Struggling with Bonus Payments: Do I Owe Bonuses to My Contract Workers in a Loss-Making Company?

Hi, I have two questions.

I work for a service industry and engage in contract labor. The company is six years old and is loss-making. My questions are:

1. Even though I work for a loss-making company, am I liable to pay the minimum bonus of 8.33%? If so, can I pay for the back period now (this is our 7th year running)?

2. Am I liable to pay a bonus to my contract labor, e.g., canteen staff, peons, drivers, etc.?

Hi,

Yes, you are liable to pay bonus at the minimum rate of 8.33%. It's mandatory. The law states that if you are unable to make the payment of the minimum bonus, you do not have any right to exist. However, the law has provided some flexibility known as SET ON and SET OFF. In case you are unable to pay the minimum bonus, you can set it off to deduct it in the following years.

For example, let's consider a scenario where you have generated enough profit to only pay a 7% bonus. You are required to pay 8.33% as a minimum bonus, but the additional 1.33% can be set off to be deducted in the next three years, after which the arrears must be settled mandatorily.

Similarly, the rule of SET ON applies when you generate more than a 20% profit.

No, you are not obligated to pay a bonus to contract labor, but you must ensure that the bonus is paid by the contractor in the presence of your company representative.

Amit Goyal

Many thanks, Amit.

What if the contractor refuses to pay? Will I still be liable? How can I ensure he pays? What is the general practice in these matters?

Hi,

It is your responsibility to ensure that the bonus is paid by the contractor. You need to put pressure on the contractor. If the bonus is not paid by the contractor, you may withhold his bills until compliance is met.

Amit Goyal
9850927168