Can We Adjust Employee Dues Like Excess Salary Against Their Statutory Bonus?

Hello,

Can dues from employees like excess salary paid or notice period recovery be adjusted against statutory bonus or gratuity payable to employees?

Section 18 and Bonus Deductions

Other than Section 18, an employer cannot deduct the bonus amount.

Section 18 - Payment of Bonus Act

Deduction of certain amounts from bonus payable under the Act: In any accounting year, if an employee is found guilty of misconduct causing financial loss to the employer, it shall be lawful for the employer to deduct the amount of loss from the bonus payable to the employee under this Act for that accounting year only. The employee shall be entitled to receive the balance, if any.

From gratuity, you can claim entitlement by providing substantial documents that confirm the employee is owed by the company, such as excess paid salary or outstanding advance dues, etc.

Dear Ganesh,

Since the contingency of adjustment of the dues mentioned has become coincidental with the F&F Settlement of the employee on his termination of employment, I feel that the brief answer of our learned friend Mr. Prashant B. Ingawale needs further elaboration and explanation as well. Deductions from wages by the employer are permitted only in respect of the kinds enumerated in S.7 of the Payment of Wages Act, 1936. Therefore, it is pertinent to analyze first whether the statutory bonus and gratuity against which you intend to adjust the excess salary paid or notice period recovery could be construed as "wages" as defined under the PW Act, 1936, and secondly whether those items proposed to be deducted fall in the exhaustive list enumerated u/s7 of the Act.

Exclusion of Bonus and Gratuity from Wages

Clauses (e)(1) and (6) of Section 2 of the PW Act, 1936 explicitly exclude bonus and gratuity, respectively, from the definition of wages. Therefore, even if the items proposed to be recovered from the employee on the eve of his termination fall within the list enumerated u/s 7, the employer cannot make any adjustment towards such items from bonus and gratuity.

Deduction from Statutory Bonus or Gratuity

Such being the position, the next option before the employer is to see whether these items are deductible from the statutory bonus or gratuity under the Payment of Bonus Act, 1965, and the Payment of Gratuity Act, 1972 respectively. S.18 of the PB Act, 1965 prescribes the deduction of certain amounts from the bonus payable under the Act. It is only the proportionate amount of loss caused by any misconduct by the employee during the Accounting Year only. S.4(6) of the PG Act, 1972, which contemplates the partial or total forfeiture of gratuity of an employee, would also not be helpful to the employer as the termination of employment is based on no misconduct of the employee.

Therefore, you cannot adjust the items of excess salary paid or notice period recovery against the statutory bonus or the gratuity payable.

Dear Sir,

Referring to your query, the suggestion given by Mr. Umakanthan is always appropriate. You cannot adjust excess salary paid or deductions of the amount under the notice period in F & F Settlement against the sums received under Bonus & Gratuity by the employee. You can forfeit the amounts of Bonus & Gratuity in certain conditions as clearly stated by Mr. Umakanthan.

Thanks & Regards,

V R RAO PULIPAKA.

Dear Ganesh,

Deduction from bonus! No.
But it can be, if any dues are shown as advance payable under bonus or any amount settled against the employee for being found guilty of misconduct causing financial loss to the employer.

Regards