Is the Bonus Act Applicable to Our New Factory Right Away, or Is There a Grace Period?

We are a 15-year-old company with one factory that has been operational under this company for 15 years. Recently, we have started production in a new factory, which is independent of the old factory but is owned by the same company.

Applicability of the Bonus Act to the New Factory

My question is whether the Bonus Act will be applicable to the new factory immediately, or if we will be given a grace period (considering the factory is not currently generating any profit)?

While the company as a whole is profitable, this particular factory is incurring significant losses. Notably, the GST, PF, and ESI numbers of both factories are distinct, and the product ranges are also unrelated.

Bonus Payment Requirements for New Factories

For the first 5 years, organizations need not pay a bonus if they have incurred losses. If they have made profits in any year within the initial 5-year period, they will be required to pay out a bonus for that specific year.

After the completion of 5 years, organizations are mandated to pay a bonus as per Section 16-1b, regardless of whether they are experiencing a profit or loss. Refer to Section 16-1b for detailed clarifications on the calculation of the bonus.

Dear Manish, I would like to draw your attention to Section 3 of the POB Act, which is given below verbatim.

Establishments to include departments, undertakings, and branches

Where an establishment consists of different departments or undertakings or has branches, whether situated in the same place or in different places, all such departments, undertakings, or branches shall be treated as parts of the same establishment for the purpose of computation of bonus under this Act:

PROVIDED that where for any accounting year a separate balance sheet and profit and loss account are prepared and maintained in respect of any such department, undertaking, or branch, then such department, undertaking, or branch shall be treated as a separate establishment for the purpose of computation of bonus under this Act for that year, unless such department, undertaking, or branch was immediately before the commencement of that accounting year treated as part of the establishment for the purpose of computation of bonus.

You mentioned that the GST, PF, and ESI numbers of both factories are different, and the product ranges are also unrelated. However, you did not specify whether the names of both factories are the same or different.

If the names of both factories are the same, then both factories are considered as one "part and parcel."

If your owner is clever, he might be preparing and maintaining separate balance sheets and profit and loss accounts for both units.

I have seen cases wherein separate balance sheets and profit and loss accounts are prepared and maintained unit-wise, and the treatment of bonus is given separately.