TABLE OF CONTENTS List of abbreviations Introduction Full Bench Formula Kinds of bonus Right to claim bonus Computation of gross profit/allocable surplus Calculation of direct tax payable by the employer Eligibility of bonus is!ualification for bonus "ayment of maximum bonus "ayment of minimum bonus Calculation of bonus #ith certain employees "roportionate reduction in bonus in certain cases Calculation of number of #or$ing days %et&on and set&off of allocable resources %pecial provisions #ith respect to ne# establishments 'd(ustment of customary or interim bonus against bonus payable un der the 'ct )ime limit for payment of bonus Recovery of bonus due from an employer Conclusion
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TABLE TABLE OF O F CASES • •
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Rashtriya *ill *a+door %angh v, *ill -#ners 'ssociation. Bombay 012 3I4 CR 56 7e# *anec$ Cho#$ %pinning and 8eaving 8eaving Company v, )extile )extile Labour 'soociation 05 LL9 1: *ill -#ners 'ssociation . Bombay v, v, Rashtriya Rashtriya *ill *a+door %angh. Bombay 012 3:4 LL9 :6;
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*uir *ill Ltd, <, %uti *ill *a+door =nion 011 %CR 00 'ssociated Cement Companies Ltd, v Its 8or$men 'IR 010 %C 05; )extile Labour 'ssociation v, 'hemdabad *ill -#ners> 'ssociation3014 CR ? %ree *eena$shi *ills v, )heir 8or$men 'IR 01? %C 1@ Kohinoor )obacco "roducts v, Labour Court 0?5 Lab IC 211 'hmedabad *iscellaneous 8or$ers =nion v, )he 'hemdabed Electricity Co, Ltd, 'IR 05: %C :11
INTRODUCTION )here #as no statutory basis for payment of bonus to the employees before the codification of la# of payment of bonus, )he 'ct has been enacted for the payment of bonus to persons employed in certain establishments on the basis of profits or on the basis of production or productivity and for matters concerned there#ith, It imposes statutory obligation upon an employer of any factory or other establishment covered under the provisions of the 'ct,It provides for payment of minimum and maximum bonus. conditions of eligibility and
dis!ualification of bonus. ad(ustment of customary or interim bonus. time limit for payment of bonus. mode of recovery of bonus due from an employer, )he 'ct contains special provisions #ith respect topayment of bonus lin$ed #ith production or productivity, )here are many other provisions for payment of bonus under the 'ct, Bonus meaning:
Bonus has not been defined under the 'ct. nor exists any definition of ABonus> under any enactment, -ne of the terms of reference to ABonus Commission> #as to define the concept of bonus, )he Commission in its report said It is difficult to define in rigid terms the concept of bonus but it is possible to urge that once profits exceed a certain base. labour should legitimately have a share in them, Bonus ia a cash payment made to employees in addition to #ages, It is not an ex&gratia payment, In our country bonus #as for the first time granted to the employees in textile industry in 9uly.0; #hich is $no#n as #ar bonus because an increase in #ages #as allo#ed o#ing to #ar conditions, )he !uestion of payment of bonus has been one of the main causes of industrial disputes during post&independence days,
FULL-BENCH FORMULA )he Labour 'ppellate )ribunal in the famous case of Rashtriya *ill *a+door %angh v, *ill -#ners 'ssociation. Bombay.held that the employees do have a right to claim bonus and it is not paid gratuitously by the employer, In this case the L,',), also #or$ed out a formula for the 11950 (I) CR 1164
calculation of available surplus after deducting prior charges from the gross&profit, )his formula is commonly $no#n as full&bench formula, 'ccording to this. follo#ing four deductions #ere allo#ed to be deducted as prior charges from the gross&profit to arrive at the available surplus, )hese prior charges areD I, II, III, I<,
"rovision for depreciation as permissible under the income )ax 'ctD Reserve for rehabilitationD Return on paid&up capital at the rate of 5 per centD Return on #or$ing capital at any rate but less than 5 per cent,
'fter deducting the above prior charges from the gross profit the figure arrived #as called as Aavailable surplus> and a reasonable share from the available surplus #as actually payable to the employees as bonus, )his formula #as allo#ed throughout the country for more than a decade. for the payment of bonus. till it #as challenged as arbitrary before the %upreme Court. at least in t#o cases,
KINDS OF BONUS In 7e# *anec$ Cho#$ %pinning and 8eaving Company v, )extile Labour 'soociation:. the %upreme Court suggested the follo#ing four types of bon us . namelyD& a, "roduction bonus b, Bonus as an implied term of contract bet#een the parties c, Customary bonus connected #ith some festivalD and "rofit bonus "rofit bonus has no# been given statutory recognition in the "ayment of Bonus 'ct, =nder this !uantum of the bonus #ill depend upon the extent of profit obtained in the relevant year, )his is sub(ect to statutory minimum bonus and maximum bonus, d, 'part from these there are good#ill bonus etc,
RIGHT TO CLAIM BONUS
21961 1 LLJ 521
In present concept of profit bonus #as evolved in the #ar time as a gratuitous payment out of #ar time surplus profit, For the first time. the textile manufactures in 0; declared A#ar bonus>, It #as continued for t#o years, )hereafter. all the employees in all the industries demanded to pay bonus, )he British overnment appointed the Bonus Committee under the Chairmanship of %ir 7orman *acleod in 0:6,)hat committee did not recognise the right of bonus and re(ected the claim of employee, )here #ere conflict bet#een the employers and employees for the payment of bonus, )he employers paid bonus on their #ish as ex&gratia, In *ill -#ners 'ssociation . Bombay v, Rashtriya *ill *a+door %angh. Bombay @.the Labour 'pellate )ribunal has evolved a formula for the payment of bonus and held that the employees do have a right to claim bonus and that it is not paid gratuitously by the employer, In *uir *ill Ltd, <, %uti *ill *a+door =nion 6.the %upreme Court accepted the payment of bonus under the full&bench formula #ith t#o cond itions i,e, #ages fall short of living #ages and the industry ma$e profits and held that bonus is not a deferred #age, In 'ssociated Cement Companies Ltd, v Its 8or$men1. the %upreme Court as$ed the overnment to appoint a Commission for considering all !uestions relating to bonus, 'ccordingly the overnment constituted a tripartite Bonus Commission to recommend on the !uestion of payment of bonus, -n the basis of Commission>s recommendations the overnment enacted the "ayment of Bonus 'ct.051, 'rticle 6@ of the Constitution of India3irective "rinciples of %tate "olicy4says that the %tate shall endeavour to secure by suitable legislation to all #or$ers a living #age ensuring a decent standard of life, 'ccording to 'rticle 6@ of the Constitution. Aliving #ages>is a right of #or$er, o#ever. it is not a AFundamental Right> under Constitution, 's bonus is paid #hen #ages are lo#er than the living #ages. bonus also becomes a right of #or$er, 31950 (2) LLJ 1247 4 1955 1 SCR 991 5 AIR 1959 SC 967
In )extile Labour 'ssociation v, 'hemdabad *ill -#ners> 'ssociation5. for the first time the Industrial Court conferred the right on the #or$ers to claim bonus, It #as held that bonus is not a ex&gratia payment made gratuitously by the employer.but the #or$ers do have a legitimate claim for the bonus since the profit earned by the *ill -#ners is the result of the combined efforts of capital and labour and it is not fair to grant a reasonable share of the profit to the #or$ers #here (oint efforts have also contributed to the profit&earning, )hus the right to claim bonus #as conferred upon the #or$ers, In %ree *eena$shi *ills v, )heir 8or$men;. the %uprme Court held thatbonus is a right of the #or$ers to claim bonus and observed that bonus is not a gratuitous payment nor it is a deferred #ageD and that #here #ages fall short of the living standards and the industry ma$es profits #hich is due to the contribution of the #or$ers.the latter possesses a legitimate claim to bonus, In Kohinoor )obacco "roducts v, Labour Court?. it has been held that the "ayment of Bonus 'ct is a complete code in respect of right to bonus, ence under the "ayment of Bonus 'ct.051 bonus is a statutory right of #or$ers,
6(1951) 1 CR 811 7AIR 1958 SC 153 8 1986 Lab IC 1055
