This article has been written by VADALI SIVANI, Assistant Professor

Introduction

Bonus is a gift, tip or bounty gratuitously paid. Bonus is sum paid for services upon some other considerations but in addition of that which would ordinarily pay; an extra dividend paid out of surplus profits. Bonus is an allowance over and above the ordinary dividend of a company either in the form of extra money pay or otherwise.

In Basti Sugar Mills Co. Ltd v. State of U.P., [AIR 1954 ALL 538], it has been observed that the granting of nouns is not am act of charity but is to be regarded in some measure as a right of the workers to share in the profits of the company.

The payment of bonus must be paid, where there is a considerable gap between the ‘existing wages’ and the ‘living wages’ to narrow the gap between them. The ultimate and final goal of the bonus is to achieve ‘living wages’ to the employees without burdening the employer in a flexible manner.

Kinds of Bonus

Production bonus
Bonus as an implied term of contract between the parties
Customary bonus in connection with some festival
Profit bonus.
Apart from these there are goodwill bonus etc.

Profit bonus has now been given statutory recognition in the Payment of Bonus Act. This is subject to a statutory minimum bonus and maximum bonus.

Applicability of Bonus – Sec 1

The payment of Bonus Act provides for payment of bonus to persons employed in certain establishments of the basis of profits or based on production or productivity and for matters connected therewith.
It extends to the whole of India and is applicable to every factory and to every other establishment where 20 or more workmen are employed on any day during an accounting year.

Eligibility of Bonus – Sec 8

Every employee receiving salary or wages up to Rs. 10,000 p.m. and engaged in any kind of work whether skilled, unskilled, managerial supervisory etc. is entitled to bonus for every accounting year if he has worked for at least 30 working days in that year.
Where an employee has not worked for all the working days in an accounting year, the minimum bonus of one hundred rupees or 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.
However, employees of L.I.C., Universities and Educational institutions, Hospitals, Chamber of Commerce, R.B.I., IFCI, U.T.I., IDBI, NABARD, SIDBI, Social Welfare institutions are not entitled to bonus under this Act.

In Project Manager, Ahmedabad Project, DNGC v. Sham Kumar Sahgal, [(1995) 1 LLJ 863] it has been held that an employee suspended but subsequently reinstated with full back wages cannot be treated to be ineligible for bonus for the period of suspension.

In Bank of Madura Ltd. v. Bank of Madura Employees Union, [1970 Lab 1C 1215], it has been held that a probationer is eligible for bonus.

In Arun Mills Ltd. v. Rd. Chandra Prasad C. Trivedi, [(1976) 32 LLR 323], it has been held that employees working on part-time basis are eligible for bonus.

Disqualification for Bonus – Sec 9

An employee shall be disqualified from receiving bonus, if he is dismissed from service for fraud or riotous or violent behaviour while in the premises of the establishment or theft, misappropriation, or sabotage of any property of the establishment.

Payment of Minimum Bonus – Sec 10

The minimum bonus which an employer is required to pay even if he suffers losses during the accounting year is 8.33 % of the salary or wages during the accounting year
Rs. 100 in case of employees above 15 years and Rs 60 in case of employees below 15 years, at the beginning of the accounting year, whichever is higher.

In Phoenix Mills v. State of Maharashtra, [(1993) 3 LLJ 844], Phoenix Mills suffered huge loss in that account year due to shortage of power, poor quality of cool etc. The company applied to the state Government to exempt from paying minimum bonus for that account year.

The State Government rejected the application. However, the court gave judgment in favour of the company and held that the State Government did not apply its mind and had not considered the relevant factors.

Payment of Maximum Bonus – Sec 11

The employer should pay bonus in proportion to the salary or wages earned by the employee in that accounting year subject to a maximum of 20% of such salary or wages.

In Hanuman Chand Jute Mills Ltd. v. Second Industrial Tribunal, West Bengal [1979 Lab 1C 612], it was held that the act was confined to profit oriented bonus only.

Calculation for Working Days in An Accounting Year – Sec 14

An employee shall be deemed to have worked in an establishment in any accounting year also on the days on which:

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;
he has been on leave with salary or wage;
he has been absent due to temporary disablement caused by accident arising out of and in the course of his employment; and
the employee has been on maternity leave with salary or wage, during the accounting year.

Time Limit for Payment – Sec 19

The bonus should be paid in cash within 8 months from the close of the accounting year or within one month from the date of enforcement of the award. However, if there is sufficient cause extension may be applied for.

Duties of the Employer

To calculate and pay the annual bonus as required under the Act To submit an annual return of bonus paid to employees during the year, in Form D, to the Inspector, within 30 days of the expiry of the time limit specified for payment of bonus.
To co-operate with the Inspector, produce before him the registers/ records maintained, and such other information as may be required by them.
To get his account audited as per the directions of a Labour Court/ Tribunal or of any such other authority.

Rights of the Employer

An employer has the following rights:

Right to forfeit bonus of an employee, who has been dismissed from service for fraud, riotous or violent behaviour, or theft, misappropriation, or sabotage of any property of the establishment.
Right to make permissible deductions from the bonus payable to an employee, such as, festival/interim bonus paid and financial loss caused by misconduct of the employee.
Right to refer any disputes relating to application or interpretation of any provision of the Act, to the Labour Court or Labour Tribunal.

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 it 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.

Recovery of Bonus Due

Where any bonus is due to an employee by way of bonus, employee or any other person authorised by him can make an application to the appropriate government for recovery of the money due.
If the government is satisfied that money is due to an employee by way of bonus, it shall issue a certificate for that amount to the collector who then recovers the money.
Such application shall be made within one year from the date on which the money became due to the employee.
However, the application may be entertained after a year if the applicant shows that there was sufficient cause for not making the application within time.

Offences and Penalties – Sec 28 & 29

For contravention of the provisions of the Act or rules the penalty is imprisonment up to 6 months or fine up to Rs.1000, or both.

Payment of Bonus (Amendment) Act. 2015

An amendment has been made to Sec 2(130 of the Act by increasing the threshold limit of salary of employees from 10,000/- to 21,000/-
As per Sec 12, the Bonus calculating ceiling limit was enhanced from 3,500/- to 7,000/- or minimum wage fixed by the employer, or whichever is higher.

The amendment was made with retrospective effect from April1, 2014. However, many employees and employers were in conflict because of sudden raise in salary would become a loss to the business and the employers have requested for sometime to reach to the amended ceiling limits.

In Benara Udyog Ltd. V. Union of India & 3 Or’s. WRIT (C) No. 6098/ 2016, the petitioner challenged the constitutional validity of retrospective effect of amended provisions as it leads to the financial stress of employers and the court ruled in the favour of employer and clarified that the amendment would take effect from financial year 2015-16.

Difference between Bonus and Gift

While both bonus and gift are given as a gesture of appreciation, bonus is more rewarded in profession but gift can be rendered in professional as well as personal sphere. Bonus is an additional payment or reward given to the employee as a token of appreciation for their performance and is accompanied with an expectation of efficient production.

However, gift is also be given as a token of appreciation without expecting anything in return. A gift may or may not have physical form but a bonus will always have a physical form.

Statute concerning Bonus in US – Fair Labour Standard Act, 1938

Fair Labour Standards Act also known as Wages and Hours Act was the first legislation in US concerning labour welfare regarding their wage and bonus matters. Under the Federal Fair Labour Standards Act, all remunerations, for hours worked, services rendered, or performance is included in the regular rate of pay.

Mainly, 29 U.S.C. SS 207(e)(1) and (3) contain statutory provisions which specifies the excludability of certain payments. The bonus payments are classified into two categories:

Discretionary Bonus

Under Discretionary bonus, the payment that may be given to employees by the employer at their own discretion:

to determine whether when to pay bonus;
to determine the amount of bonus and;
ensures no binding of any promise or contract

Non-discretionary Bonus

Under non-discretionary bonus, the payment must be given to the employees by the employer, if employer promises, contracts, or agrees to pay bonus and it includes:

Promised to pay when hiring.
Bonus to be paid because of collective bargaining.
Attendance bonus.
Individual or group production bonus.
Bonus for quality and accuracy of work.

Status of Bonus in Corporate Sector

Bonus is also paid in corporate sector under different categories in different companies. In Corporate Sector, rate of bonus depends upon the target achieved by the employee for a given year which will be calculated either by his/her manager or HR team.

The bonus in corporate sector is paid to encourage and motivate the employees in reaching targets and enhancing productivity of the company. Corporate companies and MNCs prefer to reward some kinds of bonus either in cash or kind to their employees. They are:

Annual Bonus

Annual Bonus is based on an employees’ annual salary and be paid when an employee has achieved their individual goal. Annual bonus percentage can vary between department and positions which is decided by HR team.

Signing Bonus

A signing bonus is awarded by some companies to an applicant who is highly desired by a company recruiter to grab the applicant by not leaving an opportunity for the employee to look for any other better companies.

Spot Bonus

A spot bonus is usually paid by a company for an outstanding performance of employee.

Retention Bonus

Retention bonus is usually paid to an employee as a token of gratitude for staying in the same company for a long period. Some companies choose to pay retention bonus instead of salary increase to reduce a long-term raise.

Referral Bonus

Referral bonus will be paid to an employee if he/she helps the agency in recruiting a new talent by referring them.

Holiday/Festival Bonus

Holiday/Festival bonus is given as a token of appreciation for their performance and motivating them to work more efficiently.

Profit-sharing Bonus

When a company gains profit, it may share a certain percentage with employees.

Conclusion

Bonus is gratuitous amount paid to employees by the employer for their services rendered to the establishment. By enacting a state legislature for payment of bonus, both employer and employee can gain achieve great benefits. An employee can gain both cash and kind benefits if they receive bonus from the employer or establishment. The employer by awarding bonus to employees can increase the productivity by motivating them to work more efficiently. A statutory legislation exclusively concerning bonus can achieve be advantageous to both employer and employee which is an important practice of collective bargaining.