In this blog post, Pooja Vasandani, a student pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, analyses the Payment of Bonus Act, 1965.

The Payment of Bonus Act, 1965 provides a statutory right to employees of an establishment to share the profits of his/her employer. As per this Central Act, any employee who was drawing a salary or wage not exceeding ten thousand rupees per month was eligible to be paid a bonus.

Section 2 (13) of the Act states that, “employee” means any person (other than an apprentice) employed on a salary or wage not exceeding ten thousand rupees per mensem in any industry to do any skilled or unskilled manual, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of employment be express or implied.

As per Section 12 of the Principal Act which lays down the ‘Calculation of bonus with respect to certain employees’– Where the salary or wage of an employee exceeds three thousand and five hundred rupees per mensem, the bonus payable to such employee under section 10 or, as the case may be, under section 11, shall be calculated as if his salary or wage were three thousand and five hundred rupees per mensem.

For the purposes of calculation of the bonus to be paid to an employee under the Principal Act, INR 3,500 (Indian Rupees Three Thousand Five Hundred) per month was the maximum amount taken even if an employee was drawing up to INR 10,000 (Indian Rupees Ten Thousand Only) per month.

Amendments To The Principal Act

As per the Amendment, the words “ten thousand rupees” in Section 2 (13) have been substituted for the words “twenty one thousand rupees”.

Further, in Section 12 of the Principal Act, for the words ”three thousand and five hundred rupees” at both the places where they occur, the words ”seven thousand rupees or the minimum wage for the scheduled employment, as fixed by the appropriate Government, whichever is higher” has been substituted.

The following Explanation was inserted at the end, namely:- ‘Explanation.

For the purposes of this section, the expression ”scheduled employment” shall have the same meaning as assigned to it in clause (g) of section 2 of the Minimum Wages Act, 1948 (11 of 1948).’

Payment of Bonus (Amendment) Bill, 2015 to enhance the monthly bonus calculation ceiling to Rs 7,000 per month from existing Rs. 3,500 was approved by Union Cabinet here,” a source said after the Cabinet meeting. The amendment bill will be made effective from April 1, 2015. Now the bill will be tabled in Parliament for approval.

The bill also seeks to enhance the eligibility limit for payment of bonus from the salary or wage of an employee from Rs. 10,000 per month to Rs. 21,000. The Payment of Bonus Act 1965 is applicable to every factory and other establishment in which 20 or more persons are employed on any day during an accounting year. The bill also provides for a new proviso in Section 12 which empowers the central government to vary the basis of computing bonus.

At present, under Section 12, where the salary or wage of an employee exceeds Rs. 3,500 per month, the minimum or maximum bonus payable to employees are calculated as if his salary or wage were Rs. 3,500 per month. The last amendment to both the eligibility limit and the calculation ceilings under the said Act was carried out in 2007 and was made effective from April 1, 2006.

This amendment in the Act to increase wage ceiling and bonus calculation ceiling was one of assurances given by the Centre after 10 central trade unions went on one-day strike on September 2.

The government had hinted at meeting workers’ aspirations on nine out of 12 demands submitted by the unions.

Analysis

The Amendment has sought to make more employees eligible for bonus by raising the ceiling limit of the monthly wages. The Amendment also increases the amount of bonus that would be received by the eligible employee as against the Principal Act which provided that the bonus payable to an employee will be in proportion to his or her salary or wage. However, if an employee’s salary is more than INR 3,500 per month, for the purposes of calculation of bonus, the salary will be assumed to be INR 3,500 per month. After the Amendment, this limit has been enhanced to INR 7,000 per month or the minimum wage for the scheduled employment (whichever is higher).

Although the Amendment received the assent of the President of India on 31 December, 2015, the Amendment shall be deemed to have come into force on the 1st day of April, 2014. Hence, it has a retrospective effect. This would mean that the employees who have already been paid a bonus for the financial year 2014-15, would now become eligible for arrears. The employees who draw a salary between INR 10,000 and INR 20, 999 per month would be eligible for bonus starting from the financial year 2014- 2015 due to the retrospective nature of the Amendment. The labor intensive industries would have a significant impact as the differential/balance amount for the financial year 2014-105 would have to be provided in the current financial year to the employees. However, no specific date for the payment has been provided for in the Amendment.

Registers

Every employer is required to maintain the following registers in the prescribed form:

1.Register showing the computation of allocable surplus (Form A)
2.Register showing the set-on and set-off of the allocable surplus (Form B)
3.Register showing the details of the amount of bonus payable to each of employees, the amount of deductions if any, and the amount actually paid. (Form C)

Returns

The employer is also required to send an annual return to the Inspector appointed under the Act within 30 days from the expiry of time limit specified in Section 19 for payment of bonus. (Form D)

Case Law: Shashikant Janardan Pimpalpure Vs Development Corpn. Of Vidarbha On 20 February, 1995

The respondent No. 1 Corporation filed reply to the application and contested the claim of the petitioner. The respondent set up the defense that the petitioner was not employee of the respondent Corporation, but was appointed in Carpet Weaving Center only and is on the rolls of that establishment only. According to the respondent Corporation, Carpet Weaving Center was totally separate and distinct from the Corporation and had no resemblance to the terms of employment of the employees of the respondent Corporation. The Corporation set up the plea that since the Carpet Weaving Center was a training center and an educational institution and has no profit motive, bonus was not payable under the Payment of Bonus Act. The Corporation also set up the defence that the said Training Center has not completed five years of service and on that ground under Section 16 of the Payment of Bonus Act, the employee is not entitled to the payment of bonus.

The first and foremost question which requires consideration is, whether an application underSection 33-C(2) of the Act of 1947 is maintainable seeking payment of minimum bonus under the Payment of Bonus Act. Admittedly, the petitioners are only seeking minimum payment ofbonus under the Payment of Bonus Act. It is also admitted that before filing of the application under Section 33-C(2) of the Act of 1947, there was no order for payment of bonus to the present petitioner under the Payment of Bonus Act. Scope of Section 33-C(2) of the Act of 1947 is now well settled and does not require any debate. The right to the benefit which is sought to be computed under Section 33-C(2) must be an existing one and that is to say, already adjudicated upon or provided for and must arise in the course of and in relation to the relationship between the industrial workmen and his employer.