Payment of Bonus Act & Amendment, 2015

After independence of India large number of steps were taken by the Government of India to make it a Welfare State. Enactment of Payment of Bonus Act, 1965 (the Act) is a step towards welfare legislation for betterment of labour class which was considered to be an oppressed class. The Act is also looked at as giving recognition to the employees and honoring them for having contributed to the profit and growth of the Company.

In general parlance ‘bonus’ is linked to the profits earned by an organization. In India situation is slightly different. Although the Act makes provision for computation of gross profits, computation of available surplus, calculation of direct tax etc. but in reality payment of bonus is not always linked to profits. In the first situation, an employer of certain establishments including factories employing 20 or more persons is mandated to pay minimum bonus to every employee @ 8.33 percent of the salary or wage earned by an employee during the accounting year or one hundred rupees whichever is higher. This amount is payable irrespective of the fact whether the employer has any allocable surplus or not in that accounting year meaning thereby whether he has earned any profit or not in that accounting year. In the second situation where the allocable surplus exceeds the minimum amount of bonus payable to an employee, the employer is bound to pay an amount as bonus which will be in proportionate to the salary or wage earned by an employee during the accounting year. The bonus payable on the basis of allocable surplus is subject to maximum of twenty percent of such salary or wage.

The Act was amended several times since 1965 and was last amended in the year 2007. The Act was originally incorporated with eligibility limit in the definition of the word “employee” [sub-section (13) of section 2] to be one thousand six hundred rupees. With the passage of time this limit was not considered enough. The limit of thousand six hundred rupees was substituted by two thousand five hundred rupees, in 1985 and limit of two thousand five hundred rupees was substituted by three thousand five hundred rupees, in 1993 and three thousand five hundred rupees was substituted by ten thousand rupees, in 2007.

Now, in the changed economic scenario which saw an upward increase of salaries at all levels of job hierarchy, in the last 7-8 years, as large number of employees went out of eligibility limit of bonus under Payment of Bonus Act, 1965 (the Act), a need was felt to further amend the monetary limit under Payment of Bonus Act, 1965. Numerous representations were received by the Central Government from the trade unions, individuals and various associations for enhancement or removal of current limit of Rs. ten thousand. After due consideration of various factors, the Central Government decided to enhance the eligibility limit for payment of bonus from ten thousand to twenty thousand per mensum.

The Payment of Bonus (Amendment) bill, 2015 was passed by Lok Sabha on December 7, 2015 and by Rajya Sabha on December 23, 2015 and received Presidential assent on 31.12.2015. The Amendment Act has been given a retrospective effect from 01.04.2015.

After the amendment such ‘employees’ are covered who are employed on a salary or wage not exceeding twenty one thousand per mensum in any industry to do skilled or unskilled manual, supervisory, managerial, administrative technical or clerical work would be eligible to receive bonus.

Another vital amendment is made in the manner of calculation of bonus. Till now, where the salary of an employee exceeds three thousand five hundred per mensum, the bonus payable to such employee under section 10 or 11 was to be calculated as if his salary or wage were three thousand five hundred per mensum. By amending section 12 of the Act, the limit of three thousand five hundred per mensum has been increased to seven thousand rupees per month or the minimum wage for the scheduled employment, as fixed by the appropriate government whichever is higher. By linking payment of bonus to the Minimum Wages Act, the Central Government is saved from amending the calculation criteria periodically or every ten years. After 2015, every time the minimum wage is amended in the scheduled employment, the calculation criteria under section 12 would be automatically amended as the Amending Act has incerted an explanation to section 12 whereby the “scheduled employment” shall have the same meaning as assigned to it in clause (g) of section 2 of the Minimum Wages Act, 1948.

Under section 38 of the Act Central Government was given power to make rules for the purpose of carrying into effect the provisions of the Act. Since, the said section did not provide for previous publication of rules, it is amended to incert a condition on exercise of said power by adding the words ‘subject to the condition of previous publication, by notification in Official Gazette’. This has been added with the purpose of inviting objections and suggestions from public. For the first time workers, employees and trade unions would get an opportunity to put forward their views in the Rule making. This provision has been incerted with a view to bring it in tune with other rules and regulations especially Rules framed under Companies Act, 2013 which are published in the Official Gazette and also put on the website of Ministry of Corporate Affairs for inviting objections and suggestions.

Amendment of section 38 at this juncture is of little value as the Payment of Bonus Rules were enacted in 1975 and it contained 4 rules i.e 1) Short Title & Commencement; 2) Definitions; 3) Authority for granting permission for change of accounting year; 4) Maintenance of registers. In the year 1984 fifth rule was added with respect to annual returns. In the last forty years these rules are sparsely been used. Thus, no value can be attached to such an amendment.