Navigating Bonuses in a Sick Industry: Who Pays When Ownership Changes?

Dear team,

Does any sick industry need to pay a bonus? In case they sell the company to another concern, who is responsible for providing the bonus?

If a sick industry provides the Full and Final Settlement on management change, is the bonus component mandatory?

Kindly clarify the doubt.

Thanks in Advance.

Nishanth L

Hi Nishanth,

The payment of bonuses and the responsibility for providing them in the case of a company sale can depend on various factors, including local laws, employment contracts, and company policies. It's important to note that employment laws and regulations can vary significantly between different countries and regions, so the specifics may differ based on the jurisdiction.

In many cases, when a company is sold, the responsibility for fulfilling employment-related obligations, including bonuses, may be transferred to the new owner. However, this can also depend on the terms negotiated during the sale and the local employment laws that apply.

If a company is in financial distress or considered a "sick industry," the payment of bonuses may be affected. In some cases, companies facing financial difficulties may not be able to afford bonus payments, and the responsibility for any outstanding bonuses may be part of the negotiations during a sale. The acquiring company may agree to take on these obligations, or it may be negotiated separately.

Regarding Full and Final Settlement on management change, this is typically subject to the terms and conditions outlined in employment contracts, company policies, and applicable labor laws. Bonus components may or may not be mandatory as part of the Full and Final Settlement, and this will depend on the specific agreements in place.

Thanks

I think the bonus referred to here is the Statutory Bonus under the Payment of Bonus Act, which is a central Act, and the same rule is applicable for all the states of India. Even if it is a sick organization, the bonus has to be paid at a minimum of 8.33% if the organization is in business beyond the holiday period under the PB Act.

Now the question is, who will pay the bonus, which depends on the terms and conditions of acquisition (sales). Payment of bonus is mandatory.

During due diligence, everything must be cleared between the parties (seller and purchaser).

Regards, S K Bandyopadhyay (WB, Howrah) CEO - USD HR Solutions [Phone Number Removed For Privacy-Reasons] [Email Removed For Privacy Reasons] www.usdhrs.in

Sick Units and Statutory Bonuses

A sick unit, which comes under the purview of the Sick Industrial Companies (Special Provisions) Act, 1985, or is declared as such by the Board for Industrial and Financial Reconstruction, shall enjoy various financial and fiscal concessions. However, bonuses at the statutory rate, being deferred wages, will not fall under the scope of concessions. Therefore, the payment of statutory bonuses at the rate of 8.33% is mandatory even for sick units. This amount should be included in the accounts, and the purchaser must either commit to disbursing the bonus as part of the full and final settlement, or the consideration for the purchase should expressly cover the bonus amount without fail.

The minimum rate of bonus needs to be paid by the sick industry. In cases where the industry does not generate any revenue and is facing capital loss, the labor liability still needs to be calculated and booked in the books for disbursement in the future.

Is the industry in BIFR or is the proprietor declaring it as sick?

In our country, industries get sick, but the proprietor remains healthy throughout and makes others sick 

Ownership change during the process of selling the company

In the case of an ownership change during the process of selling the company, the responsibility shifts to the new owner. The new management of the industry is required to take on all liabilities of the employees, including bonus and full and final settlements as per the law.