Is Principal Employer Liable for Bonus for the Employees through Contractor?
Relevant provisions and case laws are as follows:
The Contract Labour (R&A) Act 1970
Sec. 21. Responsibility for payment of wages:
(1) A contractor shall be responsible for the payment of wages to each worker employed by him as contract labour, and such wages shall be paid before the expiry of the prescribed period.
(2) Every principal employer shall nominate a representative duly authorized by him to be present at the time of disbursement of wages by the contractor, and it shall be the duty of such representative to certify the amounts paid as wages in the prescribed manner.
(3) It shall be the duty of the contractor to ensure the disbursement of wages in the presence of the authorized representative of the principal employer.
(4) In case the contractor fails to make payment of wages within the prescribed period or makes short payment, then the principal employer shall be liable to make payment of wages in full or the unpaid balance due, as the case may be, to the contract labour employed by the contractor and recover the amount so paid from the contractor either by deduction from any amount payable to the contractor under any contract or as a debt payable by the contractor.
Definition of Wage as per The Contract Labour (R&A) Act 1970
Sec. 2(h): "Wages" shall have the meaning assigned to it in clause (vi) of section 2 of the Payment of Wages Act, 1936 (4 of 1936).
Definition of Wage as per The Payment of Wages Act 1936
Sec. 2(vi) "Wages" means all remuneration (whether by way of salary allowances or otherwise) expressed in terms of money or capable of being so expressed which would, if the terms of employment express or implied were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment and includes:
(a) Any remuneration payable under any award or settlement between the parties or order of a court;
(b) Any remuneration to which the person employed is entitled in respect of overtime work or holidays or any leave period;
(c) Any additional remuneration payable under the terms of employment (whether called a bonus or by any other name);
(d) Any sum which by reason of the termination of employment of the person employed is payable under any law contract or instrument which provides for the payment of such sum whether with or without deductions but does not provide for the time within which the payment is to be made;
(e) Any sum to which the person employed is entitled under any scheme framed under any law for the time being in force, but does not include:
(1) Any bonus (whether under a scheme of profit sharing or otherwise) which does not form part of the remuneration payable under the terms of employment or which is not payable under any award or settlement between the parties or order of a court;
(2) The value of any house-accommodation or of the supply of light, water, medical attendance or other amenity or of any service excluded from the computation of wages by a general or special order of the State Government;
(3) Any contribution paid by the employer to any pension or provident fund and the interest which may have accrued thereon;
(4) Any travelling allowance or the value of any travelling concession;
(5) Any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment; or
(6) Any gratuity payable on the termination of employment in cases other than those specified in sub-clause (d).
Dictionary Meaning of "Remuneration"
Noun: Award, compensation, defrayal, defrayment, indemnification, indemnity, money, pay, praemium, quittance, recompense, reimbursement, requital, restitution, return, reward, settlement, advance, alimony, annuity, award, boom, brokerage, charge, collection, commission, compensation, consideration, contribution, disbursement, earnings, fee, honorarium, income, indemnification, indemnity, out of pocket, pay, payment, payroll, pension, perquisite, profit, prosperity, recompense, recovery, reimbursement, remittance, rent, requital, restitution, retainer, revenue, reward, satisfaction, wage.
Perquisite
Noun: Allowance, annuity, benefaction, bonus, compensation, consideration, donation, emolument, endowment, fee, financial remuneration, financial reward, gain, gift, gratuity, incidental profits, payment, premium, present, profit, recompense, remuneration, return, revenue, reward, reward for service, stipend, subsidy, tip, token, wage.
Kerala High Court Case: Cominco Binani Zinc Ltd. vs Pappachan on 28 December, 1988
Para 6 of the above judgment states: Even in a case where the canteen is run by the contractor, the management of the factory, like the petitioner, cannot absolve themselves from the liability to pay the wages to the workers engaged in the canteen. The principal employer's liability to pay wages is recognized in Section 21(4) of the Contract Labour (Regulation and Abolition) Act, 1970 as well. If the contractor fails to pay the wages, the petitioner will be bound to pay the same. The wages due to the workmen do not include bonus or gratuity. This is made clear by the definition of wages in the Industrial Disputes Act and Payment of Wages Act. While defining the term "wages," the above-mentioned Acts specifically exclude bonus and gratuity from its purview. So, on the facts of this case, the petitioner is liable to pay the wages due to the workers which are in arrears and nothing more.
Interpretation of Wages under Payment of Wages Act
(c) Includes - any additional remuneration payable under the terms of employment (whether called a bonus or by any other name); and does not include - any bonus which does not form part of the remuneration payable under the terms of employment, meaning it includes the form of remuneration payable under the terms of employment.
Interpretation and Conclusion
1. Like PF, ESI Bonus is also in terms of employment by the provisions of the Payment of Bonus Act. Therefore, it should be treated as wages under the Payment of Wages Act, thereby wages under the Payment of Bonus Act.
2. In the above-cited judgment by Kerala HC, excluding bonus from wages appears to be interpreted erroneously and misunderstood. Excluding gratuity is correct.
3. In the above-cited judgment, taking into account the wages definition under the Industrial Dispute Act bears no relevance as The Contract Labour (R&A) Act 1970 does not ask for it. It only defines the wages as per the Payment of Wages Act.
4. The scope of the word remuneration used in the wage definition in the Payment of Wages Act has not been defined in the act; therefore, the dictionary meaning of "Remuneration" shall be taken into consideration, and bonus comes under the scope of remuneration.
Therefore, the Principal Employer is liable for the bonus for the employees through the contractor. Kindly share if anyone has a differing viewpoint.
From India, Noida
Acknowledge(0)
Amend(0)
1Relevant provisions and case laws are as follows:
The Contract Labour (R&A) Act 1970
Sec. 21. Responsibility for payment of wages:
(1) A contractor shall be responsible for the payment of wages to each worker employed by him as contract labour, and such wages shall be paid before the expiry of the prescribed period.
(2) Every principal employer shall nominate a representative duly authorized by him to be present at the time of disbursement of wages by the contractor, and it shall be the duty of such representative to certify the amounts paid as wages in the prescribed manner.
(3) It shall be the duty of the contractor to ensure the disbursement of wages in the presence of the authorized representative of the principal employer.
(4) In case the contractor fails to make payment of wages within the prescribed period or makes short payment, then the principal employer shall be liable to make payment of wages in full or the unpaid balance due, as the case may be, to the contract labour employed by the contractor and recover the amount so paid from the contractor either by deduction from any amount payable to the contractor under any contract or as a debt payable by the contractor.
Definition of Wage as per The Contract Labour (R&A) Act 1970
Sec. 2(h): "Wages" shall have the meaning assigned to it in clause (vi) of section 2 of the Payment of Wages Act, 1936 (4 of 1936).
Definition of Wage as per The Payment of Wages Act 1936
Sec. 2(vi) "Wages" means all remuneration (whether by way of salary allowances or otherwise) expressed in terms of money or capable of being so expressed which would, if the terms of employment express or implied were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment and includes:
(a) Any remuneration payable under any award or settlement between the parties or order of a court;
(b) Any remuneration to which the person employed is entitled in respect of overtime work or holidays or any leave period;
(c) Any additional remuneration payable under the terms of employment (whether called a bonus or by any other name);
(d) Any sum which by reason of the termination of employment of the person employed is payable under any law contract or instrument which provides for the payment of such sum whether with or without deductions but does not provide for the time within which the payment is to be made;
(e) Any sum to which the person employed is entitled under any scheme framed under any law for the time being in force, but does not include:
(1) Any bonus (whether under a scheme of profit sharing or otherwise) which does not form part of the remuneration payable under the terms of employment or which is not payable under any award or settlement between the parties or order of a court;
(2) The value of any house-accommodation or of the supply of light, water, medical attendance or other amenity or of any service excluded from the computation of wages by a general or special order of the State Government;
(3) Any contribution paid by the employer to any pension or provident fund and the interest which may have accrued thereon;
(4) Any travelling allowance or the value of any travelling concession;
(5) Any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment; or
(6) Any gratuity payable on the termination of employment in cases other than those specified in sub-clause (d).
Dictionary Meaning of "Remuneration"
Noun: Award, compensation, defrayal, defrayment, indemnification, indemnity, money, pay, praemium, quittance, recompense, reimbursement, requital, restitution, return, reward, settlement, advance, alimony, annuity, award, boom, brokerage, charge, collection, commission, compensation, consideration, contribution, disbursement, earnings, fee, honorarium, income, indemnification, indemnity, out of pocket, pay, payment, payroll, pension, perquisite, profit, prosperity, recompense, recovery, reimbursement, remittance, rent, requital, restitution, retainer, revenue, reward, satisfaction, wage.
Perquisite
Noun: Allowance, annuity, benefaction, bonus, compensation, consideration, donation, emolument, endowment, fee, financial remuneration, financial reward, gain, gift, gratuity, incidental profits, payment, premium, present, profit, recompense, remuneration, return, revenue, reward, reward for service, stipend, subsidy, tip, token, wage.
Kerala High Court Case: Cominco Binani Zinc Ltd. vs Pappachan on 28 December, 1988
Para 6 of the above judgment states: Even in a case where the canteen is run by the contractor, the management of the factory, like the petitioner, cannot absolve themselves from the liability to pay the wages to the workers engaged in the canteen. The principal employer's liability to pay wages is recognized in Section 21(4) of the Contract Labour (Regulation and Abolition) Act, 1970 as well. If the contractor fails to pay the wages, the petitioner will be bound to pay the same. The wages due to the workmen do not include bonus or gratuity. This is made clear by the definition of wages in the Industrial Disputes Act and Payment of Wages Act. While defining the term "wages," the above-mentioned Acts specifically exclude bonus and gratuity from its purview. So, on the facts of this case, the petitioner is liable to pay the wages due to the workers which are in arrears and nothing more.
Interpretation of Wages under Payment of Wages Act
(c) Includes - any additional remuneration payable under the terms of employment (whether called a bonus or by any other name); and does not include - any bonus which does not form part of the remuneration payable under the terms of employment, meaning it includes the form of remuneration payable under the terms of employment.
Interpretation and Conclusion
1. Like PF, ESI Bonus is also in terms of employment by the provisions of the Payment of Bonus Act. Therefore, it should be treated as wages under the Payment of Wages Act, thereby wages under the Payment of Bonus Act.
2. In the above-cited judgment by Kerala HC, excluding bonus from wages appears to be interpreted erroneously and misunderstood. Excluding gratuity is correct.
3. In the above-cited judgment, taking into account the wages definition under the Industrial Dispute Act bears no relevance as The Contract Labour (R&A) Act 1970 does not ask for it. It only defines the wages as per the Payment of Wages Act.
4. The scope of the word remuneration used in the wage definition in the Payment of Wages Act has not been defined in the act; therefore, the dictionary meaning of "Remuneration" shall be taken into consideration, and bonus comes under the scope of remuneration.
Therefore, the Principal Employer is liable for the bonus for the employees through the contractor. Kindly share if anyone has a differing viewpoint.
From India, Noida
Acknowledge(0)Amend(0)
The purpose for which contract employees are engaged by the principal employer is important to understand. Contract employees, except those engaged in construction activities, are not eligible for a bonus under the Payment of Bonus Act, 1965.
From India, New Delhi
Acknowledge(0)Amend(0)
From India, New Delhi
Acknowledge(0)Amend(0)
After going through the provision as reproduced to initiate the discussion, I am of the opinion that the Principal Employer is liable for bonus for the employees through the Contractor. I am requesting your viewpoint if anyone has a differing perspective, citing relevant legal provisions or case laws.
From India, Noida
Acknowledge(0)Amend(0)
From India, Noida
Acknowledge(0)Amend(0)
Dear Mr khan saab, Please go through "The Payment of Bonus Act, 1965" & revert whether all types of Contract Labour are eligible for Bonus payable by the Principal Employer
From India, New Delhi
Acknowledge(0)Amend(0)
From India, New Delhi
Acknowledge(0)Amend(0)
Dear Shrinath ji,
There is no provision for the exclusion, as I understand, in the Payment of Bonus Act, of any specific category/type of employee through a contract. I would appreciate it if you could guide me by quoting such provisions either in the Bonus Act or anywhere else.
Regards.
From India, Noida
Acknowledge(0)Amend(0)
There is no provision for the exclusion, as I understand, in the Payment of Bonus Act, of any specific category/type of employee through a contract. I would appreciate it if you could guide me by quoting such provisions either in the Bonus Act or anywhere else.
Regards.
From India, Noida
Acknowledge(0)Amend(0)
There can be an exclusion of any category, but contractors normally include the bonus amount in the monthly bills that they raise on the principal employer. In some cases, an annual bill is raised for the bonus. In any case, though the contractor is liable to pay the bonus, the principal employer has to reimburse/pay the contractor for onward distribution to contract employees.
From India, Mumbai
Acknowledge(0)Amend(0)
From India, Mumbai
Acknowledge(0)Amend(0)CiteHR is an AI-augmented HR knowledge and collaboration platform, enabling HR professionals to solve real-world challenges, validate decisions, and stay ahead through collective intelligence and machine-enhanced guidance. Join Our Platform.
Principal employer liable if contractor fails to pay wages to workers Delhi High Court Judgement.pdf