Are Companies Responsible for Bonuses to Contracted Workers? Seeking Clarity on Employer Obligations

A company hired employees through a contractor under the Contract Labour (Regulation & Abolition) Act. Contracted employees are engaged in security service, gardening, peon, and maintenance. The contractor pays the salary/wages to these employees and submits his bill to the company with his service charges.

My queries are as follows:

1. Whether the company, being a principal employer, is liable to pay a bonus to the contracted employees if the company pays a bonus to its regular employees.
2. What would be the situation if the contractor does not pay the bonus to these contractual employees.
3. Please provide information on any notifications from the Ministry of Labour or citations of case laws regarding the payment of bonuses to contractual employees.

Ramesh Sharma

Hi Ramesh,

As per the Bonus Act, the Principal employer is responsible for the payment of Bonus to his employees. In your case, you have to ask your contractor to pay the Bonus to their employees and submit the proof of receipt to you. If he is not paying the Bonus, you can pay the Bonus to those employees and deduct the amount from the Contractor Bills. For details, kindly go through the Payment of Bonus Act.

Hope it is clear to you.

AMATYA

Dear Amatya,

Thanks for the reply. At least you came forward to address the issue.

As per the Contract Labour (R&A) Act, 1970, the liability of the principal employer is limited to the payment of wages and providing facilities like washrooms, canteens, first aid, etc. The expenditure incurred for providing these facilities can be deducted from the contractor's bill. However, the term 'wages' does not include bonus as defined in the Minimum Wages Act. Therefore, I have opined that the payment of bonus is not a liability of the principal employer in the case of contractual employees. This is the liability of the contractor. In case the contractor is not paying the bonus, he should be liable for any violations, if any.

I need your comment on these findings. Can you provide any citations of case laws on this issue?

Thanks and regards,
Ramesh Sharma

Dear friends,

Payment of bonuses by the contractor to their employees would depend upon the type of contract that the Principal Employer (PE) has entered into with the contractor. If the PE pays wages and all other legal dues of the workers to the contractor, along with a fixed percentage of the amount as profit, then the PE would be responsible for the payment of bonuses to their employees.

Best regards,
J. Pratap

Neither the Contract (Regulation & Abolition) Act nor the Payment of Bonus Act, 1965, states that a bonus shall be payable by the company to contract employees. Therefore, legally speaking, a bonus is not payable as it is not considered a wage.

Even the Kerala High Court, in one case, held that the principal employer (company) will be liable to pay wages not below the minimum wages to the employees of the contractor if the latter fails to make the payment of the wages to his employees. It has been determined that a bonus will not be payable by the principal employer to the workers engaged by the contractor since bonuses do not fall within the purview of wages.

Kind regards

Principal Employer's Obligation for Bonus Payment

1. If the Principal Employer (PE) engages a contractor to provide certain skills of the workforce only, and the estimated rate offered to the contractor or the rate quoted by the contractor and agreed upon between the PE and Contractor does not include a bonus element, then the PE is bound to pay the bonus element to the contractor for the workers engaged by the contractor and ensure its payment.

2. Similarly, if there is an increase in the rate of minimum bonus (as is the case of the latest amendment to the Bonus Act), then the PE has to make up the difference in the amount of bonus to the contractor for the workforce engaged by him on the job.

Please give your opinion on this.

Thanks