Monthly Bonus Dilemma: How to Handle Eligibility Issues Under the Bonus Act?

Dear All,

My company wants to pay a bonus to its workers on a monthly basis. However, as per the Bonus Act, having less than 30 days of attendance in the financial year makes an employee ineligible for the bonus.

Please help.

Regards,
Jagat

Bonus Payment Structure

The question involves two issues. First, can you pay bonuses in monthly payments? The answer is no. A bonus is actually a deferred payment from the last financial year. That is, the bonus paid in this year (2024-25) pertains to the last financial year, 2023-24. The same should be paid within 8 months of closing the financial year. This means you cannot stretch it beyond November 2024. You can pay the bonus of the preceding year in installments, but the last of the said installments should not be after 8 months of closing the books of accounts.

Eligibility for Bonus

The second question, or rather apprehension, is about eligibility. Thirty days of attendance/working in a financial year is the eligibility for getting a bonus. Any employee, whether currently working or not, shall be paid a bonus only if they had worked for at least 30 days in the preceding financial year. You need to pay a bonus only to those who qualify to receive it.

Dear Friend, Your company can pay bonuses to its workers on a monthly basis, but these payments cannot be considered bonuses as per the Bonus Act. Therefore, please refrain from making such payments during the fiscal year.

Friends, When I was browsing for settled case laws relevant to this query, I came across a landmark judgment regarding the payment of bonus, passed by the Supreme Court (Mumbai Kamgar Sabha, Bombay vs. Respondent: M/s Abdulbhai Faizullabhai & Ors. - Date of Judgment 10/03/1976). This judgment is considered to be the first of Public Interest Litigation (PIL) in India, passed by the legendary Hon'ble Justice Shri V. Krishna Iyer and Justice Untwala. This information I wish to share with learned friends for refreshing the contents, although I believe it may not fully address the query.

Dear Friends,

As per the current Bonus Amendment Act, every employee who is drawing up to Rs. 21,000 per month is eligible for a bonus.

Effective from 1st July 2023, in Maharashtra state, the minimum wages of certain category contract workers have reached Rs. 21,026 (808.73 x 26 = 21,026). Therefore, they are not eligible for a bonus.

However, the PE is insisting on paying a bonus to them by considering their wages as Rs. 21,000. I maintain my position that they are not eligible as per the Act. Can the Regional Labour Commissioner or ALC (Central) play a role in this? Will they entertain the submission of the PE, or can the RLC/ALC overlook the Bonus Act and insist on paying the bonus?

Kindly share your expert views.

Thanks,
PL Kanthan

Minimum and Maximum Bonus Payable

The minimum bonus payable is 8.33%, and the maximum is 20%. The bonus is payable annually within 8 months from the close of the accounting year. The bonus is payable to all employees whose salary or wages do not exceed Rs. 21,000 per month.

Definition of 'Salary or Wage'

"Salary or wage" means all remuneration (other than remuneration in respect of overtime work) capable of being expressed in terms of money, which would be payable to an employee in respect of his employment or work done in such employment. It includes dearness allowance but does not include:

(i) Any other allowance which the employee is entitled to;
(ii) The value of any house accommodation or the supply of light, water, medical attendance, or other amenities;
(iii) Any traveling concession;
(iv) Any bonus (including incentive, production, and attendance bonus);
(v) Any contribution paid or payable by the employer to any pension fund or provident fund or for the benefit of the employee under any law in force;
(vi) Any retrenchment compensation or gratuity payable to the employee or any ex gratia payment made to him;
(vii) Any commission payable to the employee.

Explanation: Where an employee is given a free food allowance or free food by his employer, such allowance or the value of such food shall be deemed to form part of the salary or wage of the employee.

Other Relevant Definitions

Words and expressions used but not defined in this Act and defined in the Industrial Disputes Act, 1947, shall have the meanings assigned to them in that Act.

(i) Employees of State Boards are entitled to a bonus.
(ii) A cooperative bank is a banking company.
(iii) Lay-off compensation is included in the term 'salary' or 'wages'.
(iv) When wages are revised, the management has to pay a bonus on arrears.
(v) Dearness allowance and city compensatory allowance are included in the definition of 'salary' or 'wages' under section 2 (21) of the Act. Food allowance and the value of uniforms cannot be considered remuneration.
(vi) Dearness allowance is part and parcel of wages.
(vii) Allowances like family allowance, house rent allowance, ad-hoc, and tiffin allowances are not dearness allowances.
(viii) Overtime allowance does not form part of 'wages'.
(ix) Retaining allowance comes within the purview of section 2 (21). The retainer is entitled to a bonus.
(x) Remuneration in the case of overtime work and commission payable to employees are excluded from the definition of 'salary' or 'wages'.

Computation and Payment of Bonus

According to the above definition, you have to ensure that the salary/wages paid fulfill all the concepts of 'salary' for the computation of the bonus payable. Secondly, the bonus is payable within 8 months from the closure of financial accounts, i.e., 31.3.2024, and therefore by 30th November. If this is possible, then you have to enter into a bilateral agreement containing a clause enabling payment of the bonus in monthly installments but should be completely paid before the end of November. This arrangement is possible under the following clause of the Act:

Adjustment of Customary or Interim Bonus

"17. Adjustment of customary or interim bonus against bonus payable under the Act. Where in any accounting year:

(a) An employer has paid any puja bonus or other customary bonus to an employee; or
(b) An employer has paid a part of the bonus payable under this Act to an employee before the date on which such bonus becomes payable, then, the employer shall be entitled to deduct the amount of bonus so paid from the amount of bonus payable by him to the employee under this Act in respect of that accounting year, and the employee shall be entitled to receive only the balance.

COMMENTS:
(i) Payment of any customary bonus does not absolve the management from their liability to pay statutory bonus.
(ii) Customary bonus is adjustable against the statutory bonus.
(iii) The employee is bound to refund the excess amount of bonus.

Time-limit for Payment of Bonus

19. Time-limit for payment of bonus: All amounts payable to an employee by way of bonus under this Act shall be paid in cash by his employer:

(a) Where there is a dispute regarding payment of bonus pending before any authority under section 22, within a month from the date on which the award becomes enforceable or the settlement comes into operation, in respect of such dispute;
(b) In any other case, within a period of eight months from the close of the accounting year: Provided that the appropriate Government or such authority as the appropriate Government may specify in this behalf may, upon an application made to it by the employer and for sufficient reasons, by order, extend the said period of eight months to such further period or periods as it thinks fit; so, however, that the total period so extended shall not in any case exceed two years.

COMMENTS: The amount of bonus is payable in cash within 8 months, with an exception, from the close of the accounting year.

In case of any issues, you may use the provision as per Sec. 19 1(a) as mentioned above. However, you may obtain proper guidelines from the authorities concerned so that any future violations can be managed amicably, supported by an agreement with the employees' union ensuring the adequacy of legal provisions.

Dear friends,

Thank you for your valuable inputs on my query about eligibility and payment of the bonus. However, my query was specific, and I need guidance on the following:

Eligibility for Bonus for Contract Workers

1. "Whether a contract worker drawing the minimum wage (wage + DA) alone, crossed Rs. 21,000 w.e.f. 01.07.2023, is eligible for a bonus as per the Payment of Bonus Act, 1956 (Revised)." (Other allowances are not included in this wage amount). As of the current date, as per the Bonus Act, Rs. 21,000/- wages is the ceiling for eligibility.

Role of the Regional Labour Commissioner

2. "Whether the Regional Labour Commissioner (Central) will overlook the Bonus Act and instruct the contractor to pay a bonus to workers drawing wages alone of more than Rs. 21,000 per mensem (as insisted by the Principal Employer)." The principal employer is a Central government undertaking.

Kindly share your views.

Thanks,
PL Kanthan

Interim Bonus Payment Under the Payment of Bonus Act

Sec. 17(b) of the Payment of Bonus Act permits the employer to pay an interim or advance bonus before the due date. This means the bonus can be paid in advance on a monthly basis, as there is no prohibition against this. The provision states that the employee is entitled to receive the balance only on the due date.

Regards,
Anil Kaushik

As per the notification, it stipulates that salary/wages drawn up to Rs. 21,000/- per month are eligible to receive a bonus. Contract workers are also eligible subject to this limit.

Applicability of the Act

The Act is applicable to:

(a) Any factory employing 10 or more persons where any processing is carried out with the aid of power.

(b) Other establishments (established for the purpose of profit) employing 20 or more persons.

The minimum bonus payable is 8.33%, and the maximum is 20%. Bonus is payable annually within 8 months from the close of the accounting year. Bonus is payable to all employees whose salary or wages do not exceed Rs. 21,000 per month (the limit was Rs. 10,000 up to 1-4-2014), provided they have worked for at least 30 days in the accounting year. However, for the calculation of the bonus, the maximum salary of Rs. 7,000 or the minimum wage for the scheduled employment, as fixed by the appropriate Government, whichever is higher (the limit was Rs. 3,500 up to 1-4-2014), is considered.

The Payment of Bonus Act applies to:

(a) Every factory; and

(b) Every other establishment in which twenty or more persons are employed on any day during an accounting year [section 1(3)].

Summary of employees eligible/not eligible:

Following is the summary of employees eligible/not eligible for a bonus under the Payment of Bonus Act.

Eligible employees:

(a) Temporary workmen

(b) Retrenched employee

(c) Part-time employee

(d) Probationer

(e) Piece-rated workman

(f) Employee in a seasonal factory is entitled, though on a proportionate basis

(g) Retrenched employee

(h) Employee who has caused financial loss to the employer is eligible, but the loss can be recovered from the bonus only of the current year – section 13

(i) Employees of Public Sector Units which sell goods or render services in competition with others.

Non-eligible employees:

(a) Apprentice – section 2(13) – definition of an employee

(b) In the case of employees employed through contractors, the Principal Employer is not liable, as the bonus is not ‘wages’, though the contractor may be liable.

In case the Contractor fails to pay a bonus to their workmen, the Principal Employer has to assume liability to pay to the contract employees and recover from the Contractor.

Jurisdiction and Implementation

For your second query - The State government Labour Inspectors/Labour Officer/ALC under whose jurisdiction the place of work is situated has to oversee the implementation of labor laws, including the Bonus Act. In the case of certain Govt. of India undertakings, CLC may have jurisdiction which has to be checked with them with respect to notifications issued by the respective State governments.

For a proper understanding of applicability, exemptions & jurisdiction, you have to read (Sec.27 & 32) and take note of relevant provisions of the Acts & Rules (copies attached).