The Payment of Bonus (Amendment) Act, 2015
received presidential assent on 31 December 2015. The Amendment Act
provides for major changes in the eligibility limit and increase in ceiling for
calculation of bonus of employees under the Payment of Bonus Act,1965. These
amendments are made on the requests of trade unions but making it effective
retrospective is very harsh and burdensome for employers.
The payment of Bonus (Amendment) Act, 2015 has three significant
changes which have affected employers’ budgets for payment of salaries for
financial year 15-16
1.
This Act may be called The
Payment of Bonus (Amendment) Act, 2015. It shall be deemed to have come
into force on the 1st day of April, 2014.
The provisions of the
Payment of Bonus (Amendment) Act, 2015 shall be deemed to have come into force
on the 1st day of April, 2014.
2.
The Amendment in
Section 2 for Increase in the Eligibility Limit :
In
section 2 of the Payment of Bonus Act, 1965 in clause (13), for the words ‘‘ten
thousand rupees’’, the words ‘‘twenty-one thousand rupees’’ shall be
substituted.
Effect
: The Payment of Bonus (Amendment) Act, 2015 has enhanced the
eligibility limit under section 2(13) from Rs.10,000/- per month to Rs.21,000/-
per month.
3.
Amendment in Section 12
for increase in Calculation Ceiling :
In
section 12 of the principal Act,—
(i) for the words ‘‘three thousand and five
hundred rupees’’ at both the places where they occur, the words ‘‘seven
thousand rupees or the minimum wage for the scheduled employment, as fixed by
the appropriate Government, whichever is higher’’ shall respectively be
substituted;
(ii) the following Explanation shall be
inserted at the end, namely: ‘Explanation.—For the purposes of this section,
the expression ‘‘scheduled employment’’ shall have the same meaning as assigned
to it in clause (g) of section 2 of the Minimum Wages Act, 1948.’.
The Calculation Ceiling under section 12
from Rs. 3500 to Rs.7000 or the minimum wage for the scheduled employment, as
fixed by the appropriate Government, whichever is higher.
Key amendments by the
Payment of Bonus (Amendment) Act, 2015:
- Eligibility Wage Ceiling increased - under the
provisions of the previous Act, an employee was eligible to receiving
statutory bonus if he had worked for at least 30 days in an accounting
year and drew a salary of Rs.10,000/-
per month,.
The amendment increases this eligibility limit
to a salary threshold of Rs 21,000/-per
month.
- The Ceiling for Bonus Calculation
increased - under the
previous Act, if an eligible employee’s salary were more than Rs3,500/- per month, for the purposes of
calculation of bonus, the salary would be assumed to be limited to Rs.3,500
per month.
The amendment increased this wage ceiling from Rs.3500/- to Rs.7,000/-
per month or the minimum wage notified for the employment under the Minimum
Wages Act, 1948, whichever is higher.
- A Retrospective amendment - the amendment
has been deemed to be enforced from April
1, 2014.
Old Provisions as per The
Bonus Act , 1965 were as under:-
-The bonus payable is to
be determined on the basis of profits or on the basis of production or
productivity of the establishment.
-The Act is applicable to
factories and establishments employing at least 20 persons, although in some
Indian states, the Government has extended the applicability of the law by
reducing the threshold to factories and establishments employing at least 10
persons.
-The Act requires an
employer to pay to an eligible employee a minimum bonus at the rate of 8.33% of
the salary earned by the employee during the accounting year.
- As per law, the maximum statutory bonus can be
limited to 20% of the employee’s salary.
Reactions from various Industrial
Associations on Retrospective Effect from Fin Year 2014-15
-
The retrospective amendments
were opposed on the reasoning that the adequate time was not given to employers
to plan for such increase in their salary costs. The major issue for
retrospective amendment was that employers would not have provided for this
expense in the previous financial year (2014-2015) for which the books of
accounts were already closed and taxes also paid.
-
Such retrospective
application from Financial year 14-15 would lead to financial stress, to the
manufacturing sector where the number of workers is high or in case of Micro, Small and Medium Enterprises.
Stay on Retrospective
Effect from April 1, 2014
Upon representations from various industry bodies by way of writ
petitions in various State High Courts challenging the retrospective effect
from Fin Year 2014-15, several high courts have stayed the retrospective
operation i.e Kerala High Court, Karnataka High Court, Madhya Pradesh High
Court, Allahabad High Court, Gujarat High Court and Punjab & Haryana High Court
have passed interim stay order in January and February, 2016. Thus, within a
period of six months more than six states in India have already obtained a stay
on the retrospective operation of the amendment from Fin Year 2014-15. In light
of the above stay orders it may be taken that the amendment would take effect
from the financial year
2015-16 onwards, and not 2014-15 as earlier stipulated. With the financial
management of even private companies till date wait and watch policy is being
followed but should be sorted out by the Central Government.
In the past history if we see whenever certain
provisions were made applicable with retrospective effect in favor of labours,
the employers could not succeed in challenging the same on various reasons and
issues. Since the matter is currently sub judice, it is yet with the judiciary
to balance the amendment. As for future the ceiling and amount of bonus has
been increased but for retrospective how Central Govt will balance the welfare
of employees with the interests of employers whereas in the past the Central
Government has never decided in favour of employers and stay of court seems to
the postponement of establishment of retrospective amendment this time too. The
history repeats itself so may be this time again may repeat and favour the
labour.
Accounting Treatment in Finalisation of Financial Statements for Financial Year 2015-16
1. Make additional provision of Bonus Due for Financial Year 2014-15
2. Make Provision for bonus for Financial Year 2015-16
3. Pay additional bonus if Central Govt decides in favour of labour and establishes the retrospective applicability from 01.04.20154. For the companies where they pay bonus @8.33% without considering the ceiling of salary or minimum wage they need not to provide for as such change is not effecting at all as they must have paid more than what is actually required to pay and no additional liability remains unpaid.
