been passed in the Lok Sabha, revising the bonus wage ceiling for calculation to Rs. 7,000/-, giving effect retrospectively from 01.04.2014. It is the practice that the employer is paying the maximum bonus in compliance with the provisions of the Bonus Act. Apart from the maximum bonus of 20% permissible under the Act, employees are being paid a sizable amount as Ex-gratia (in different forms like Dress Coupons and a further lump sum totaling more than the 20% maximum bonus permissible) in compliance with the request of the Union, stating that the Maximum Bonus payable under the Act is not sufficient for them to meet their needs. The Bonus Payment and the Ex-gratia payments are being made to the employees after entering into a settlement under section 18(1) of the Industrial Disputes Act with the Trade Union.

Similarly, employees who are not covered by the Bonus Act are being paid an incentive every year.

Query on Bonus and Ex-gratia Adjustments

My query regarding the above points is whether the Ex-gratia, apart from the Bonus and the Incentives paid to such employees, can be adjusted against any arrears of Bonus, if any, that become payable for 2014-15.

I request expert opinions on this Bonus Matter.

Regards,

Understanding "Ex-gratia" and "Incentive" Payments

"Ex-gratia" is a Latin term that literally means "from favor" or "out of goodwill." In the context of any payment made by one party to another, it implies a discretionary voluntariness to pay on the part of the payer and does not create any simultaneous or consequential right to demand on the part of the payee.

Incentive Payments

"Incentive," on the contrary, is a financial scheme devised to increase the earnings of employees in tune with the rise in their productivity over and above the normal rate in a given stretch of time. That's why such earnings are not included in the definition of salary or wage under the Bonus Act, 1965. The bonus described and dealt with in the Payment of Bonus Act, 1965, is, in essence, a share of the profits of the establishment due to the employees. Therefore, they cannot be adjusted against the arrears of the bonus payable under the Act.