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Awareness & Transparency of Bonus Act is a Must This Diwali

By Mr. S K Sharma, Advocate specializes in Labour Laws

This is the time when Indians are gearing up to celebrate the biggest and auspiciously significant five-day festivals of the year. With a great zeal and fervor, people tend to buy clothes, furniture, utensils, gold, and silver jewelry. In fact, it’s the perfect occasion for many to renovate their home and start their lives afresh with gusto because of the additional bonus and benefits offered by the employers to their workforce at the time. However, there are certain ambiguities on the bonus act, consequent upon the recent amendment. 

It was in the year 2016 when the International Trade Union Confederation (ITUC) ranked India as one of the ten worst countries for workers in its Global Rights Index report. The reasons behind this poor rank back then were violence, large-scale exclusions, and workers from labor law, and arrests. However, India had been able to pull through it this year. But, the scenarios in Indian workplaces that were brought into the limelight by ITUC are not seen much improved in these years. The Labor Laws established by the GoI are not rightfully followed in various companies operating in organized and unorganized sectors. Where a majority of the employees in India are not aware of the basic labor laws and rights they are entitled to; some employers also do not have a clear understanding of its applicability and implementation. 

One such labor law in the country is Payment Bonus Act, 1965. According to this Act, the employee of the factory with 10 and establishment with 20 or more workers possesses a right to have bonus annually. The bonus is 8.33% and shall not exceed 20% of the employee’s salary. Prior to recent amendments, an employee whose basic salary was not exceeding Rs. 10,000 a month was entitled to be paid a bonus by his/her employer. 

In 2015, the government made amendments in this Bonus Act by extending the threshold of monthly wages from 10,000 to 21,000 INR. This covered a larger pool of employees working in different sectors subject to the bonus. Moreover, this Bonus Act Amendment 2015 came in favor of the employees as the amount of bonus was further increased from 3,500 to 7,000 INR or the minimum wage for the scheduled employment (whichever is higher). This bonus is paid to the employees within the eight months of completion of a financial year, which is, by the end of Nov., the great Indian festive season and thus, is more popularly known as Diwali Bonus. 

However, the employees and employers still lack a clear understanding of the Bonus Act and the Amendment 2015, which acts as a major roadblock in its transparent and large-scale implementation across all the sectors. 

Lack of awareness amongst eligible employees

There must be over a thousand of establishment and working people in India who are still clueless about the definition and the nature of the term Bonus. Lack of awareness and education prevents them from calculating their payments, and bonus. In fact, the Amendments made in the Payment of Bonus Act offers little clarity on the nature and scope of the term bonus. Moreover, many stakeholders confuse incentives, reward of the employee’s hard work and dedication towards the company, with the bonus. It’s important for them to know that every employee on probation, contractual, part-time, and permanent basis is eligible for the bonus if he has completed 30 days with the organization. The awareness program about applicability, eligibility, entitlement and redressal mechanism may go a long way for better understanding. 

Inattention on the part of employers

It’s not only the employees that are unaware of the Bonus Act, but many employers tend to get confused with the applicability of Bonus Act. For example, principal employers who have three or four contractors, each having 20 or more labor, are seen baffled whether they are supposed to provide the bonus to the contractors or labors. Also, in order to survive in a knife-edge business competition and improve the productivity of their workforce, several employers tend to tailor the pay packages of employees drawing upon some performance parameters, replacing bonus with performance-specific incentives. When it comes to an excellent employee of the year, this performance-based incentives amount is often higher than the calculation criteria for bonus prescribed in the act. This leads to a further perplexity for the companies.


A casual attitude towards the violation

Lack of knowledge of the binding labor laws, whether it is on the part of employees or employers, the non-compliance cannot be justified and defended. The stringent measures and legal actions may be taken against the violation of The Payment of Bonus Act, by concerned authorities. The non awareness towards the labor laws in India is one of the reasons why employment sector remains weak. 

A Way Ahead

The reforms and amendments in labor laws may be controversial for the time being, but it’s important for all, especially, employees in the organized and unorganized sector to be aware of the existing laws and rights. The organizations should willfully follow the prescribed laws and regulations in order to grow and prosper manifold. They should take the responsibility of educating their workforce on the rights to payment of bonus, its exemptions, and exclusions, and assist them in calculating accurate bonus amount for retaining the top talents to achieve mutual success.

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