How Should I Handle a Labor Contractor Not Passing Bonuses to Employees?

Dear All,

We have engaged a labor contractor since 11th Jan 2007, paying them a bonus at the rate of 8.33% per month amounting to Rs. 221/- per month. (I know a bonus should not be paid to them on a monthly basis, but since this clause was included in the agreement, we had to pay).

The contractor has been taking the bonus amount from our company on a per month basis, but he actually has not paid this to the employee. I have asked them to submit a copy of Register 'C' before 15th Jan 2008; otherwise, I will deduct the money (Rs. 221 x 12 months = Rs. 2652/-) from the payment for December 2007.

Kindly suggest how I should proceed in the matter.

Best regards,
Priyanka

Hello,

Kindly make a note of the following.

1) The Principal Employer, i.e., your company, is NOT liable to pay a bonus to the employees of the contractor at all - neither directly nor indirectly (as you are presently doing).

2) The Contractor may or may not be liable to pay a bonus under the Payment of Bonus Act 1965 to his employees, depending upon facts like the nature of the organization, the strength of employees (irrespective of where they are deployed for work).

3) Conceptually and in reality, a bonus is a share of the profit of the establishment that the employer has to share as per the stipulated manner with his employees. Therefore, the Contractor has to pay a bonus to his employees out of his profits if the Payment of Bonus is applicable to him.

4) Even under Sec. 21 of the Contract Labour (Regulation and Abolition) Act 1970, the principal employer is liable to pay only wages to the Contractor's employees if the Contractor fails to do so and to recover such amounts from the Contractor.

5) Under the same Sec. 21 of the act, a Kerala High Court case is also cited wherein the High Court has held that Bonus and Gratuity are NOT included in Wages for the purpose of this act.

Armed with this information, you must bring to book the erring contractor who collects money from you to pay to his employees as a bonus and then quietly usurps the amount for himself. While the Principal Employer is NOT legally liable to pay a bonus to employees of the Contractor, the law does NOT object if a Principal Employer wishes to pay in the manner you pay through the contractor, and yet you as the Principal Employer will NOT be held liable under the Payment of Bonus Act 1965.

You would have received this reply much earlier if I was not away from work. Rest assured that this forum always helps.

Regards,

Samvedan

January 15, 2008

Dear Mr. Samvedan,

Thank you very much for your help. I appreciate your quick response.

The only thing I would like to ask is, we have made an agreement on stamp paper where it is written that the bonus is to be paid by the principal employer. Can I go against this agreement and deduct/recover the money (bonus amount for 12 months) from the contractor's payment? As understood from your reply, this amount will not be paid to the employee. Please clarify.

Best regards,
Priyanka

Hello,

As a rule, the Principal Employer should NOT make any payments directly to the employees of the Contractor except in the condition of "wages" I referred to in my previous mail.

Is the Bonus that you have agreed to pay vide the agreement with the contractor expected to be paid by the contractor to his employees deployed at our site? What are the stipulations in the contract? Normally we refer to such payments, of any nature, to be reimbursements made by the Principal Employer to the Contractor.

One can answer your query properly only after studying the contract.

Subject to the above, at the time of renewal of the contract, you may take appropriate actions in this regard. Till then you must be guided by the provisions of the contract that you have signed with the Contractor. Indeed, why do we make payment to the contractor at all? It is only because we expect him to pay his employees. If the contractor is not releasing payments to his employees, he should be formally asked and directed to pay his employees the amounts that are intended to be paid to his employees. If he continues to be adamant, you either resort to the termination clause in the contract (I am sure it exists and after you have made alternate arrangements so that the company's work does not suffer!) Or wait until it comes up for renewal.

Your line of action will become clear the moment you read the contract a little more critically.

I hope you are now clear.

You are always welcome to get your queries sorted out.

Regards,

Samvedan

January 15, 2008