Payment of Bonus Act, 1965 is one of the most important laws of our land applicable to a vast cross- section of employees. Such a Welfare Act which is so extensively applied everyday – requires the latest amended version for ready reference and application more so when latest amendment provides the eligibility for bonus of an employee has been more than the double of the prescribed ceiling by way of latest amendment. Not only this the entitlement of bonus is now minimum Rs. 7,000 or minimum wages which are higher for calculation. No doubt, it is termed as ‘annual bonus’ and the authorities under the Payment of Bonus Act insist for its payment before November. Those who employ large number of employees at the lower salaries, it has become a common practice to pay bonus to them every month. The question arises as to what are the legal implications if an employer does not bonus every month along with the salary/wages of the employees.
Essentially in order to attract the new candidates or to retain those who are already working particularly the establishments of middle, it has become a common practice that they prefer to show the payable statutory bonus as part of cost to the company which is popularly called as CTC. The Payment of Bonus Act is no longer dormant or irrelevant because of increase in the eligibility of an employee and his entitlement to bonus. The question arises as to whether such type of payment is legal or permissible under the Payment of Bonus Act, 1965.
Payment of bonus is one of the way of sharing the profits in the industry or an establishment. It is an incentive to increase the production. The purpose of the payment of bonus is to bridge the gulf between the wages paid and the ideal of a living wage. At the very outset, it would be appropriate to know as to what is the concept of bonus. The payment of bonus to the employees was originally voluntary, but under the Payment ofBonus Act, 1965, it became a statutory obligation of an employer employing 20 or more employees or in a factory employing 10 or more employees. In fact, the payment of bonus is one of the way of sharing the profits in the industry or an establishment. It is an incentive to increase the production. The purpose of the payment of bonus is to bridge the gulf between the wages paid and the ideal of a living wage.
The legislature has chosen the month of November for payment of bonus because of festival seasons particularly Durga Puja and Diwali when additional expenditure is to be incurred by the employees for various religious rituals in the society.
Section 19 of the Payment of Bonus Act mandates the employee to pay bonus within a period of 8 months from the close of the accounting year. Generally, the accounting year closes on 31st March and as such the bonus is to be paid by 30th Nov. of the same year. The legislature in its wisdom has chosen the month of November because of festival seasons particularly Durga Puja and Diwali when additional expenditure is to be incurred by the employees for various religious rituals in the society. In addition to that, the employees are required to have woollen clothes including quilts, kambals, sweaters etc. etc. Although, it would be more appropriate to pay the bonus by the employer to the employees in the month of October and November before ensuing winter season but because of above compulsions particularly in attracting and retaining the talent, the employers have been paying bonus every month along with the wages of the employees. It is also pertinent to state here that the bonus @8.33 per cent is not an absolute right even of an eligible employee (drawing salary/wage upto Rs. 21,000 per month) as it can be forfeited on dismissal or discharge of an employee as a punishment for certain misconducts. This is also ignored by the employers despite being aware to this aspect.
The Bonus can be paid, but not necessarily, with monthly salary and can be adjusted at the end of the accounting year and the requirement of maintaining registers and returns.
Since the question for consideration is about the legal aspect in making bonus in advance, it becomes pertinent to refer to section 17 of the Payment of the Act.
- Adjustment of customary or interim bonus against bonus payable under the Act. —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.
It will be seen that the emphasised sub-para (b) refers to bonus payable under the Payment of Bonus Act to an employee before the date on which such bonus becomes payable. Besides above, it is pertinent to refer to Rule 4(c) providing for maintenance of registers reads as under:
4(c) a register showing the details of the amount of bonus due to each of the employees, the deductions under sections 17 and 18 and the amount actually disbursed, in Form C. (Form C is the format of the register for payment of bonus. Its column 2 states ‘interim bonus or bonus paid in advance’)
In Binny Ltd. vs. Their Workmen, 1972 (25) FLR 53 : 1972 (1) LLJ 449 the Supreme Court has held that clause (a) of section 17 of the Act has no application as the Tribunal has categorically held that there is no question of any payment by way of puja bonus or other customary bonus. Even then, if any such bonus has been paid, the employer is entitled to deduct the same from the amount of bonus payable under the Act. Clause (b) is an enabling section in favour of the employer in that it visualizes a situation or contingency where he may have paid during the accounting year a part of bonus payable under the Act “before the date on which such bonus becomes payable”. If an employer has paid any amount during an accounting year by way of part of the bonus, he is entitled to deduct the same from the final amounts that may be payable under the Act. That provision does not give a right to an employee to claim payment during the currency of the accounting year. Thus merely because the employer has been paying bonus every half year, it does not confer a right on the employees to have such payments half yearly under the Payment of Bonus Act. Section 17 of the Bonus Act only enables the employer to recover the payment, if any, made before the amount becomes due under the Bonus Act.
The HR function is at the center of most employers’ efforts to identify, hire and retain the people the organization needs to execute its strategy and achieve its goals. But this is not possible without an in-depth understanding of the labour laws. Hence, HR managers must be trained to follow the laws that are applicable in hiring and firing the employees, otherwise their actions are bound to cause the embarrassment to employers as it has caused to Anand Mahindra.
Let it be said that at the very outset that the magnanimity of Anand Mahindra, Chief of the USD 19 billion group, Tech Mahindra deserves admiration from all quarters for the meticulousness of the human dignity which he has demonstrated in publicly aplogising to an e m p l o y e e, who was fired unceremoniously by an HR executive of the company in most uncouth manner. He o f f e r e d apology over a conversation of the HR e x e c u t i v e asking an employee to put in his papers by next morning, as part of corporate decision.
In a nearly seven-minute-long audio clip, that has gone viral, the company’s HR executive was heard asking the employee to put in his papers by 10 am the next day, barring which his services at the company would be terminated. While the employee kept pleading with the HR about such a short notice, the latter sternly told him that there is no room for ‘flexibility’ in this case. Anand Mahindra has said in his tweet that, ‘I want to add my personal apology. Our core value is to preserve the dignity of the individual & we’ll ensure this does not happen in future. I deeply regret the way the HR rep & employee discussion was done. We have taken the right steps to ensure it doesn’t happen in the future.’
In a statement, the Company has said that, ‘Tech Mahindra has always regarded respect for colleagues, fairness and human dignity as core values, and has demonstrated these consistently over the years. We have become aware of the incident involving a conversation between and employee and a Company HR representative. We continue to implement strategies to implement the changing demands of business in the current global economic environment and align with our workforce with the business objectives, strategic priorities of the organisations, and requirements of our clients.’
However, the large heartedness of Anand Mahindra does not mitigate the incompetence and the boorishness of the HR Executive. In fact, such egregious mistakes are not isolated as HR executives are hardly well-versed with the labour laws. This is the reason that instead of following the labour laws discreetly and judiciously they prefer to assert their authority in haughty manner, which ultimately causes the irreparable loss to the goodwill and the credibility of the company. Unfortunately, the knowledge and practice of the labour laws have been relegated to the lowest rung of the priorities in the present scheme of HR Managers. The HR function is at the center of most employers’ efforts to identify, hire and retain the people the organization needs to execute its strategy and achieve its goals. But this is not possible without an in-depth understanding of the labour laws.
Human Resource experts say that when lay off is inevitable, more sensitivity should be shown toward employees about to lose the jobs, particularly when they have already put in 10-15 years of service with loan repayment and family to take care of. Beyond a point, they cannot do much about it. Nevertheless, the H R executives have to be sensitive to provide a soft landing to people whom they are letting go. This where the expertise and training of the HR Managers come into play.
There are numerous laws and regulations governing the employment relationship that HR professionals must understand and navigate in order to help ensure their organizations avoid fines and penalties, including the potential harm to the organization’s reputation. The HR function must hire and retain individuals that are knowledgeable about HR specific laws and can create policies and procedures in relation to these laws.
Increasing organizational size and its complexity, transition from traditional to professional management, changing social and cultural norms, globalization of industry and availability of information technology are constantly changing the profile of HRM functions. Today HRM manager cannot survive in the security of past. He has to play a more dynamic role in not only performing the maintenance function but should think of more creative ways to satisfy human aspirations to provide the competitive edge to organizations on a sustainable basis.
HR Executive has a flexible way of going about decisions. Sometimes he makes them himself, sometimes he consults, at other time he throws the decision to the group. It all depends on the type of group he is working with and the situation that exists. Since he has a wide variety of behaviours that he is comfortable with, he tries to adopt the appropriate behavior by being diagnostic and sensitive to situations. He does not feel that he has to make all the decisions himself, but rather that his basic responsibility is to see that the best decision is made. His practice, consequently, is always to see where competence lies, and to move the decision there. Of course, if anything affects the whole institution, then he calls all the people concerned and together they thrush it out. He feels strongly that those who are affected by decisions should be involved in their making. He often says ‘the acceptability of a decision is just as important as its intrinsic soundness’. So he involves those concerned, even in cases where he is quite sure they won’t add anything new, but where their commitment to the decision is necessary to make it work.
Hence, HR managers must be trained to follow the laws that are applicable in hiring and firing the employees, otherwise their actions are bound to cause the embarrassment to employers as it has caused to Anand Mahindra. It would be in the fitness of the occasion that HR Executives must accord the importance to the knowledge and application of laws that genuinely deserves.
Multiplicity of laws makes their implementation and compliance all the more difficult for the employers and it is here that the sadistic and corrupt officials take the advantage of their powers from those who generate employment and contribute to the nation building
‘The Economist’, a world-renowned magazine has in its issue of 24th-30th June 2017 has made a detailed and comprehensive assessment of three years of Narendra Modi government. On the matters related to Labour Laws it says: ‘plans are afoot to consolidate over 40 central laws into five codes but not to repeal rules that have made companies reluctant to expand. Larger firms face stricter regulations, with predictable consequences. Only a tenth of manufacturing workers in India toil in factories with more than 200 employees, compared with over half in China.’ Quoting the book ‘India’s Long Road’ by a Professor of Oxford University, Vijay Joshi, it says that, Labour is India’s most abundant resource but the organised sector, which should be the engine for creating good jobs, has been heavily biased against using it. Multiplicity of laws makes their implementation and compliance all the more difficult for the employers and it is here that the sadistic and corrupt officials take the advantage of their powers from those who generate employment and contribute to the nation building.
Ignorance can never be a bliss and that is why, when some people present the example by their deeds they become the role model of the society. There is one such person, who has been setting commendable precedent by his precepts as well as by his actions, although his formal education is next to negligible. It is indeed a matter of emulation for others that by sheer dint of his grit, honesty, probity and integrity the person has acquired the status of a living legend. He rode colossus in his life without any means. His only asset has been his hard work and principled stand in life. This writer does not claim the credit of what he has achieved in his life – time but he certainly has the huge satisfaction of anchoring the person in reference on the legal issues right from the time of the beginning of his venture. There is no point in concealing the identity of the establishment, it has now become a household name. This Worthy person had approached yours truly for consultation on labour problems and ensuring their compliances. At the very outset, he promised to comply with all labour laws without dodging or hoodwinking any one. He did not depend on HR personnel, who are otherwise found to be half-baked in labour laws. His honesty and hard work earned have reputation for him not only in business in but other charitable activities including hospitals, educational institutions and even outreach programmes, which are spread over all over India. Had he remained stuck with the labour problems, and instead of making timely compliances by greasing the corrupt officers, he would not have acquired such a success and cult status.
The consumer items as manufactured by his company are the part and parcel of household items and his photographs must have been published in several crores not only on the products but also in the advertisements. He exudes so much confidence in himself that instead of assigning the task of advertisements to some highly-paid professional models, he prefers to play the role of a model himself.
Suffice it to say, that because of the vast number of government guidelines for compliance, the business or establishment owners often find themselves in violation, leaving their companies exposed to penalties. Hence, timely compliances of labour laws are necessary to keep the inspecting authorities at bay. To top it all, proper compliance of labour laws provides a sense of confidence and courage to the entrepreneurs. After all, laws are meant to be complied with. Un-implementable laws are as good or bad as no-laws at all. It is also true that a sense of fear or fine or punishment is necessary for the implementation of laws. It is often seen that industrialists or entrepreneurs try to bypass the acts, rules or regulations, sometimes due to ignorance and many times in complicity with the corrupt authorities.
Non-compliance of labour laws attracts stringent action against violators since it makes no difference for the authorities. Even a minor violation and inadvertent delay in complying with the statutory requirements, results in the levy of damages and prosecutions, that too, of the top executives whether he or she is responsible or not.
It will be pertinent to make the reference to some of the reported cases showing the high handedness of the Labour Authorities. R.N. Tata a top and who is known for being very scrupulous industrialist was prosecuted under section 92 of the Factories Act (providing for imprisonment of two years or Rs.1 lakh fine or both), although he was not even a Director of the Company, which is a condition precedent for the appointment as the occupier of a factory. It is a different matter that in proper interpretation of the law, the Madhya Pradesh High Court quashed the prosecution. 2010 LLR 27 (MP HC).
Similarly, Naresh Goel, Chairman-cum-CEO of Jet Airlines was prosecuted in Bengaluru for violation of Contract Labour (Regulation & Abolition) Act, although he was not the person in-charge. He had to approach the High Court for quashing the prosecution. 2010 LLR 522 (Karn. HC)
In yet another case, J.J. Irani, Managing Director of Tata Steel Ltd. was prosecuted and convicted for two years imprisonment and Rs.1 lakh fine for violation of Factories Act but the Jharkhand High Court acquitted him. 2013 LLR 557 (Jhar. HC).
Uday Kotak, Vice Chairman and Managing Director of Kotak Mahindra Bank was prosecuted in Chennai for violation of Contract Labour (Regulation & Abolition) Act which was quashed by the Madras High Court. 2005 LLR 394 (Mad. HC).
In Bishop’s School, Ranchi and another vs. State of Bihar (Now Jharkhand) and others, 2009 LLR 96, in this case the petitioner has also stated that notice for coverage of school was prima facie, mala fide since the Inspector of Factories became inimical and annoyed because the request of admission of his daughter was not accepted by the petitioner.
In Bishop, Dr. Samuel R. Thomas vs. State of Jharkhand, 2012 (134) FLR 634 the facts of the case were that prosecution was launched for non-payment of minimum wages and nonproduction of records in Theodar Christian Hospital, Chandrapura (Jharkhand). The hospital was managed by Methodist Church in India. At the appropriate time, the Bishop was residing at Lucknow but the Enforcement Officer, without ascertaining as to who is the employer under section 2(e) of the Minimum Wages Act, launched prosecution and the Bishop had to file a petition in the High Court for quashing the prosecution.
However, every employer is not like Rattan Tata, Naresh Goel or Uday Kotak who could engage top lawyers to challenge the prosecutions in the High Courts and to take the complaint to the logical conclusion. There is hardly any country in the world, which can boast of vaulting progress in the Inspector Raj. It is, therefore, good to know that the Central government has decided to simplify the labour laws by enacting the Industrial Relations Code, Wage Code, the Small Factories (Regulation of Employment and Conditions of Services), the Shops and Establishments (Amendment), and Employees Provident Fund and Miscellaneous Provisions (Amendment). All wage-related laws will be made part of the wage code and all industrial relations laws included in the related code. Once passed, the industrial relations code will facilitate easier hiring and retrenchment in factories. The most notable feature of the proposed amendments is the compliance of the labour laws would be less stringent for employers.
The Employees Provident Fund and Miscellaneous Provisions (Amendment) Bill seeks to position the National Pension System (NPS) as an alternative to Employees’ Provident Fund (EPF). Similarly, the wage code bill seeks to offer health insurance as an alternative to Employees State Insurance Corp.’s health facilities for industrial workers. To be sure, some of planned legislation is fairly benign. Greater women’s participation in the workforce will be facilitated by the Small Factories Bill, which will allow women to work night shifts. Shops will be allowed to open round the clock under the Shops and Establishments (Amendment) Act. It is almost a universally accepted fact labour laws are archaic and rigid and tend to restrict industrial growth by curbing management freedom to retrench workers, which serves to impede job creation.
As a matter of fact, rigid laws and excessive regulations assumed to protect the labour are the cause of slow employment growth. This encourages shadow economy for entrepreneurs, an economy that prefers to employ informal labour to avoid the complicated and opaque laws. This bureaucratic process can stretch into years, and the government officials have consistently and almost always denied such permission. As a result, the scholars argue that India’s inflexible labour laws have created a strong disincentive to formally register new companies and hire additional workers in existing organised sector companies.
More recently, a few scholars have completed a comparative study between states of India with different labour regulations. They compared states of India who have amended labour legislations to grant more flexibility to employers, to those states in India that have made their labour laws even more rigid and complicated to comply with. These studies find that states with flexible labour laws have grown significantly faster. Flexible labour states have been able to take advantage of the export opportunities, and the per capita household income has risen much faster in states with flexible labour laws. States with rigid labour laws have led local entrepreneurs to prefer casual workers or contract workers with finite employment time; in essence, more rigid and inflexible labour law states have emerged to be producing less employment.
In any case, there is never going to be any leniency in the compliance, only the process and the procedure can be eased. Harassment can be eliminated when one is conversant with the nature of compliances. Prevention, as they say, is always better than cure. Therefore, every entrepreneur is supposed to know the basic requirements for the compliance of the law.