Understanding Bonus Payments: How Do Monthly Calculations Affect Employees Switching Jobs?

Applicability of Bonus

The applicability of the bonus varies on a case-by-case basis. According to the Payment of Bonus Act, the rate of the bonus is fixed as per the act or as per the settlement reached between the two parties. The bonus is to be paid in the next financial year based on the calculation of profitability of the last or current financial year. However, this case is for the maximum limit of the payment of the bonus.

Maximum Payment of Bonus

In an organization having regular employees or a permanent nature of job provision, the maximum payment of the bonus is applicable.

Authority to Decide Bonus Rate

The appropriate authority has the power to decide and define the rate of the bonus based on the performance of the company during the applicable financial year. The appropriate authority, whether it is central or state, has the power to settle the rate of the bonus at a higher rate than the applicable one at the bipartite or tripartite level. In such a settlement award, the appropriate authority can be given for the monthly payment of the bonus.

Challenges in Bonus Calculation

In cases where a worker is engaged with one employer or happens to be engaged with another employer in the next financial year or all parts of the financial year, the calculation and payment of the bonus are really a tough task. According to the Bonus Act, the time has arrived for the payment of the bonus to these workers until that time they are not the worker of their previous employer. In all such cases, the payment of the bonus on a monthly basis is judicious and practical.

Compliance with Bonus Payment Regulations

The above summary position shown in the headline is not legal and proper. First of all, if the bonus is for the previous accounting year, its payment cannot be stretched to the 12 months of the succeeding year. As per Section 19(2), payment of the bonus has to be done within 8 months of the close of the accounting year. Therefore, any bonus paid after November will not be in compliance with the act and is hence improper and liable for penal proceedings.

Timing and Eligibility for Bonus Payment

The bonus paid before the finalization of accounts for the previous year is only guesswork. In case the eligibility for the bonus later turns out to be of a lesser rate, there will be industrial relations (IR) issues in making recoveries. According to Section 8, the eligibility for receiving a bonus exists only if the employee has actually worked for at least 30 working days in that accounting year. Thus, there is no eligibility to receive the payment of the bonus in the first month of employment.

I am working in a Central PSU under the Payment of Bonus Act for contract laborers. Does the term "factory/establishment" refer to the principal employer's factory or the contractor's establishment?

Please help me understand if a contractor who employs only 5 individuals makes those contract laborers eligible for a bonus.

Contractor Staffing Patterns and Bonus Applicability

If we analyze the nature and modus operandi of most contractors' establishments, their actual staffing pattern would comprise two categories of employees: regular employees of the contractor, such as site supervisors and clerks, and ad hoc employees temporarily mobilized from adjacent areas to contract work sites for works that last for a specific predetermined duration. Another mode of engagement of contract labor is on a regular basis. This is the ubiquitous practice adopted in the organized manufacturing sector, where the arrangement is invariably that of an "Umbrella Contract."

In this method, normally, the contractor does not have any say in the selection and the number of contract labor to be engaged. He is just an unofficial conduit for record purposes and is only vested with the responsibility of partial supervision of the contract labor entrusted to him for the purpose of maintaining the registers and other documents under the CLRA Act, 1970, for which he is paid some administrative charges over and above the total cost of contract labor.

Therefore, you can conveniently hold that notwithstanding the numerical criterion for the applicability of the PB Act, 1965, the bonus is conventionally restricted to a minimum of 8.33% only and is not based on the profits of either the contractor or the principal employer.

Monthly Bonus Payments: Uncommon Practice

The practice of disbursing bonus payments on a monthly basis is unheard of. The company management has the authority to decide whether to pay a minimum or maximum bonus. It is common practice in some companies to disburse bonus payments twice a year. For example, the company I work for follows this practice.

Bonus Payments During Festivals

For Hindu employees, the company pays bonuses during their two festivals, with half of the bonus amount given at each festival. Similarly, for Christian employees (Easter & Christmas) and for Muslim employees (Ramadan & Eid al-Fitr).