Facing Labor Inspection: How to Explain Unpaid Bonuses Due to Company Losses?

Our company has not paid bonuses due to heavy losses. Additionally, no provision was made in the balance sheets, and the company's account is classified as NPA. What would be a suitable reply during the labor inspector's inspection regarding this violation?

I am responding that since the company suffered significant losses, it is not in a position to pay bonuses this year. The company has not violated any regulations; this situation is due to the substantial losses incurred, which are evident from the company's Profit and Loss account. Please share your views.

Dear Jitender,

I would request you to go through section 10 of the Payment of Bonus Act, 1965, which mandates the payment of a minimum bonus at 8.33% of the salary or wage earned by the employee during the accounting year or one hundred rupees, whichever is higher, whether or not the employer has the allocable surplus in the year. As you know, when the company has incurred heavy losses, there will not be any allocable surplus.

In this connection, I would like to quote the observation of the Supreme Court in Jalan Trading Co (P) Ltd. v D.M. Aney [AIR 1973 SC 233] that section 10 of the PB Act, 1965, compelling the employer to pay the statutory minimum bonus even in years where there has been a loss sustained by the management is reasonable or in public interest within the meaning of Articles 19(2) and 302 of the Constitution.

Therefore, your reply on the grounds of losses cannot be acceptable.

As Umakanthan Sir has pointed out, a huge loss for the previous accounting year is not the answer when the Labour Inspector seeks your reply on non-payment of bonuses. According to the Payment of Bonus Act, there is a provision for set-off to deal with surplus and deficit in the payment of bonus amounts.

Set-off Explanation

For an accounting year, when there is no available surplus or the allocable surplus falls short of the minimum bonus payable to employees under Section 10, and there is no sufficient amount carried forward and set off under Sub-section (1) that could be utilized for the payment of the minimum bonus, then the minimum amount or the deficiency shall be carried forward for set-off in the succeeding accounting year. This process continues up to and including the fourth accounting year.

Therefore, you may need to consider the above information, find a solution to the problem, and reply accordingly.