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Payment of bonus act

RICHA (FINANCE MNGR) (27 Points)

24 October 2016

A profit making company (having >20 employees) pays all its employees variable pay as part of their CTC.

Say for example an employees' package is 7.2 lacs (i.e. 6.5 lacs fixed & 70k as variable pay)

But the monthly Basic amount is 19k and there is no DA being paid.

Now the employee is claiming his statutory bonus under the said Act since his basic salary is <21K. Hence he is claiming maximum bonus of Rs.22k, i.e. cumulative for FY 14-15 & 15-16.

But the company has taken a stand that - since we are paying performance linked variable pay, hence there is no additional liability under Payt of Bonus Act.

How far is the contention of the employee or employer correct.

Also, if the Bonus is still payable, whether employee has any option to file a claim against the Company & through which forum?

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7 Replies

Prajakta Save (Chartered Accountant) (46 Points)
Replied 24 October 2016

if you are talking with respect to payment of bonus act please check all conditions for applicability of bonus act. All below conditions need to be fulfilled -

The company is at least 5 years old
The company has at least 20 employees
The company has made a profit in that year
The employee’s wages are not more than 21,000 every month

1 Like

CA Shree Jain (Chartered Accountant) (1572 Points)
Replied 24 October 2016

Section 2(21) in The Payment of Bonus Act, 1965

(21) “salary or wage” means all remuneration (other than remuneration in respect of over-time 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) the value of any house accommodation or of supply of light, water, medical attendance or other amenity or of any service or of any concessional supply of foodgrains or other articles;

(iii) any travelling concession;

(iv) any bonus (including incentive, production and attendance bonus);

(v) any contribution paid or payable by the employer to any pension fund or provident fund or for the benefit of the employee under any law for the time being in force;

(vi) any retrenchment compensation or any gratuity or other retirement benefit payable to the employee or any ex gratia payment made to him;

(vii) any commission payable to the employee.

Explanation. —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, for the purpose of this clause, be deemed to form part of the salary or wage of such employee; COMMENTS

(i) Lay-off compensation is included in the term of “salary” or “wages”; Mohan Kumar v. Deputy Labour Commissioner, (1991) 62 FLR 903 (Ker).

(ii) Dearness allowance and city compensatory allowance are included in the definition of “salary” or “wages” under section 2 (21) of the Act; S. Krishnamurthy v. Presiding Officer, Labour Court, (1986) 55 FLR 535.

(iii) Dearness allowance is a part and parcel of wages; Scindia Navigation Co. Ltd. v. Scindia Employees Union, (1983) 2 LLN 63.

(iv) Retaining allowance comes within the purview of section 2 (21); Chalthan Vidyut Sehkari Udyog v. Government Labour Officer, AIR 1981 SC 905.

(v) Remuneration in case of overtime work and commission payable to employees are excluded from the definition of “salary” or “wages”; All India Voltas & Volpart Employees' Federation v. Voltas Ltd., 1973 Lab IC 645.

(vi) Overtime allowance does not form part of “wages”; Associated Cement Co. Ltd. v. Their Workmen, AIR 1959 SC 925.

RICHA (FINANCE MNGR) (27 Points)
Replied 24 October 2016

Yes. All conditions complied by Company.

Please suggest way forward.

@VaibhavJ (Believe!! Live your dreams!) (33511 Points)
Replied 25 October 2016

@ Richa

You can not contest payment of variable pay as statutory bonus payout and you are obliged to pay statutory bonus to all eligible employee.

Section 17 of POBA allows for adjustment of customary or interim bonus against bonus payable underthe Act.It stated that:

Where in any accounting year-- (a) an employer has paid any puja bonus or other customary bonus to an employee; or (b) an employer has paid a part of the bonus payable under this Act to an employee before the date on which such bonus becomes payable, then, 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 and the employee shall be entitled to receive only the balance.

So Variable pay is neither puja bonus or other customory bonus & you cannot exempt from payment of statutory bonus by claiming payment of variable pay as payment towards statutory bonus.

As far as payment for FY 2014-15 is concerned there are stays imposed by various high courts so you may hold that payments & park fund to separate account, however for FY 2015-16 you got to pay by 30 Nov 2016.

Employee can file claim for bonus throuh labour department any time after its due.

Thanks

@ VaibhavJ

RICHA (FINANCE MNGR) (27 Points)
Replied 25 October 2016

Thanks Vaibhav

RICHA (FINANCE MNGR) (27 Points)
Replied 25 October 2016

Will the contention be the same, if Performance linked Bonus is paid?

@VaibhavJ (Believe!! Live your dreams!) (33511 Points)
Replied 25 October 2016

@ Richa,

S/31A of POBA has provison with respect to payment of bonus linked with production or productivity & it requires formal agreement between both employer & employee. Alos, if appointment terms or company policy has specific mention of the payment of productivity linked bonus, then it can be assumed that the employee has agreed to it and the periodical bonus paid on the basis of production/efficiency can be deducted from annual bonus under the Bonus Act.

But most important point is that in no case employees should not be deprived from payment of minimum bonus payable under POBA. E.G. if employee has not performed good & you did not paid him PLB then by doing so company can not be absolved from statutory bonus payment, since the bonus payable under this law is not linked to the performance of the employee.

Thanks

@ VaibhavJ