The code on wages is a proposed legislation to amend & consolidate laws relating to wages & bonus.
The term ‘Bonus’ is not defined anywhere in the new labour codes. The concept of bonus has to be understood by reading the provisions of the Payment of Bonus Act or the Code on Wages which proposes to replace the act. If we look at the dictionary meaning of the term, it says that extra money added to the wages as a reward of good performance or as encouragement.
Chapter IV of the code talks about the process, eligibility criteria & disqualifications for payment of bonus. Subject to provisions of Sec 41 (1), the chapter will be applicable to all the establishments which have 20 or persons employed on any day during the year. The chapter is not applicable to public sector establishments. However, where a public sector is competing with a private sector establishment and such business contributes to 20% or more of the gross income, the chapter will be applicable.
Eligibility
Appropriate government will decide the upper limit of wages per month for employee to be eligible for the mandatory bonus. Employer shall pay the bonus to the employee who has worked for a minimum of 30 days in a year. If in case, employee has more wages than the notified amount by the government, his bonus will be determined considering his wage to be the same notified amount or minimum wages.
Employee shall be deemed to be working in any accounting year on the following days as well :
- Lay Off date
- Leave with salary or wages
- Absent due to temporary disablement caused by accident arising out of and during his employment
- Maternity leave with salary or wages
Disqualification for bonus
If an employee is dismissed from the service due to any of the following reasons, he will be disqualified from receiving bonus under the Code :
- Fraud
- Riotous or violent behaviour in the premises of the establishment
- Theft, misappropriation or sabotage of any property of the establishment
- Convicted for sexual harassment
Calculation & Payment Process for bonus
The amount of annual bonus has to be a minimum of 8.33% of the wages Or Rs 100, whichever is higher. Employer has to pay the bonus whether or not there is any allocable surplus for the previous accounting year. If there is any additional demand of bonus, employers and employees can determine it by a settlement. Such amount including the minimum bonus payable shall not more than 20% of the wages.
Allocable Surplus = 60% of Available Surplus ( Banking Company) . = 67% of Available Surplus (Other Establishments)
Available Surplus = Gross Profits + (Direct Tax – Direct Tax after bonus paid or liable to pay) – Deductions referred in Sec 34 (Depreciation etc)
Provisions for Gross Profits and Direct Tax is mentioned in Sec 32 and Sec 35 respectively.
If allocable surplus exceeds the minimum bonus payable, employer shall pay the excess amount in proportion of the wages. In such cases, the payment of bonus can be done upto 20% of the wages.
If allocable surplus exceeds the maximum bonus payable, allocable surplus will be carried forward for being set on. This carry forward can be done upto 4th accounting year (inclusive) subject to a capping of 20% of total salaries. Such amount should be utilised for payment of bonus.
If there is no or less allocable surplus to make the payment of minimum bonus and there is no carry forward and set on, such deficit will be carried forward for being set off. This carry forward can be done upto 4th accounting year (inclusive).
Deductions of bonus
If the employee has not worked for all working days, his minimum bonus will be reduced proportionately. Such reductions will happen if the bonus is more than 8.33%. If the employer has already paid any puja bonus or other customary bonus for any accounting year, he can adjust the amount. If some part of the bonus payable is already paid before the it is payable, the employer can only pay the balance amount.
Employer can also deduct the losses from the bonus caused by misconduct of the employee in the same accounting year.
Time Limit for payment of bonus
Employer should pay the bonus within 8 months from the close of the accounting year directly in the bank account. Appropriate government can extend this period maximum upto 2 years on an application made by the employer with sufficient reasons.
Incase of disputes, employer shall pay the bonus within 1 month from the date of enforcement of award or settlement. Employer still has to be a pay a minimum bonus i.e 8.33% of the wages within 8 months, even if there is a dispute for payment at higher rate.
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