Please clarify the following query regarding the applicability of payment of a bonus. If the company was incorporated in 2010 and has been incurring losses until 2017, does it still need to pay a bonus under the Payment of Bonus Act to all employees drawing a basic salary below 10k and 21k.
If the company is liable to pay a bonus but has not yet paid such amounts, what recourse does it have, and what are the applicable penalties, if any?
What can the company do right now to ensure past compliance and adherence?
Please clarify as this is an urgent matter.
From India, Mumbai
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16If the company is liable to pay a bonus but has not yet paid such amounts, what recourse does it have, and what are the applicable penalties, if any?
What can the company do right now to ensure past compliance and adherence?
Please clarify as this is an urgent matter.
From India, Mumbai
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Dear Ms. Anuradha,
To understand the statutory responsibility of the employer of any establishment covered by the Payment of Bonus Act, 1965, to pay annual bonus under the Act to his/her employees, I think that you should carefully read the provisions of sections 8, 9, 10, 11, 12, 15, 16, 19, 21, 22, and 28 of the Act, in particular, and understand their import in order to get appropriate answers to your queries.
Incurring losses ever since inception is not a criterion for exempting the establishment from paying bonus to its employees as a statutory obligation is cast upon the employer to pay a minimum bonus at 8.33%, even in the absence of any allocable surplus in a year. Similarly, the concession granted to newly established establishments under section 16(1) is controlled by the rider clause of subsection (I-A) of section 16.
Section 19 of the Act fixes the time limit for payment of bonus. It can be extended up to 2 years by the authority, namely, the Commissioner of Labor, on a proper application under section 19(b). The modes of recovery and penalties for any violation are provided for in sections 21, 22, and 28, respectively.
Your management may consider paying arrears of minimum bonus to all eligible employees under the Act for the past years.
From India, Salem
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To understand the statutory responsibility of the employer of any establishment covered by the Payment of Bonus Act, 1965, to pay annual bonus under the Act to his/her employees, I think that you should carefully read the provisions of sections 8, 9, 10, 11, 12, 15, 16, 19, 21, 22, and 28 of the Act, in particular, and understand their import in order to get appropriate answers to your queries.
Incurring losses ever since inception is not a criterion for exempting the establishment from paying bonus to its employees as a statutory obligation is cast upon the employer to pay a minimum bonus at 8.33%, even in the absence of any allocable surplus in a year. Similarly, the concession granted to newly established establishments under section 16(1) is controlled by the rider clause of subsection (I-A) of section 16.
Section 19 of the Act fixes the time limit for payment of bonus. It can be extended up to 2 years by the authority, namely, the Commissioner of Labor, on a proper application under section 19(b). The modes of recovery and penalties for any violation are provided for in sections 21, 22, and 28, respectively.
Your management may consider paying arrears of minimum bonus to all eligible employees under the Act for the past years.
From India, Salem
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Most Respected Umakanthan ji Thank you for your clarifications...I shall study the prescribed sections of the act and work accordingly. Thanks once again and much appreciated. Warm Regards Anuradha
From India, Mumbai
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From India, Mumbai
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Most Respected Umakanthan ji,
In continuation of your elaborate response, I have a specific query. As per Section 16(1) of the Payment of Bonus Act, it will not be applicable for the first 5 years to the establishment. However, if the number of employees remains less than 20 for the first 3 years post incorporation, then will this grace period of 5 years start from the day the act is applicable or from the date of incorporation.
I would be greatly indebted by your thoughtful consideration.
Much Obliged,
Anuradha
From India, Mumbai
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In continuation of your elaborate response, I have a specific query. As per Section 16(1) of the Payment of Bonus Act, it will not be applicable for the first 5 years to the establishment. However, if the number of employees remains less than 20 for the first 3 years post incorporation, then will this grace period of 5 years start from the day the act is applicable or from the date of incorporation.
I would be greatly indebted by your thoughtful consideration.
Much Obliged,
Anuradha
From India, Mumbai
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Ms. Anuradha,
The five-year period has to be reckoned from the actual date of inception of the establishment as a new one and not from any subsequent date on which the PB Act becomes applicable or the date on which there occurs any change in its ownership due to contingencies like sale, conversion of its constitution, etc.
From India, Salem
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The five-year period has to be reckoned from the actual date of inception of the establishment as a new one and not from any subsequent date on which the PB Act becomes applicable or the date on which there occurs any change in its ownership due to contingencies like sale, conversion of its constitution, etc.
From India, Salem
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Most Respected Umakanthan ji,
Greetings.
I have read Sec 21, 22, and 28 of the Payment of Bonus Act. The problem here is that the startup was unaware of its obligations to pay bonus to its employees and could not pay the same without any ill intention. Now, i.e., in 2018, it has realized that beyond the five-year period for which there was no applicability of the Payment of Bonus Act, it needs to pay a bonus for the last 3 years, mainly 2015-16, 16-17, and 17-18.
As per the act, the bonus needs to be paid within 8 months of the close of the AY. But here, the company has missed that window of opportunity for the preceding two AY. To set its record right, the company wants to pay the bonus of the AY 2015-16 and 16-17 but is unable to understand if it can do the same with a penalty or anything adverse. The company in question is also in deep financial losses since inception in the 6th, 7th, and 8th year too. Hence, considering the perennial accumulating losses suffered by the company, can it plead for exemption of the minimum statutory bonus of 8.33% in the 6th, 7th, and 8th year.
My humble plea to your esteemed authority is to let us know if possible how the company can correct this unknowing error and if there is a penalty, to what extent, as per sec 28 a fine of Rs 1000 and/or 6 months imprisonment.
Thanking You.
Warm regards,
Anuradha
From India, Mumbai
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Greetings.
I have read Sec 21, 22, and 28 of the Payment of Bonus Act. The problem here is that the startup was unaware of its obligations to pay bonus to its employees and could not pay the same without any ill intention. Now, i.e., in 2018, it has realized that beyond the five-year period for which there was no applicability of the Payment of Bonus Act, it needs to pay a bonus for the last 3 years, mainly 2015-16, 16-17, and 17-18.
As per the act, the bonus needs to be paid within 8 months of the close of the AY. But here, the company has missed that window of opportunity for the preceding two AY. To set its record right, the company wants to pay the bonus of the AY 2015-16 and 16-17 but is unable to understand if it can do the same with a penalty or anything adverse. The company in question is also in deep financial losses since inception in the 6th, 7th, and 8th year too. Hence, considering the perennial accumulating losses suffered by the company, can it plead for exemption of the minimum statutory bonus of 8.33% in the 6th, 7th, and 8th year.
My humble plea to your esteemed authority is to let us know if possible how the company can correct this unknowing error and if there is a penalty, to what extent, as per sec 28 a fine of Rs 1000 and/or 6 months imprisonment.
Thanking You.
Warm regards,
Anuradha
From India, Mumbai
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Dear Madam,
First and foremost, ignorance of the law cannot be a defense for non-compliance with a legal liability. Before any action is taken against such a lapse, you can correct it suo motu.
Secondly, please ensure from which year the liability to pay bonus actually arises following the year of inception, as it varies according to the type of establishment. Different types of establishments, such as large-scale manufactories, mines, shops, commercial establishments, and the like, have varying gestation periods. While some establishments start their business operations soon after inception, others have longer gestation periods. Therefore, the concession granted under Section 16 of the Payment of Bonus Act, 1965, cannot be unconditionally enjoyed by a newly set-up establishment for the entire consecutive five years since its inception. In simple terms, bonus payments should only be made for those years in which profits are generated during the first five years without applying the provisions of set on and set off as outlined in Section 15.
If your statement about the company incurring losses from its inception is true and is also supported by the audited accounts of the company, you can now pay the bonus at the minimum rate from the accounting year 2015-16 as arrears to all eligible employees. Do not worry about the penal action under Section 28 if you comply at least now.
Additionally, remember to start maintaining the registers prescribed under the Payment of Bonus Rules, 1975.
From India, Salem
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First and foremost, ignorance of the law cannot be a defense for non-compliance with a legal liability. Before any action is taken against such a lapse, you can correct it suo motu.
Secondly, please ensure from which year the liability to pay bonus actually arises following the year of inception, as it varies according to the type of establishment. Different types of establishments, such as large-scale manufactories, mines, shops, commercial establishments, and the like, have varying gestation periods. While some establishments start their business operations soon after inception, others have longer gestation periods. Therefore, the concession granted under Section 16 of the Payment of Bonus Act, 1965, cannot be unconditionally enjoyed by a newly set-up establishment for the entire consecutive five years since its inception. In simple terms, bonus payments should only be made for those years in which profits are generated during the first five years without applying the provisions of set on and set off as outlined in Section 15.
If your statement about the company incurring losses from its inception is true and is also supported by the audited accounts of the company, you can now pay the bonus at the minimum rate from the accounting year 2015-16 as arrears to all eligible employees. Do not worry about the penal action under Section 28 if you comply at least now.
Additionally, remember to start maintaining the registers prescribed under the Payment of Bonus Rules, 1975.
From India, Salem
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