Who Decides Bonus Percentages for Contract Workers: Employer or Principal Employer's Profits?

Hi Seniors, Can someone shed light on this? Paying a bonus is the employer's/contractor's responsibility, and ensuring this is the principal employer's responsibility - this part is clear. When calculating the bonus, whose profit percentage should be considered? If the principal employer's profit is higher, are they liable to pay a higher percentage to contract employees? Since the contractor is the immediate employer, does their profit determine the percentage for their employees?

Regards,

If it is a genuine contract, the profit made by the contractor, who is the employer in respect of the contract workers, should only be considered for deciding what shall be the rate of bonus.

This is an interesting question. I do not know why I never asked this!

The Payment of Bonus Act and Contract Labour

The Payment of Bonus Act is silent on contract labour, so legally, I suppose that you can pay it based on the contractor's profit.

However, the legislative intent seems to be that the principal employer does not avoid its dues by pushing workers to contractors, so it is possible that the courts will consider the principal employer's profit. This will be a highly contentious issue and likely to go to courts for 25 years!

In all the cases I have seen, we observe that contract workers are paid a bonus at 8.33% only, and that is accepted by the workers as well as the labor inspectors. So you are not likely to have a problem on this matter. Just ensure you have evidence that the contractor is a genuine, independent business.

The contractor, as the immediate employer, is responsible for paying the bonus. The bonus payment percentage depends on the contractor's profit and loss.

Observations on Contract Genuineness

Observations from learned members raise an interesting question about the "genuineness" of a contract. What tests could be used to ascertain this?

Hi Kumar,

There is no hard and fast rule on what is genuine. However, courts will examine whether the contractor is truly an independent contractor providing a service or merely a front for the employer, intended to prevent workers from receiving fair wages and rights.

Guidelines for Determining Genuine Contractors

Generally, we try to follow Section 10 of the Contract Labour Act. Additionally:

- No direct interference in the selection of the workers.
- No involvement in disciplinary action, leave approvals, etc.
- No direct control over the workers by the Principal Employer (PE), except for quality verification and safety matters.
- Skill training, etc., provided by the contractor, not by the PE.
- Attendance, salary sheets, payment, etc., are managed by the contractor alone and not directly or indirectly by the PE (e.g., using the PE's software to make salary registers, etc.).

We also ensure that the contractor has a proper office, shop, and establishment license to demonstrate that it is indeed an independent business.