Navigating Bonus Dilemmas in a Small Family Business: How to Handle New Joiners?

Hello learned members and seniors,

I work for a small family business in Mumbai that was started by the current director's father about 50 years ago. The total count of employees, including the housekeeping staff, is 8. The founder of the firm used to give a month's pay as a Diwali bonus to all of his employees, but we do not wish to give such a bonus to the two new joiners. Since the other 6 employees have been working with us for the last 20-30 years, we cannot stop giving them the bonus. The director is now in a dilemma about how to tell the new joiners that they will not be receiving a bonus (we do not want to create bad blood in the firm) or find any other way out of this situation, as giving the new joiners a bonus will lead to negativity among the older employees. Excluding the housekeeping staff, all of the others are somewhat on a similar pay scale.

I would be much obliged if you could help me with this employee relations issue.

Thanking you in advance.

Bonus Eligibility for New Joiners

A bonus is a deferred wage. If the two new joiners have joined after April 21 of this year, they are not eligible for the bonus this year. As a goodwill gesture, the employer may offer them some token amount in the form of ex-gratia.

Token Gifts for New Joiners

Giving a token gift to the new joiners is a good idea to make them feel that the company thinks about them too.

Incorporating Bonus Clauses in Appointment Letters

I would suggest including a rule or clause about bonuses in the appointment letter itself to avoid offending any new employee and to eliminate the need to address this individually. Many companies have a rule regarding bonuses: to be eligible for a bonus, an employee must complete one year of service.

Hope this helps!

Understanding Bonus Obligations Under the Payment of Bonus Act

The establishment should have had 20 or more workers earlier and has come under the purview of the Payment of Bonus Act since then. Otherwise, your establishment will not have a legal obligation to pay a bonus, as an establishment not being a factory should have at least 20 employees to make the Bonus Act applicable to it. But once the Act has become applicable to the organization, the liability to pay a bonus will not cease just because the number of employees has dropped down to 8.

Eligibility Criteria for Bonus Payment

If the (new) employees have worked for at least 30 days (not one year) in the financial year 2020-21 (April 20 to March 21), then they should be given a bonus. On the other hand, if they have joined sometime in this financial year (2021-22), then they need not be paid a bonus. If you want to put a full stop to customary practices, you can do it now by refusing to pay a bonus to those who are not eligible for it now. The new joiners, obviously, will not expect any bonus this year. But if you pay it to them now, you will be creating a custom that will become a headache for you in the future. Therefore, if they joined this financial year, refuse the bonus and tell them that the bonus (as rightly said by Mr. Nanu) is a deferred wage of the last financial year and is available only to those who have worked for at least 30 days in the last financial year, and they will get it from next year onwards.

Salary Limitations for Bonus Eligibility

Another important thing regarding eligibility to get a bonus is the salary, and no employee whose monthly wages exceed Rs. 21,000 is legally entitled to any bonus.

From the detailed inputs furnished in the post, it is evident that the establishment remains out of the purview of the Payment of Bonus Act, 1965.

Customary Bonus Practices

However, the Pooja bonus, in our country, is generally a payment made every year at the discretion of the employer. When it has been the practice for long without interruption, it becomes a customary benefit. I think that it has nothing to do with the 'bonus' contemplated under the Payment of Bonus Act, 1965. In this connection, I would like to quote the following observation of the Honorable Supreme Court in its judgment in Mumbai Kamgar Sabha, Bombay v. Abdullabhai Faizullabhai [AIR 1976 SC 1455]: "The Bonus Act speaks, and speaks as a whole Code, on the sole subject of profit-based bonus but is silent on and cannot, therefore, annihilate by implication, other distinct and different kinds of bonus such as the one oriented on custom. The Bonus Act does not bar claims to customary bonus or those based on conditions of service."

Recommendation for New Joiners

Therefore, I would second the suggestions of Ms. Vaishali. Naturally, the new joiners cannot expect the customary bonus paid to the employees who have been in the service of the establishment for more than a year. Just a token gift will do this year and they are sure to get the customary bonus next year if they remain in service.