The Payment of Bonus Act, 1965

Transcription

1 The Payment of Bonus Act, 1965 Practical compliance reference Handbook Evaluer on Employment Law In this handbook we will address the following: What the Payment of Bonus Act means Important definitions for calculation of bonus including the definition of wages Concept of set-on and set-off Exemption from payment of bonus Returns, forms to be maintained

2 1.1 INTRODUCTION TO THE PAYMENT OF BONUS ACT The Payment of Bonus Act, 1965 (the Bonus Act ) was enacted in order to make it a statutory obligation for employers to share their profits with Bonus is a cash payment made to employees in addition to their wages / salary, therefore, cannot be considered exgratia payment. the employees of the organization. The Bonus Act applies to every factory whereon ten or more workers are working or were working on any day of the preceding twelve months and the manufacturing process is being carried on with the aid of power. Further, the Bonus Act also applies to every establishment in which 20 (t wenty) or more workers are employed on any day during an accounting year 1. Additionally, an establishment or factory once covered under the Bonus Act shall continue to be governed by the said Act even if the number of employees fall below ten or 20 (twenty) as the case may be. For calculating the number of persons, ten or 20 (twenty), as the case may be, a part time employee is also an employee. The purpose of bonus is to bridge the gulf between the wages paid and the ideal of a living wage. 1 accounting year means i) in relation to a corporation, the year ending on the day on which the books and accounts of the corporation are to be closed and balanced; ii) in relation to a company, the period in respect of which any profit and loss account of the company laid before it in annual general meeting is made up, whether that period is a year or not; iii) in any other case (a) the year commencing on the 1 st day of April; or (b) if the accounts of an establishment maintained by the employer thereof are closed and balanced on any day other than the 31 st day of March, then, at the option of the employer, the year ending on the day on which its accounts are so closed and balanced, provided that an option once exercised by the employer under paragraph (b) of this sub-clause shall not again be exercised except with the previous permission in writing of the prescribed authority and upon such conditions as that authority may think fit.

3 1.2 THE SCHEME OF THE BONUS ACT IS BASED ON FOUR PILLARS To impose a liability on the employer to pay bonus To define the formula of payment of bonus Linking the payment of bonus with the scheme of set-off and seton Provide machinery for enforcement of the Bonus Act ELIGIBILITY OF BONUS AND DEFINITION OF AN EMPLOYEE An employee under the Bonus Act means any person other than an apprentice, engaged by an establishment, drawing salary not exceeding Rs 21,000 (twenty one thousand) per month subject to him / her working for at least 30 (thirty) days in an accounting year. However, for calculation purposes 7,000 (seven thousand rupees) or the minimum wage for the scheduled employment, as fixed by the appropriate Government, whichever is higher will be taken even if an employee is drawing up to Rs 21,000 (twenty one thousand ) per month. An employee getting wages / salary more than Rs 21,000 (twenty one thousand) per month is not eligible for bonus. The following employees are eligible for bonus: i. regular / full time employees subject to the criteria mentioned above; ii. season workers who have worked for not less than 30 (thirty) working days; iii. employees working on part time basis; and iv. a probationer.

4 1.3 IMPORTANT DEFINITIONS FOR CALCULATION OF BONUS WORKING DAYS FOR BONUS CALCULATION As per the Bonus Act the words working days in an accounting year includes days not worked because of leave, absenteeism due to disablement caused by accident arising out of and in the course of employment, maternity leave and days involved in lay-offs under an agreement or as permitted by standing orders under the Industrial Employment (Standing Orders) Act, 1946 (20 of 1946) GROSS-PROFIT Gross profit means gross profit calculated in the manner specified in the Second Schedule of the Bonus Act AVAILABLE SURPLUS Available surplus in an accounting year is computed under section 5 of the Bonus Act, which provides that the available surplus in respect of an accounting year shall be the gross profit for the year minus deductions referred to in section 6 of the Bonus Act namely: depreciation, development rebate, investment allowance, any direct tax which the establishment is liable to pay etc ALLOCABLE SURPLUS In the case of a company, allocable surplus means 67 % (percentage sixty seven) of the available surplus in an accounting year of the company which has not made the arrangements prescribed under the Income-Tax Act for declaration and payment within India of dividends payable out of its profits in accordance with the provisions of section 194 of that Bonus Act. The allocable surplus is to be distributed by way of bonus to the employees subject to the limit of 20 % (percentage twenty) of the total salary or wage of the employees SET-ON AND SET-OFF Section 15 provides for set-on and set-off of allocable surplus. Where for any accounting year the allocable surplus exceeds the amount of maximum bonus payable to employees in an establishment under section 11 of the Bonus Act, then the excess shall, subject to a limit of 20 % (percentage twenty) of the total salary or wage of the employees employed in the establishment in that accounting year, be carried forward in the succeeding accounting year, 2 The above definition is a broad definition of how available surplus can be calculated. However, details of such calculation can be best explained by a finance professional with respect to different provisions of the Bonus Act read with Second Schedule.

5 up to the fourth accounting year to be utilized for the purpose of payment of bonus in the manner illustrated in the Fourth Schedule of the Bonus Act. Where there is no allocable surplus and there is no amount or sufficient amount carried forward for the purpose of payment of the minimum bonus, then such minimum amount of the deficiency, as the case may be, shall be carried forward for being set off on the succeeding accounting year up to the fourth accounting year in the manner illustrated in the Fourth Schedule. The amount of set-on or set-off carried forward from earliest accounting year shall be taken into account. The following case study explains the concept of set-on and set-off: In the following illustration, minimum statutory bonus (8.33% of annual salary / wage of an employee) is assumed to be Rs 1,04,167 (one lakh four thousand one hundred sixty seven) and maximum statutory bonus is assumed to be 2,50,000 (two lac fifty thousand) (20% of annual salary of all employees). Year Allocable surplus Amount payable as bonus Set on or set off the year carried forward Total set on or set off carried forward Of (year) 1. 1,04,167 Rs 1,04,167** Nil Nil 2. 6,35,000 2,50,000* set on 2,50,000* set on 2,50,000* (2) 3. 2,20,000 2,50,000* (Inclusive of 30,000 from year- 2) Nil Set on 2,20,000 (2) 4. 3,75,000 2,50,000* Set on 1,25,000 Set on 2,20,000 1,25,000 (2) (4) 5. 1,40,000 2,50,000* (Inclusive of 1,10,000 from year-2) Nil Set on 1,10,000 1,25,000 (2) (4) 6. 3,10,000 2,50,000* Nil Set on Nil + 1,25,000 60,000 (2) (4) (6) 7. 1,00,000 2,50,000* (Inclusive of 1,25,000 from Nil Set on 35,000 (6)

6 year-4 and 25,000 from year-6) 3 8. Nil (due to loss) 1,04,167** (inclusive of 35,000 from year- 6) Set off 69,167 Set off 69,167 (8) 9. 10,000 1,04,167*** Set off 94,167 Set off 69,167 94, 1267 (8) (9) 10. 2,15,000 1,04,167** (after setting off 69, 167 from year-8 and 41,666 from year- 9) Nil Set off 52,501 (9) * Maximum ** Minimum 1.4 WAGES FOR CALCULATION OF BONUS "Salary or wage" means all remuneration (other than remuneration in respect of overtime work) capable of being expressed in terms of money, which would, if the terms of employment, express or implied, were fulfilled, be payable to an employee in respect of his employment or of work done in such employment and includes dearness allowance (that is to say, all cash payments, by whatever name called, paid to an employee on account of a rise in the cost of living), but does not include: i. any other allowance which the employee is for the time being entitled to; ii. iii. iv. value of any house accommodation or of supply of light, water, medical attendance or other amenity or of any service of any concessional supply of food grains or other articles; any travelling concession; any bonus (including incentive, production and attendance bonus); 3 The balance of Rs1,10,000 set-on from year-two lapses.

7 v. any contribution paid or payable by the employer to any pension fund or provident fund or for the benefit of the employees under any law for the time being in force; vi. any commission payable to the employee; vii. any retrenchment compensation or any gratuity or other retirement benefit payable to the employees or any ex gratia payment made to him. Ex-gratia means an act of grace, usually referred to payment made by an employer as a discretionary gift; viii. remuneration in case of overtime work and commission payable to employees; 4 ix. overtime allowance: paid to an employee who performed labour outside of the working hours applicable to him; 5 x. ad-hoc allowance: it is an unplanned allowance, given when necessary; xi. family allowance; xii. house rent allowance: means an allowance rendered to an employee in lieu of providing quarters for him; xiii. tiffin allowance; xiv. subsistence allowance; 6 xv. Uniform allowance and clothing allowance: is the one which is paid to an employee for clothes such as blankets uniform etc. Uniform allowance or protective equipment is a kind of benefit which is allowed to an employee for protection against work in a dangerous place or with a dangerous machine; xvi. washing allowance; xvii. travelling concession; xviii. commission payable to the salesman; xix. retrenchment compensation; 7 xx. food allowance: is an allowance paid to an employee in lieu of providing food; xxi. special allowance: is one which can be claimed by an employee whose work carries special risks or special strain not shared by the other employees in the same class or category. Additionally, the following are included in the term wages: 4 All India Voltas and Volpart Employees Federation vs. Voltas Ltd, (1973) Lab IC Associated Cement Co. Ltd. vs. Their Workmen, AIR (1959) SC Deccan Merchant Corp. Bank Ltd. vs. Avdhoot Marutirao Rane, (2008) LLR 30 (Bombay High Court) 7 Mohan Kumar vs. Deputy Labour Commissioner, (1996) II LLJ 484 (Kerala High Court)

8 i. lay off compensation 8 : payment of lay off compensation during the period when there is a lay off and when the employer is unable to provide work is indicative of the desire of the employer to retain the services of the employee; ii. dearness allowance 9 : means all cash payments by whatever name called, paid to an employee on account of the rise in the cost of living; iii. city compensatory allowance; 10 iv. retaining allowance: 11 Is payable to a seasonal worker as compensation for period of unemployment during temporary closure of seasonal industry for part of the year; v. variable allowance; vi. suspension allowance. Where an employee is given in lieu of the whole or part of the salary or wage payable to him, free food allowance or free food by his employer, such food allowance or the value of such food shall be deemed to form part of the salary or wage of such employees. 1.5 PAYMENT OF BONUS AND CALCULATION THEREOF An establishment shall be bound to pay the eligible employee in respect of the accounting year, a minimum bonus which shall be 8.33 % (eight decimal three three) of the salary or wages earned by the employee during the accounting year or Rs 100 (one hundred), whichever is higher, whether or not the establishment has any allocable surplus in the accounting year or not. Where an employee has not completed 15 (fifteen) years of age at the beginning of the accounting year Rs 60 (sixty) will be substituted for the above mentioned Rs 100 (hundred). 12 Payment of minimum bonus cannot be avoided merely because there was loss in the concerned accounting year unless it is proved that the workmen had principally contributed to financial loss to the establishment in that accounting year. It is therefore clear that even if the organization suffers loss it is bound to pay minimum bonus. 8 Mohan Kumar vs. Deputy labour Commissioner, (1991) 62 FLR 903 (Ker) 9 Scindia Navigation Co. Ltd. Vs Scindia Employees Union, (1983) 2 LLN S. Krishnamurthy vs. Presiding Officer Labour Court, (1986) 55 FLR Chalthan Vidyut Sehkri Udyog vs. Labour Officer, AIR (1981) SC Where dismissal of an employee is held unlawful and his reinstatement is awarded with full back wages, continuity in service and all other benefits, he is entitled to claim bonus.

9 1.6 RETURNS, FORMS TO BE MAINTAINED AND SUBMITTED TO AUTHORITIES Section 26 of the Bonus Act provides for maintenance of registers, records, and other documents by an employer in certain prescribed form and manner. Payment of Bonus Rules, 1975 ( the Bonus Rules ) makes it obligatory for an employer to maintain the following registers: i. a register showing the computation of the allocable surplus in form A (section 2). ii. iii. a register showing the set-on and set-off of the allocable surplus in form B (under section 15); and a register showing the details of the amount of bonus due to each of the employees, the deductions under sections 17 and 18 and the amount actually disbursed, in Form C. Additionally, the employer shall on or before 1 st day of February in each year may file annual return in Form D and upload it on web portal of Ministry of Labor and Employment or send it to the Inspector. The annual return shall be filed within the time limit specified in section 19 of the Bonus Act for payment of bonus. S. No. Compliance Requirement Source Verification Due Date Responsibility for Compliance Total number of employees Total number of employees drawing salary of Rs. 10,000 and below ANNUAL RETURN 1. Annual return: an annual return of bonus paid to employees in an accounting year must be sent to the Inspector. Form D On or before 1 st day of February in each year Employer (Rule 5 of the Payment of Bonus

10 Rules) RECORD MAINTENANCE 2. Allocable Surplus: A register showing the computation of the allocable surplus referred to in clause (4) of section 2. [Rule 4 (a) of the Payment of Bonus Rules] 3. Set-on and set-off of allocable surplus: Register showing the set-on and set-off of the allocable surplus, under section 15. [Rule 4 (b) of the Payment of Bonus Rules] 4 Bonus Paid: Register showing the amount of bonus paid to each employee and the deductions under section 17 and 18 made. [Rule 4 (c) of the Payment of Bonus Rules] Form A Form B From C Employer Employer Employer 1.7 FREQUENTLY ASKED QUESTIONS (FAQ S) Every employee who is drawing a salary or wage up to Rs 21,000 (twenty one thousand) per month and who has worked for minimum period of 30 (thirty) days in a year is entitled to be paid bonus. For calculation purposes Rs 7,000 (seven thousand) per month maximum will be taken even if an employee is drawing up to Rs 21,000 (twenty one thousand) per month BONUS BY A PRINCIPAL EMPLOYER TO EMPLOYEES ENGAGED THROUGH CONTRACTOR

11 Employees engaged through a contractors are covered under the Contract Labour (Regulation & Abolition) Act, 1970 will not be entitled to bonus from the principal Employer. 13 Contract laborers are not employees 14 as defined under the Bonus Act and therefore there is no obligation on the part of the principal employer to pay bonus at par with regular employees TIME LIMIT FOR PAYMENT OF BONUS Bonus has to be paid within eight months of the end of an accounting year. The appropriate government may on an application made by the establishment extend the said period of eight months to such further period as it thinks fit. But the total period so extended shall not exceed two years. If there is a dispute regarding payment of bonus pending before an authority, the time limit for payment of bonus is within one month from the date on which the award becomes enforceable or settlement comes into operation PENALTY UNDER THE BONUS ACT If any person contravenes any of the provisions of the Bonus Act or any rule made there under; or to whom a direction is given or a requisition is made under this Act fails to comply with the direction or requisition, he shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to Rs 1,000 (one thousand), or with both DISQUALIFICATION OF AN EMPLOYEE FOR BONUS If an employee has been dismissed from service for fraud, riotous or violent behavior while on the premises of the establishment or / and theft, misappropriation or sabotage of any property of the establishment, the employer has the right to forfeit bonus of the concerned employee. It must be however kept in mind that, in the above mentioned circumstance the employer can forfeit bonus of the concerned employee only in the accounting year in which the misconduct took place, and not with respect to any year preceding or succeeding the accounting year in question 15. Additionally, when in any accounting year an employee is found guilty of misconduct causing financial loss to the employer, then the employer can 13 Hindalco Industries Ltd. vs. CJM Sonebhadra (1999) I CLR 693 (All HC) 14 Section 2 (13) of the Bonus Act defines an employee to be any person (other than an apprentice) employed on a salary or wage not exceeding rupees ten thousand 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. 15 Himalaya Drug Co. Makali vs. II Additional Labour Court, Bangalore (1986) II L.L.J 45 (Karnataka High Court)

12 lawfully deduct the amount of loss from the amount of bonus payable to the employee in respect of that accounting year only BONUS NOT TO BE REMITTED OR DEPOSITED If an employee has not turned up to receive his bonus as and when declared, it is not obligatory upon the employer to transfer or send the amount to the concerned employee who fails to turn up to receive the bonus as due to him. Also there is no statutory provision that the amount of unpaid bonus be deposited by the employer with any authority PIECE-RATE EMPLOYEES Piece-rate employees will be covered under the Bonus Act since piece-rate system is the only mode of payment by the employer to the employees CAN A COMPANY ADJUST VOLUNTARY BONUS AGAINST BONUS PAYABLE UNDER THE BONUS ACT? Yes. Section 17 of the Bonus Act states that where in any accounting year (a) an employer has paid any puja bonus or other customary bonus to an employee; or (b) the employer has paid a part of the bonus payable under this Act to an employee, the employer shall be entitled to deduct the amount of bonus so paid from the amount of bonus payable by him to the employee under this Act in respect of that accounting year ENTITLEMENT OF BONUS TO A SUSPENDED EMPLOYEE In case of a suspended employee the employee to be eligible for bonus should have worked in the establishment for not less than 30 (thirty) days in that year. But in abnormal circumstances wherein he is prevented from working by an overt act on the part of the employer then the reasonable inference is that the employee s statutory eligibility for bonus cannot be said to have been lost CAN THE BONUS PAYABLE TO AN EMPLOYEE IN AN ACCOUNTING YEAR BE REDUCED IF THE EMPLOYEE HAS NOT WORKED FOR ALL WORKING DAYS IN THAT YEAR? Yes. Where an employee has not worked for all the working days in an accounting year, the minimum bonus of Rs 100 (one hundred) or, as the case may be, of Rs 60 (sixty), if such bonus is higher than 8.33 % (percentage eight decimal three three) of his salary or wage for the days he has worked in that accounting year, shall be proportionately reduced. For the 16 Section 18 of the Bonus Act and Wheel and Rim Company of India Ltd vs. Government of Tamil Nadu, 1971 II LLJ 299 (Madras High Court)

13 purpose of computing number of working days, the employee shall have been deemed to have worked in an establishment in any accounting year when: i. he has been on leave with salary or wage; ii. iii. iv. he has been absent due to temporary disablement caused by accident arising out of and in the course of his employment; the employee has been on maternity leave with salary or wage during the accounting year; and / or he has been laid off by an agreement or as permitted by standing orders. The Supreme Court has further clarified that the words working days in an accounting year would mean all those days of the year except holidays of a factory which works all through the year. In the case of a factory which works seasonally during an accounting year, working days in any accounting year can only mean those days of the year during which the employee concerned is actually allowed to work ESTABLISHMENTS TO INCLUDE DEPARTMENTS, UNDERTAKINGS AND BRANCHES Different department, undertakings or branches of an establishment whether situated in the same place or at different places shall be treated as parts of the same establishment for the purpose of computation of bonus under the Bonus Act. However, where in an accounting year a separate balance-sheet is maintained in respect of any branch then such branch shall be treated as a separate establishment SPECIAL PROVISION WITH RESPECT TO PAYMENT OF BONUS LINKED WITH PRODUCTION OR PRODUCTIVITY As per section 31 A of the Bonus Act, where the employees enter into any agreement with their employer for payment of an annual bonus linked with production or productivity instead of bonus based on profits payable under this Act, then, such employees shall be entitled to receive bonus due to them under such agreement. Provided such employees shall not be prevented from receiving bonus less than 8.33 % (percentage eight decimal three three). 17 Sakhkkar Mills Mazdoor Sangh vs. Gwalior Sugar Co. Ltd, 1955 III LLJ 460 (SC)

14 DOES THE BONUS ACT APPLY TO UNIVERSITIES, EDUCATIONAL INSTITUTIONS, HOSPITALS AND CHAMBERS OF COMMERCE Section 32 (V) (b) and (c) of the Bonus Act excludes universities, educational institutions, other institutions like hospitals, chambers of commerce, social welfare institutions from the preview of payment of bonus, provided the said institutes are established not for purposes of profit. For non-applicability of the above provision, in excluding certain classes of establishments, no specific exemption is required. Enough, if it is shown to be charitable institution. The Supreme Court has clarified that the above exemption is allowed with a deliberate object, viz, not to subject such establishments to burden of bonus which are conducted without any profit motive and run for chartable purpose. 18 In another judgment, the Karnataka High Court has held that as per section 32 of the Bonus Act, employees of institutions including hospital established not for purpose of profit would not come within the preview of the Bonus Act. 19 The Court observed that it is common knowledge that bonus is cash payment made in addition to wages as a stimulus to extra work and efficiency by the workmen. However to claim bonus, one has to satisfy the requirements of the Bonus Act, which has been enacted to provide the payment of bonus to persons employed in certain establishments on the basis of profits or on the basis of production or productivity and for matters connected therewith. Before deciding exemption under the above mentioned section, it has to be seen whether the concerned institution was established for purpose of profit or for charitable purpose. 18 Sanghvi J.G.C vs. Madras Chillies, Grains and Kirana Merchants Workers Union, AIR 1969 SC 530; 1969 LIC 854: 17 FLR 218: 35 FJR 162: (1969) I LLJ 719: 1969 (1) SCR 366 (SC) 19 Dr. (Ms.) Sita Bhateja Nursing Home (Trust), Bangalore vs. Presiding Offices, Labour Court, Bangalore, 1999 II LLJ 1194: 1999 (2) CLR 725 (Kar HC) (DB)

15 For further information please contact: Disclaimer: This handbook is not an advertisement or any form of solicitation. This handbook has been compiled for general information of the public and does not constitute professional guidance or legal opinion. Readers should obtain appropriate professional advice. Delhi Bangalore Chandigarh