Introduction

Bonus extra amount in money, bonds, or goods over what is normally due. The term is applied especially to payments to employees either for production in excess of the normal (wage incentive) or as a share of surplus profits.

There are mainly four types of bonuses which are recognized in industrial law as enforceable through industrial courts and tribunal[1].

• • Production bonus or incentive bonus,

• • Bonus as an implied term of contract of service,

• • Customary bonus connected with some festival

• • Profit (sharing) bonus.

Now, the general meaning of the Word Bonus:  It means extra payment which is given by the employer to employee due to good performance. In short Bonus means Money paid in addition to a stated compensation.

Origin of Bonus dispute: – The wage incentive was designed during the late 19th cent. Not only to increase production but to reward the more skillful and more energetic workers. The hourly or weekly wage was to be figured as payment for a standard rate of work, and the workers who exceeded that standard were to receive a bonus. However, the system fell into disfavor with labor unions because rate cutting was often resorted to when bonuses became too high.

Industrial engineers of the 1930s realized that definite standards of accomplishment and quality must be set to make wage incentives workable. Many firms have used an annual bonus plan for distributing abnormal profits to employees. The term is also applied to payments to former servicemen in addition to regular pensions and insurance.  Bonus is a cash payment made to employees In addition to wages.

It appears that during the First World War when the prices of the commodities had gone up resulting in the decrease of real wage levels and unusual increase of business profits, the workmen agitated for extra remuneration, partly, to fill up the gap between the actual and living wages which was continuously widening, and partly to share the extra profits the industry was making. Some of the establishments had granted ‘war bonuses to their workers either on their own initiative and goodwill or on the threat of a strike.

An Act to deliver for the payment of bonus to persons employed in certain creations on the basis of revenues or on the basis of production or productivity and for matters connected therewith.

The award of the full Bench of the labour Appellate Tribunal Of India Bombay, in Mill owners Association, Bombay V. Rashtriya Mill Mazdoor sangh 1950 LLJ 1247[2] known popularly as ‘ full bench formula’ was the basis of the law governingpayment of bonus from 1950 to 1965. Before the ordinance of 1965 there was no enactment of any sort in the country covering payment of profit sharing bonus to workers.

Broadly speaking the scheme of the Act is four dimensional it is also mentioned in the case of Jalan Treding co. V. Mill Mazdoor Sabha, AIR 1967 SC 691[3].

• • To impose statutory liability upon an employer of every establishment covered by the Act bonus to employees in establishment

• • To define the principle of payment of bonus according to the prescribed formula

• • To provide for payment of minimum and maximum bonus and linking the payment of bonus with the scheme of “ set-off and set – on” and

• • To provide machinery for enforcement of the liability for payment of bonus.

Nature of Bonus:-

Some of the observation made by various authorities on the concept and content of bonus are mentioned here with a hope that these statements will clarify the thinking on the subject during the period.

Bonus is not a bounty graciously made by the employer. It is a cash payment made in addition to wage. It generally represents the cash incentive conditionally made on certain standards of attendance and efficiency being attained and when the wage fall short of living wages and when the industry made profits which are partly result of contribution made by the workers.

Bonus is not an ex-gratia payment. It is a claim of the workers for a share in the profits for which they are partly responsible. Thus even if the wages workers are entitled to bonus under certain circumstances.

Bonus is a cash payment made in addition to wages as a stimulus to extra work and efficiently by the workers. All types of claims for wages cannot be decided under the provisions of the payment of wages Act. The bonus which is paid to the concerned employee is nothing but a part of remuneration payable under the terms of employment. Therefore, by whatever name it may be called, it comes within the definition of wages[4].

Characteristics

There are mainly followings Characteristics:-

• •  Ex-gratia Payment- the bonus was an ex-gratia payment made by the employer only on his goodwill or due to the force of circumstances and the claims of the workers for bonus were not regarded as claims enforceable in a court of law. However, in the later part of the period a dispute regarding payment of bonus was recognized as an ‘industrial matter’ and industrial courts exercised jurisdiction and adjudicated upon them accordingly and in many cases the tribunals and courts awarded bonus without laying down any principles governing such awards.

• • Dearness allowance and Maternity allowance :- Dearness allowances was excluded from wages for the purpose of calculation of bonus, whereas the maternity allowances actually drawn by the women employees was included[5].

• • Qualifying service :- about one month’s service was the minimum qualifying service the workmen had to put in to enable themselves to participate in bonus

• • Contract Labour: – the contractor’s Labour were also paid bonus and whenever they were paid, they were paid directly by the principal employer.

• • In-service employees: – In the earlier period of the decade only the workers who were actually in service at the time of declaration and payment of bonus were paid bonus but this trend has changed gradually to the present practice of paying bonus to those workers also who had left the service at the time of declaration and payment of bonus but were otherwise qualified for bonus.

• • Length of service: – the rate of bonus was dependent on the length of service a worker puts in the concern.

Bonus and Industrial Matter

The machinery set up for adjudication of industrial dispute under the defence of India Rule81-A had not recognized the right of the workers to claim profit sharing bonus as a matter of right. However, they had, from time to time, recognized the claims of employees for bonus as an ‘Industrial Matter ‘and declared that they had jurisdiction over the bonus disputes. But it was consistently held in this adjudication, that the profit sharing bonus was an ex-gratia payment and the employers could not be compelled to pay bonus. Only in a few cases bonus was awarded against the wishes of the employers.  In some cases the employers and the employees had into agreements governing payment of bonus.

It should also be noted here that some of the employers on their own initiative declared bonus to their workers[6].

Now, the Meaning of Employee has also been defined under section 2(13)[7]

• • Any person other than apprentice, engaged for heir or reward.

• • Includes supervisors.

• • Includes managers.

• • Included all administrative staff.

• • Includes a person who has worked not less than 30 days in an accounting year.

• • But does not include any person whose salary exceeds 10000/- pm.

There are some following points which talks about Rights of Employees:-

• • Right to claim bonus payable under the Act and to make an application to the Government, for the recovery of bonus due and unpaid, within one year of its becoming due.

• •  Right to refer any dispute to the Labour Court/Tribunal.

• •  Employees, to whom the Payment of Bonus Act does not apply, cannot raise a dispute regarding bonus under the Industrial Disputes Act.

• • Right to seek clarification and obtain information, on any item in the accounts of the establishment

Applicability

(a) Every factory (as def. in Factories Act), & (b) Every other establishment in which 20 or more persons (less than 20 but 10 or more if appropriate Govt. notifies) are employed on any day subject to certain exemptions.

ii) Employees’ drawing remuneration of Rs. 3,500/- or more and those who have worked for less than 30 days are not eligible to receive bonus under the Act.

iii) Bonus to be paid within eight months from the expiry of the accounting year.

Benefits to the Employees

i) Subject to other provisions :— Minimum bonus shall be 8.33% of salary/wages earned or Rs 100 whichever is higher.

Ii) If allocable surplus exceeds the amount of minimum bonus, then bonus shall be payable at higher rate subject to a maximum 20% of salary/wages[8].

Iii) Computation of bonus is to be worked out as per Schedule I to IV of the Act.

Legal provisions

Definition of bonus is not mentioned in the existing Act but there are mainly few sections which deals with the determination of bonus under the bonus act 1965. Sections are as follows:-

Section 8:- which talks about eligibility for bonus

I)  Every person (other than an apprentice) drawing salary up to Rs. 3,500 per month.

Ii) Every person drawing salary between RS 2,501/- and RS 3,500/- per month. The bonus payable to him is to be calculated as if his salary were Rs. 2,500/- p.m.

In case of H.P.State Electricity Board and another v Ranjeet singh[9] and others it was held that Labour court under the payment of bonus Act, 1965 can decide only matters specified in second schedule of the Act. Bonus appears as item 5 in the Third schedule. Therefore, the question of entitlement to bonus could not have been decided by the labour court. It could only decide the quantum of bonus and not its playability.

Section 9:- which deals with Disqualification for bonus

An employee shall be disqualified from receiving bonus under this Act

(a) Fraud; or

(b) Riotous or violent behavior while on the premises of the establishment; or

(c) Theft, misappropriation or sabotage of any property of the establishment

In case of K.L.J. Plastics limited, jedimetla v. Labour Court III, Hyderabad and others[10] the second respondent was the erstwhile workman of the petitioner company and was employed as supervisor. He was dismissed from service for proved misconduct of riotious and disorderly behaviour of assaulting and gheraoing Managers of the company. The Labour court III, Hyderabad dismissed the claim of second respondent in respect of back-wages, arrears etc. but granted the relief in respect of bonus payable and subsistence allowance payable. The petitioner pleaded that court’s order was illegal being in violation of section 9 of the payment of bonus Act.

Lastly, High court held that the disqualification imposed by section 9 of the Act was clear and a distinction could not be made between bonus payable subsequent to the order of termination and that payable prior to it.

Section 10:- Payment of Minimum Bonus

Provided that where an employee has not completed fifteen years of age at the beginning of the account year the provision of this section shall have, effect in relation to such employee as if for the words “one hundred rupees” the words “sixty rupees” were substituted.

A minimum bonus which shall be 8.33 per cent of the salary or wage earned by the employee during the accounting year.

Where in respect of any accounting year referred to in section 10, the allocable surplus exceeds the amount of maximum bonus payable to the employees. Be bound to pay to every employee in respect of that accounting; year bonus which shall be an amount in proportion to the salary or wage earned by the employee during the accounting year subject to a maximum of 20 per cent, of such salary or wage.

The minimum bonus under the Act is a right vested in an employee under a statute. The right to minimum bonus is a statutory right which vested in the employee and no further adjudication of the right to the payment of minimum bonus is called for. It constitutes an existing statutory right. The denial of this right by the employer does not render in an industrial dispute calling for adjudication by way of reference under section 10 of the Industrial Disputes act read with section 22 of the payment of Bonus Act.

Section 10 of the payment of Bonus Act fixes the amount of Bonus payable by an employer to every employee from the allocable surplus in respect of the accounting year. The Act is confined to the ‘profit-based bonus’ and not to other categories of bonus which employees may be entitled to claim from an employer.

 In case of P.K.Bhadra & Co. and others v. state of Bihar and others[11] the petitioners were contractors providing Labour for building maintenance work in TELCO Township. In June 1992 the Labour commissioner issued a letter in pursuance to which the Deputy Labour Commissioner directed the petitioner to pay bonus to their workmen. This order directing payment of Bonus was impugned by the petitioner. The High Court observed that on a perusal of the impugned order it appeared that the Deputy Labour Commissioner, without applying his mind and without looking into the relevant provisions of the payment of Bonus Act, 1965 proceeded on the basis of the said letter and also on the basis of some suggestions and opinions from the law department of the government. The High court concluded that the petitioners should not have been saddled with liability of payment of bonus under the said Act.

Section 11 Payment of Minimum & Maximum bonus

• • A minimum bonus which shall be 8.33 per cent of the salary or wage earned by the employee during the accounting year.

• • Where in respect of any accounting year referred to in section 10, the allocable surplus exceeds the amount of maximum bonus payable to the employees. be bound to pay to every employee in respect of that accounting; year bonus which shall be an amount in proportion to the salary or wage earned by the employee during the accounting year subject to a maximum of 20 per cent, of such salary or wage.

Calculation of Bonus

The method for calculation of annual bonus is as follows:

• • Calculate the Available Surplus.

• • Available Surplus = Gross Profit – ( deduct) the following

• • Depreciation admissible u/s 32 of the Income tax Act.

• • Development allowance

• • Available Surplus (Deductions)

• • Direct taxes payable for the accounting year (calculated as per Sec.7) – Sums specified in the Third Schedule.

• • Direct Taxes (calculated as per Sec. 7) in respect of gross profits for the immediately preceding accounting year.

• • Allocable Surplus = 60% of Available Surplus, 67% in case of foreign companies.

• • Make adjustment for ‘Set-on’ and ‘Set-off’. For calculating the amount of bonus in respect of an accounting year, allocable surplus is computed after considering the amount of set on and set off from the previous years.

Section 12. Calculation of bonus with respect to certain employees[12].—Where the salary or wage of an employee exceeds [two 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 [two thousand and five hundred rupees] per mensem.]

Section 13.Proportionate reduction in bonus in certain cases[13].—Where an employee has not worked for all the working days in an accounting year, the minimum bonus of one hundred rupees or, as the case may be, of sixty rupees, if such bonus is higher than 8.33 per cent, of his salary or wage for the days he has worked in that accounting year, shall be proportionately reduced.]

Section 14.Computation of number of working days[14].—For the purposes of section 13, an employee shall be deemed to have worked in an establishment in any accounting year also on the days on which–

(a)   he has been laid off under an agreement or as permitted by standing orders under the Industrial Employment (Standing Orders) Act, 1946 (20 of 1946), or under the Industrial Disputes Act, 1947 (14 of 1947), or under any other law applicable to the establishment;

(b)   He has been on leave with salary or wage;

(c)   He has been absent due to temporary disablement caused by accident arising out of and in the course of his employment; and

(d)   The employee has been on maternity leave with salary or wage, during the accounting year.

Section 15:- Set On & Set Off

• • Where in any accounting year any amount has been carried forward and set on or set off under this section, then, in calculating bonus for the succeeding accounting year, the amount of set on or set off carried forward from the earliest accounting year shall first be taken into account.

• • The allocable surplus so computed is distributed amongst the employees in proportion to salary or wages received by them during the relevant accounting year.

In case of Workmen N.G.Bank v. N.G.Bank[15] it was held that it is clear from the scheme of the Act and the context in which 15 (1) occurs, following closely upon sections 4 to 10 that basic condition for the applicability of section 15(1) is that bonus is computed in accordance with the statutory formula provided in the preceding sections of the Act and as a result of such computation it is found that the allocable surplus is more than sufficient to cover the maximum bonus payable under the Act and where such is the case the sub-section provides that the excess over the amount of the maximum bonus, shall, to the extent of 20 per cent of the total wage or salary be carried forward and set on the succeeding year.

Section19:- Time-limit for payment of bonus[16]. – [All amounts] payable to an employee by way of bonus under this Act shall be paid in cash by his employer —

(a)   where there is a dispute regarding payment of bonus pending before any authority under section 22, within a month from the date on which the award becomes enforceable or the settlement comes into operation, in respect of such dispute;

(b)   In any other case, within a period of eight months from the close of the accounting year:

Provided that the appropriate Government or such authority as the appropriate Government may specify in this behalf may, upon an application made to it by the employer and for sufficient reasons, by order, extended the said period of eight months to such further period or periods as it thinks fit; so, however, that the total period so extended shall not in any case exceed two years.

In  M/s. E.I.D. Parry (Indian) Ltd. Madras v. Industrial Tribunal, Madras & others[17], that the Industrial tribunal is justified in granting interest on the bonus awarded to the worker from the due date. The company, by failing to pay the bonus from the due date and also utilizing the amount so saved for business, has enriched itself. The company had the benefit of money for about eleven years and as such it is bound to pay interests.

Section21:- Recovery of bonus due from an Employer.- Where any money is due to an employee by way of bonus from his employer under a settlement or an award or agreement, the employee himself or any other person authorised  by him in writing in this behalf, or in the case of the death of the employee, his assignee or heirs may, without prejudice to any other mode of recovery, make an application to the appropriate Government or such authority as the appropriate Government may specify in this behalf is satisfied that any money is so due, it shall issue a certificate for that amount to the Collector who shall proceed to recover the same in the same manner as an arrears of land revenue.

Provided that every such application shall be made within one year from the date on which the money became due to the employee from the employer.

Provided further that any such application may be entertained after the expiry of the said period of one year, if the appropriate Government is satisfied that the applicant had sufficient cause for not making the application within the said period.

Explanation- In this section andin [18][sections 22,23, 24 and 25], “employee” includes a person who is entitled to the payment of bonus under this Act but who is no longer in employment.

Conclusion

After empathizing whole study on the payment of Bonus Act 1965 sections I would like to conclude that the Central and State Government representatives had also suggested for enhancing the eligibility ceiling to Rs.10, 000/- per month and calculation ceiling to Rs.3, 500/- per month and not only this but also the employees, including those employed through contractors on building operations will be entitled to receive Bonus as per the revised ceilings, for the year 2006-07 and onwards. It was also implemented and action was taken to amend the Payment of Bonus Act accordingly, the Payment of bonus (Amendment) Ordinance, 2007 (No.8 of 2007) was promulgated on 27^th October, 2007.

But there are still the following items have been suggested for further discussions:-

Recovery procedures for minimum bonus payment to be simplified. 

All employees to be covered under the Payment of Bonus Act without any ceiling for eligibility.

Bring in amendment to include all industries irrespective of the number of employees.

The linking of the applicability of the Payment of Bonus Act, 1965 in respect of micro and small scale industries / establishments with investments up to Rs. 25 lakh and Rs. 150 lakh respective instead of 20 or more workers as at  present as per the views expressed by Laghu Udyog Bharti.

Suggestion to include non-competitive Public Sector Undertakings under the purview of the Payment of Bonus Act  by amending Section 20 of the Act.

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[1]   New Manekchowk spinning and weaving company ltd. V. Textile Labour Association, Ahmedabad, 1961 (1) LLJ 521.

[2]   Bombay v. Rashtriya Mill Mazdoor sangh 1950 LLJ 1247

[3]   Jalan Treding co. v. Mill Mazdoor Sabha, AIR 1967 SC 691

[4]  Tata iron and steel co. ltd v. union of India and others, 1998 (3) LLJ 986 ( Patana )

[5]  Book on payment of Bonus Act written by S.B.Rao

[6]   Ref. on labour laws by S.N.Mishra

[7]   Section 2(13) of the payment of Bonus Act 1965

[8] labour.delhigovt.nic.in/act/detailsacts/bonus/bonus/intro.html 

[9]   2008 II L.L.J.629 (S.C)

[10]  (2002) III L.L.J 619 (A.P)

[11]  (2003) I L.L.J. 351 (Jhar.)

[12]    Section 12 omitted by Act 30of 1985, sec. 2 and ins. by Act 67of 1985, sec. 3 (w.r.e.f.7.11.1985)

[13]   subs by Act 66 of 1980, sec. 8, for section 13 (w.r.e.f. 21.8.1980)

[14]   Subs. by Act 66 of 1980, sec. 9, for section 13 (w.r.e.f. 21.8.1980)

[15]   AIR 1976 SC 611

[16]   subs. by Act 23 of 1976, sec. 13, for “(1) subject to the provisions of this section, all

[17]  (1991) I L.L.J 250 (Mad.)

[18] Subs. By Act 66 of 1980, sec. 12, for “sections 22,23 and 25” (w.r.e.f. 21.8.1980)