Can Our Company Legally Switch to the Payment of Bonus Act Without Union Backlash?

Current Bonus Payment Procedure

One existing industry has followed its own procedure for the payment of the bonus. It is not as per the Payment of Bonus Act. There are no ceilings for eligibility criteria in the Bonus Act, as well as the calculation of the bonus, which is followed as provided in the act. All employees who have worked for a minimum of 30 days in a year will receive a bonus regardless of their salary, without any ceiling. Every year, based on the profit of the company, the management will declare a bonus and ex-gratia, ranging from 10% to 30% of the total annual wages of Basic, DA, and Special pay. Thus, all employees used to receive a bonus and ex-gratia amount ranging from Rs. 40,000 to Rs. 100,000 every year.

Question on Changing to the Payment of Bonus Act

My question is whether the management can switch to following the procedure as per the Payment of Bonus Act from the current financial year. Will the unions take up the matter for a legal fight as well as agitations?

Unions will undoubtedly consider it their right. Therefore, you must first convince the Union why you want to switch to the Payment of Bonus Act. Having paid bonuses without a wage ceiling and without any restriction on the percentage of the bonus, it has become a part of the Service Conditions. When you change it, you should give notice under Section 9A of the Industrial Disputes Act. You may have to compensate for the loss of bonus through some other allowance. It will also take time for a settlement. To start with, you may call a meeting with the Union leaders.

Dear Mr. Balasundaram-HR,

It is understandable for the union to raise objections to changes that might affect their earnings. According to the act, the range is between 8.33% to 20°C, and you were paying 10°C to 30°C, which is significantly higher than the proposed changes. As a result, employees would receive comparatively less.

The employees and the union would welcome the change if there is a solid ground for it. However, I do not see any feasible ground for such changes. You need to discuss with the statutory authority under the act and involve them in arranging negotiations. The management should discuss the issue firsthand with non-eligible employees who are going to be more affected if the changes occur. These employees need to be taken into confidence by signing an agreement. Then, the management can present the idea to key union members to gauge their response.

Please make one calculation for all your existing employees as per the Payment of Bonus (PB) Act considering Minimum Wages for different categories - Skilled, Highly Skilled, Semi-skilled, and Unskilled. (I hope all your employees' basic pay & DA is more than 7000/- per month). The percentage of bonus should be as per the PB Act considering Available surplus, allocable surplus, Set on, and Set off.

Now calculate as per your proposal at a 10% level, which is the minimum as per your scheme, and then compare between the two. Even at a 10% level of your scheme, it is better - show it to the Union, and hopefully, they will agree. Obviously, more than 10% will be better, up to the limit of 30%.

As per the law, every employer can pay a better amount of bonus than statutory provisions. But if the company's policy continues in the future, it will be considered as a customary bonus, and the organization has to pay the same irrespective of profit and loss.

It is better to pay a bonus as per the PB Act, and any excess can be paid as ex-gratia with conditions.

Regards, S K Bandyopadhyay