Understanding Wage Definitions Under the Bonus Act: Do These Allowances Count?

Clarification on Wage Definition Under the Bonus Act

We are unclear about the definition of wage under the Bonus Act. We are paying various monthly allowances, apart from basic pay, as listed below:

1. Medical Reimbursement
2. Children Education Allowance
3. Transport Allowance
4. Child Hostel Allowance
5. Washing Allowance
6. LTC/LTA
7. Miscellaneous Allowance
8. Technical Allowance
9. HRA
10. Gun Allowance
11. Karate Allowance
12. NPA

Please let us know whether the allowances paid by us will fall under the definition of wage as per the Payment of Bonus Act. If there are any relevant case histories, please provide them to clarify with our management.

Regards

The term "salary or wage" defined under Section 2(21) of the Payment of Bonus Act, 1965, aligns with the recommendation made by the Bonus Commission in its report that bonus should be related to wages and dearness allowance taken together, excluding all other allowances. Upon analyzing the definition in the Act, it becomes evident that salary and wages are defined together. Legally speaking, there is no difference between salary and wages. Salary is a periodical payment, while wage is generally paid daily, although the payment period varies.

The Madras High Court ruled in a case [AIR 1953 Mad 269] that if the remuneration is paid daily or weekly, it can be termed as wages. However, if it is a monthly remuneration payable at the month's end and if the remuneration, considering the prevailing payment standards, is relatively high, then it should be considered as salary. Currently, wages encompass various components, with the most significant ones being the basic wages, dearness allowance, and amenities like housing and fuel. It should be noted that an allowance can be paid in addition to wages but not in place of them.

The criterion to determine whether any remuneration is wages or salary is whether the remuneration is due for the fulfillment of the terms of employment, whether express or implied. When the definition is exhaustive, no other meaning beyond what is specified in the Act can be attributed to the term. Therefore, in my opinion, the allowances mentioned in your post would not fall under the definition of salary or wages for the purpose of calculating bonuses under the Payment of Bonus Act, 1965.

Regards

I think the definition of wages in the act is very clear. It says basic and DA. So none of the allowances will be included in the computation of bonus.

Dear All,

I agree with Mr. Umakanthan. As per the PB Act, bonus calculation is based only on Basic + DA/VDA. For better clarification, please refer to the attachment.

I would like to add an additional thing: If Basic + DA + all allowances altogether make a minimum wage, then what would be considered for a bonus? Is it still the same Basic + DA to be taken, as the recent amendment says 7000 or the rate of MW of scheduled employment.