July 9, 2022

Good morning. Every Saturday, we write about one specific right that we possess as citizens in our country. In today’s edition of “Know Your Rights”, we examine employees’ right to a bonus.


Employees’ Right to a Bonus

Whether it’s Christman, Diwali or just an annual check, a bonus is a bonus. Who doesn’t like a little bit of extra cash in their pockets? And a little can go a long way when it comes to employee satisfaction.

The tradition of giving out bonuses to employees is believed to have started during the First World War. It started with the textile factories giving their employees a war bonus in 1917, and then the labour unions began getting involved. In India, it took the government a little less than 20 years of independence to codify an employee’s right to a bonus.

It was in 1965 when the Payment of Bonus Act (PBA) came into force. Before that, we had an Ordinance that guaranteed an employee a part of the company’s profits. The Act, however, added some more clarity to the whole ordeal. The idea behind this comes from the classic Marxian theory of “surplus value”, i.e. the value that an employee adds to the product being sold by the company.

While the Act never defines a bonus, it does go into detail about the amount that can be given to workers. It goes over the maximum and minimum percentage an employee is entitled to and the formula used to come up with those numbers. The Preamble of the Act even talks about the types of bonuses available to employees.

The Preamble of the PBA says that bonuses can be paid based on the company’s profits and the production or productivity of the employees. The upper limit of both bonuses is 20% of the worker’s salary. The lowest is either ₹100 or 8.33% of one’s wages, whichever is higher. Section 31A of the Act clearly goes over the production or productivity-linked bonus, which is applicable only when clearly mentioned in the work agreement. The productivity-linked bonus is usually given instead of the statutory bonus the employee is entitled to.

Now, just like our fundamental rights, this right is also not absolute. One must qualify to be entitled to a bonus from their employer. The points below talk about the applicability of the Payment of Bonus Act to you:

  • It applies to every factory in the country.
  • It applies to any company with more than 20 workers.
  • As per Section 32 of the Act, hospitals and other establishments like LIC are exempt from this.
  • If the employer has signed an agreement against bonuses, the Act does not apply to them.
  • Any company exempted by a competent authority does not need to comply with the Act.

All of that was just for employers to consider. There are eligibility criteria and disqualifications for employees as well. Employees are eligible for a bonus if their monthly wages are up to ₹21,000 per month, they labour in any way for the company, and only if they have worked there for at least 30 days. The employee will be disqualified if the company has taken any action against them for theft, sabotage, aggressive behaviour, or dishonesty while at work.

The Act also talks explicitly about an employer’s and an employee’s rights regarding bonuses. The protections provided to employees regarding their bonuses are mentioned below:

  • Employees have the right to collect any bonus owed to them. They can even apply to the government to redeem their unpaid bonuses within a year of their due.
  • Employees have the right to file a complaint with a Labour Court or Tribunal if their employers refuse to pay them.
  • An employee can demand and gain information about any of the company’s finances.

And here are the protections guaranteed to the employers regarding bonuses:

  • An employer has the right to approach a Labour Court or Tribunal if there are any issues with the application or interpretation of the PBA.
  • An employer has the right to remove a lawful deduction from an employee’s bonus, i.e. a customary bonus or a loss incurred due to their misbehaviour.
  • An employer has the right to remove an employee’s bonus entirely if they are found guilty of any misconduct or dishonesty, as mentioned before.

Finally, what happens if any of this is violated? Well, if the Act’s provisions are not followed, the punishment can reach imprisonment of six months or a fine of ₹1,000. Sometimes even both. And if they fail to pay an employee’s bonus even after it is brought to their attention, that’s another six months in prison or ₹1,000 in fines, or both.

So what are you waiting for? Pick up those contracts and start searching for that extra cash. The laws are in your favour.