Lecture 14

LESSON 14 Compensation Structure and Differentials Chapter 6: Legalistic framework for wage determination Learning Objective: •

Minimum Wages Act, 1948

•

Payment of Wages Act, 1936

•

Payment of Bonus Act, 1965

Interaction With regard to legalistic framework for wage determination in respect to Indian economy we will discuss the laws relating to Wage and Salary Administration and they are Minimum Wages Act-1948, Payment of Wages Act 1936 and Payment of Bonus Act, 1965. Minimum Wages Act, 1948 Object and Scope The level of wages payable to workers is determined by the forces of demand and supply. In a welfare state the protection of the interests of workers is one of the aims of any legislation which is enacted in the labour field. The Indian Labour class besides being illiterate is by and large not organized to protect its interest in a competitive market where supply of labour is always in excess of demand. Under such conditions the Indian Parliament enacted the Minimum wages Act, 1948. The Minimum wages Act was enacted to secure the welfare of the workers in a competitive market by providing for a minimum limit of wages in certain employment. This is the preamble of the Act. The Act purports to achieve the prevention of exploitation of labour and for that purpose authorizes the appropriate government to take steps to prescribe minimum rates of wages in scheduled industries. It is only with regard to certain specified industries that the payment of statutory minimum wages have been laid down. The object of the Act is to do social justice to workers employed in the scheduled employments by prescribing minimum rates of wages for them. The concept of locus standi has also been enlarged with a view to ensure the application of the law. The Act contemplates that minimum wages rates must ensure not the mere physical need of the worker which could keep him just only his subsistence and that of his family but also preserve his efficiency as a workman. It should also provide for

some measure of education, medical requirements and amenities. The Directive Principle of state policy as enshrined in Articles 43 of the constitution also adheres to this principle The Tripartite committee of the Indian labour Conference held in New Delhi in 1957 declared the wage policy which was to be followed during the 2nd five year plan. The five norms of Fixations of "Minimum Wages" are:(i) The standard working class family should be taken to consist of three consumption units for the one earner, the earnings of women, children and adolescents should be disregarded. (ii) The Minimum food requirement should be calculated on the basis of a net intake of calories, as recommended by a doctor of the committee, for an average Indian adult of moderate activity. (iii) Clothing requirements should be estimated at per Capita consumption of 18 yards per annum which would, for the average workers family of four, a total of 72 yards. (iv) In respect of housing, the rent corresponding to the minimum area provided for under Government Industrial Housing scheme should be taken into consideration infixing the minimum wage. (v) Fuel, lighting and other' miscellaneous' items of expenditure should constitute 20% of the total minimum wages. . Keeping in view the socio-economic aspect of the wages structure, the Supreme Court added the following additional component as ab'1lide for fixing the minimum wage in the industry:(vi) Children education, medical requirement, minimum recreation including festivals, ceremonies and provision for old age, marriages, etc. should further constitute 25% of the total minimum wages. The wage which approximately answers the above six components in nothing more than a minimum wage at subsistence level. The employees are entitled to the minimum wage at all times and under all circumstances An employer who cannot pay the minimum wage has no right to engage labour and no justification to run the industry. The Concept of Minimum Wages The Act does not define minimum wages. It is only through the definition of 'wages' as defined in the Act that the concept of minimum wages can be deduced Wages as defined in the Act means all renuneration, capable of being expressed in terms of money which would, if the terms of employment, express or implied, were fulfilled, be payable to a person employed in respect of his employment or work done in such employment, and includes house rent allowances, but wages do not include:

(i) The value of (a) any house accommodation, supply of light, water, medical attendance; or (b) any other amenity or any service excluded by general or special order of the appropriate government; (ii) any contribution paid by the employer to any pension fund or provident fund or under any scheme of social insurance; (iii) any traveling allowance or the value of any traveling concession; (iv) any sum paid to the persons employed to defray special expenses entailed on him by the nature of his employment; (v) any gratuity payable on discharge. It was held in Manganese ore (India) Ltd V. Chadilalsaha, 1991 L.I. C 524 S.C when the attendance bonus is an additional payment made to the workmen as a means of procuring their regular attendance with the object of increasing production then the bonus is in the nature of extra remuneration to regular attendance which is not payable to all the workmen at the time of joining the employment but is payable to a workmen who has put in continuous service for the specified period then the attendance bonus would be held to be only an incentive and not a wage and hence it is not treated as minimum wage fixed under the Act. Broadly speaking the wages can be classified into following categories: (a) The living Wage The concept of living wage is the wage rate which prevails in most of the economically advanced countries. The living wage must provide not merely for absolute essentials such as food, shelter, clothing, frugal comfort, provision for evil days etc. as well as regard for the special skill of an artisan if he is one. (b) Fair Wage It was held in Express News papers (p) LTD. Vs. Union of India 1961 I.L.L.J. 339 SC that Fair Wage is a mean between the living wage and the bare minimum wage. In All India Reserve Bank of India 1965 LL.L.J 175 SC, A fair wage is thus related to fair workload and the earning capacity It is a step 100ver than the living wage 'W11ile the lower limit of fair wages must obviously be minimum wages, the upper limit is equal1y set by what may broadly be called the capacity of industry to pay. The factors which determine the capacity to pay will be:

(1) the productivity of the labour; (2) the prevailing rates of wages in the same Or similar industries in the same or neighboring localities;. (3) the present economic position of the industry, its prospects in the near futures. The fair wages win grow with the growth and development of the national economy and the progress made by the industry must be approximate to the capacity of the industry to pay. (c) Minimum Wage The minimum wage is the lowest wage in the scale below which the efficiency of a worker is likely to be impaired. The minimum wage, includes not only the bare physical necessities but also a modicum of comfort otherwise known as conventional necessities. The minimum wage must, therefore, provide not merely for the bare subsistence of life but also for the preservation of the efficiency of worker. For this purpose the minimum wage most also provide for some measure of education, medical requirements and amenities. It is in light of the above discussion there is a difference between minimum wage and fair wages. In Sangam Press. Vs. Its Workmen, the Supreme Court observed that in case of fair wage, besides the principle of industry cum region, the company's capacity to bear the financial burden must receive due consideration. But mere hopeful observation made in the director's annual report cannot be the basis for awarding increased, wages because such observations are sometimes made to inspire hope and confidence in shareholders and they cannot be a substitute for actual audited figures. The minimum wage as defined means (1) Any minimum rate of wages fixed or revised by the appropriate government in respect of scheduled employments may consist of (i) A basic rate of wages and a special allowance at a rate to be adjusted at such intervals and in such manner as the appropriate government may direct to accord as nearly as possible with the variation of cost of living index number applicable to such workers; (ii) A basic rate of wages with or without the cost of living allowance, and the cash value of allowance in respect of essential commodities at concession rate where so authorized; (iii) An all inclusive rate allowing for the basic rate, the cost of living allowance and the cash value of concession, if any. (2) The cost of living allowance and the cash value of the concession in respect of supplies of essential commodities at concessional rates shall be computed by the

competent authority at such intervals and in accordance with such directions as may be specified or given by the appropriate government. The Act does not define minimum wages presumably because it would not be impossible to lay down a uniform minimum wage for all industries throughout the country on account of different and varying conditions prevailing from industry to industry and from one port of the country to another The legislature also thought it inexpedient not to apply the Act to all industry at a time. The Payment of Wages act, 1936 (IV OF 1936) Background Before this enactment, in the Payment of Wages Act, 1936 the employer could decide on the wages of employees according to his own whim and fancy. Employer also used to deduct sums from wages as fine. The position of employees was weak and their conditions deplorable. In this backdrop, Royal commission on Labour was appointed in 1929, which gave the Report on the basis of such report, The Payment of Wages Act, 1936 was enacted. This Act regulates the payment of wages to persons employed in any factory and in Railway administration. The State Government, after giving three months notice may extend the Act to any class of persons employed ill any Industrial establishment. The Act shall not be applicable in case if the average pay in respect of a wage period exceed Rupees one thousand six hundred a month or more. Object Act The main objects of the Act are: (i)

to pay the wages to the employees

(ii)

to pay the wages at proper times as specified in the Act.

(ii)

to prevent unauthorized deductions The preamble to Act clearly states the object:

"Whereas it is expedient to regulate the payment of wages to certain class of employed persons. This act is a piece of legislations inclined towards social justice. Definitions: Sec 2 of the Act dea1s with definitions Sec 2 (vi) of the Act defines wages. "Wages" means all remuneration (whether by way of salary, allowance or-otherwise) expressed in

terms of money or capable of being so expressed which would if the terms of Employment express or implied, were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment and also includes. (a) any remuneration payment under any award or settlement between the parties or order of a court; (b) any remuneration with respect to overtime work or holidays or any lease period; (c) any additional remuneration payable paid as bonus under the terms of employment (d) any sum which by reason by the termination of employment of the person employed is payable under any law, contract or instrument which provides for the payment of such sum but does not provide for the time within which the payment is to be made. (e) any sum to which the person employed is entitled, under any scheme framed under any law for the time being in force. But it does not include 1. Any bonus which does not form part of the remuneration payable under the terms of employment or which is not payable under any award or settlement between the parties or order of court; 2. The value of any house accommodation or of the supply of light, water, medical attendance or other amenity or of any service excluded from computation of wages by a general or special order of the State Government. 3. Any contribution paid by the employer to any pension or provident fund and the interest which may have accrued thereon. 4. Any traveling allowance or the value of any traveling concession. 5. Any sum paid to the employed person to defray speci1l1 expenses entailed on him by the nature of his employment. 6. Any gratuity payable on the termination of employment in cases other than those specified in sub clause(d) See 2 (1) of the Act defines ‘employed person’ which includes the legal representative of a deceased employed person. Sec 2 (a) of the Act defines ‘employer’ which includes the legal representative of a deceased employer. Responsibility For Payment of Wages

Sec 3 of the Payment of Wages Act, 1936 provides that every employer shall be responsible for the payment to persons employed by him of all wages required to be paid under this Act. Fixation of Wage Periods See 4 provides that every person responsible for the payment of Wages shall fix periods in respect of which such wages shall be payable, and such period is called “wages period” No wage period shall exceed one month. Rule Making Power Under Section 26 Rule making powers are given to State Government to regulate the procedure to be followed by the authorities and Courts referred to in Sections 15 and 17. Section 26(2) the State Government may be notification in the official Gazette make rules for the purpose of carrying-into effect the provisions of this Act. Section 26(3) In particular and without prejudice to the generality of the foregoing power, rules made under Sub-Section (2) may (a)

requires the maintenance of such records, registers returns and notices as are necessary for the enforcement of the Act, prescribe the form thereof and the particulars to be entered in such registers of records;

(b)

require 1he display in a conspicuous place on premises where employment is carried on of notices specifying rates of wages payable to persons employed on such premises;

(c)

Provide for the regular inspection of the weights, measures and weighing machines used by employers in checking or ascertaining the wages of persons employed by them;

(d)

Prescribe the manner of giving notice 9f the days on which wages will be paid;

(e)

Prescribe the authority competent to approve under sub-section (l) of Section 8 acts and omissions in respect of which fines may be imposed;

(f)

Prescribe the procedure for the imposition of fines under Section 8 and for making of the deductions referred to in section 10;

(g)

Prescribe the conditions subject to which deductions may be made under the provision to sub-section (2) of Section 9;

(h)

Prescribe the authority competent to approve the purposes on which the proceed of fines shall be expend and;

(i)

Prescribe the extent to which advances maybe made and the installments by which they may be recovered with reference toc1ause (b) of section 12;

(ia)

Prescribe the extent to which loans may be granted and the rate of interest payable thereon with reference to section 12A;

(ib)

Prescribe the powers of Inspection for the purpose of this Act.

(j)

Regulate the scales of costs which may be allowed in proceedings under this Act;

(k)

Prescribe the amount of Court fees payable in respect of any proceedings under this Act;

(l)

Prescribe the abstracts to be contained in the notices required by section 25.

(la)

Prescribe the form and manner in which nominations may be made for the purpose of sub section (1) of Sec. 25-A the cancellation or variation of any such nomination, or the making of any fresh nomination in the event of the nominee predeceasing the person making nomination and other matters connected with such nominations; Specify the authority with whom amounts required to be deposited under clause (b) of Sub Section (1) of Section 25A shall be deposited, and the manner in which such authority shall deal with the amount deposited with it under that clause;

(lb)

(m)

Provide for any other matter which is to be or may be prescribed.

Sub Section (4) in making any rule under this Section the State Government may provide that a contravention of the rule shall be punishable with fine which may be extended to Rs. 200/ Sub Section 5 provides that all rules made under this section shall be subject to the condition of previous publication, and the date to be specified under clause (3) of Section 23 of General clauses Act 1897 (10 of 1897) shall not be less than three months from the date on which the draft of the proposed rules was published. Sub Section 6 provides that every rule made by the Central Government under this section shall be laid, as soon as may be after it is made, before, each House of Parliament while it is in session on for a total period of30 days which may be comprised in one session or in two or more successive sessions and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both houses agree in making any modification in the rule or both houses agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be; so however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule.

The Payment of Bonus Act 1965 (ACT 21 OF 1965) Definition, Scope, Applicability and Extent of Bonus Act Meaning: Bonus is an Extra Payment made out of Profits. Definition: It is surprised to note that the most important term “Bonus” which is the ‘oxygen’ of the payment of Bonus Act, 1965, has not been defined in this Act or any other labour and industrial legislation. ‘The Bonus Commission’ explained. It is difficult to define in rigid terms the concept of bonus but it is possible to urge that once profit exceed a certain base, labour should legitimately have a share in them. It is proper to construe the concept of bonus as sharing by the workers in the prosperity of the concern in which they are employed. New English Dictionary defines, “A boon or gift over and above what is normally due as remuneration to the receiver and which is therefore, something wholly to the good. The term bonus is applied to a cash payment made in addition to wages. It generally represents the cash incentive given-additionally on certain grounds of attendance and efficiency being, maintained. Kind of Bonus The Supreme Court in New Maneck Chowk Spinning and Weaving Company Vs. Textile Labour Association 1961 I LLJ 521 at 526 suggested four types of Bonus, namely (i)

Production Bonus;

(ii)

Bonus as an implied term of contract between the parties,

(iii)

Customary bonus in connection with some festival and

(iv)

Profit bonus

Profit Bonus: Profit bonus has been given statutory recognition in the payment of Bonus Act, under this the quantum of bonus depends on the extent of profit obtained in the relevant year. This is subject to a statutory minimum and maximum bonus. Production Bonus:

The payment of production bonus depends upon Production and is in addition to wages. It is an incentive to greater effort on the part of the labour for more production. 1976 amendment by Section 31 recognizes production bonus. There are good will bonus, customary bonus etc. Bonus Commission Government of India in 1961 setup a commission for considering all questions relating to bonus. The recommendations were accepted and an ordinance was issued by the Government in 1964 which was replaced by the payment of Bonus Act, 1965, which was assented by the President on 25.09.1965. Under the Bonus Act, liability to pay Bonus has become a statutory obligation imposed upon the employer covered by the Act. Object Article 43 (Directive Principles of state policy) of the constitution of India expects "living wage" for all the workers, and to achieve it directs the Government to make legislations. The preamble of the Act explains the object: "An act to provide for the payment of bonus to persons employed in certain establishments on the basis of profits or on the basis of production and for matters concerned therewith" The essential factors for a successful industry are (i) Labour and (ii) Capital. The General Motors (India) Ltd., Vs. Its "Workmen" explained; It is universally accepted principle now that profits ate made possible by the contributions that profits are made possible by the contributions that both capital and labour make in any particular industry, and it is concealed1hat labour has a right to share in increased profits that are made in any particular period. The distribution of increased profits is made by payment of Bonus than by increase in wages. Wages must be fixed on normal conditions. Thus it ensures the peace, amicable relations between employee and employer, and the prosperity of the concern. Scheme of the Act The Act is designed (i) To impose statutory liability upon the employer of every establishment covered by the Act to pay bonus to employees in the establishment. (ii) To define the principles of payment of bonus according to the Prescribed formula (iii) To provide for payment of minimum and maximum bonus and linking payment of bonus with the scheme of set off and set on.

Application of the Act Under Section 1(3), the Act applies to every factory and every other establishment in which ten or more persons are employed on any day during the accounting year. Thus the Act applies to shops, offices, mines etc. if minimum of 10 persons were employed an any day of the accounting year. The Act is a comprehensives and exhaustive law, dealing with bonus in all its aspects. An employee of an establishment to which the Act does not apply cannot claim bonus under the Act. The Mill Owner's Association, Bombay Vs. The Rashtriya Mill Mazdoor Sangh Bombay 1950 (z) LLJ124 7. The Industrial Court went elaborately into the matter in this case and laid down certain principles and awarded to the workmen bonus equivalent in amount to 3/8th of the total basic earnings of each workman subject to certain conditions. This decision is known as the "Full Bench Formula", a leading decision in the payment of Bonus case- laws. Principles 1. Bonus is paid to employees in cash. It is not ex-gratia. If the employer refuses to pay bonus, the employee can rise "Industrial dispute”. 2. Capital & labour contribute to the earning of the concern so it is fair that labour should derive some benefit if there is surplus after meeting prior charges. 3. Bonus is like profit sharing. It renders cash incentive to labour which would encourage for a better efficiency and production. Where the industry does not have the capacity to pay living wage, bonus must be looked upon as a temporary satisfaction, wholly of partly, to meet the needs of labour. 4. The decision of the award of bonus is based on two fold objective. (i) Recognition of the fact that the labour contributed for the profit earned by industry & so it has a right to claim a share in it. (ii) It is intended to bridge or narrow down the gap as may be reasonably possible between the living wage to which the labour is entitled and the actual age received. 5. Social Justice: Payment of bonus is rendering social justice to the poor and hard working labor. Salient Features of the payment of Bonus Act, 1975

1. The payment of Bonus Act, 1965 (Act No. 21) has 40 sections and four schedules. 2. The payment of Bonus rules have been framed in 1945 which have only 5 rules and 4 norms. 3. Two sections 33 and 3 7 were repealed from the Act 21 of 1975. Two sections 31-A, and 34-A are newly incorporated in the Act. 4. This Act applies to every factory and every other establishment in which twenty or more persons are employed on any day of the Accounting year. 5. Bonus Win be payable within 8 months from the closure of Accounting year. 6. Bonus will be payable only cash 7. Bonus will be paid from the balance known as "Available Surplus". 8. It applies only to private sector. 9. The provisions of this Act apply from the accounting year commencing on any day in the year 1964. 10.The term "Bonus" has no definition in the payment of Bonus Act, 1965. 11. It is regarded as Deferred Wages payable to employees. It is the right accrued to them by the Act, and not a charity on the employer. It is not an ex-gratia, but paid in addition to wages. 12. Lord Birkenhead opines: It differs from wages, in that it does hot rest on contract, but still payments for Bonus are made because legally due, but which the parties do not contemplate to continue indefinitely. 13. The Supreme Court of India while disposing Mill Owner's Association Vs. Rashtriya Mill Mazdbor Sangh (1950) expressed. When the goal of living wages has been attained, bonus like profit sharing, would present more as the cash incentive to greater efficiency and production. 14. The responsibility is imposed upon the Employer to calculate bonus & distribute it within 8 months from the closure of accounting year. He must maintain registers. If the Provisions of Act 21 of 1965 are contravened, the punishment is imprisonment for a term which may extend to six months or with fine which may extend to Rs. 1000/- or with both. Eligibility for Bonus

Under Section 8 every employee is entitled to bonus in any accounting year if he has worked in the establishment for not less than 30 working days in that year. Section 2 (13) provides that the employee shall be entitled to get Bonus, if his salary or wages does not exceed Rs.2500/- per men sum in any industry to do any skilled, unskilled manual, supervisory, managerial, administrative, technical or clerical work for hire or reward whether the terms of employment be express or implied. Disqualification for Bonus Under Section 9 an employee is disqualified from receiving the bonus if he is dismissed from service for fraud, riotous or violent behavior while on the premises of the establishment or for committing theft, miss-appropriation or sabotage of any property of the establishment. A dismissal based on the above mentioned guilt is subject to the review of the tribunals under Section 10. Section 10-A of the Industrial Disputes Act and by the High Court under Articles 226 and 227 and Supreme Court under Article 136 of the Constitution. If the dismissal of the employee is based on any other ground it will not disqualify him from claiming the Bonus Disqualifications. a) Fraud An employee is disqualified to receive bonus if he is dismissed from service for Commission of fraud. Fraud is an act of miss-conduct under the Model Standing Orders, 1946 punishable with dismissal. The standing orders to the establishment in question should-have provided fraud as a ground for dismissal so as to attract the disqualification under Section 9(a). Examples 1. A- an employee working in XYZ Chit funds pvt Ltd. if he advertises against that company and induces the customers of his company to join another LMN Chit Funds Pvt. Ltd., it is a clear example of fraud. 2. A. An employee of XYZ co. Ltd. obtained the property of the company by playing fraud and deceitful means. He was convicted by the Court. He is disqualified far bonus. b) Riotous or violent behavior An employee who is dismissed an ground of riotous or violent behavior is disqualified to receive bonus. Such riotous or violent behaviors must have been committed by the employee on the premises of the establishment. The expression "riotous and violent behavior" is wider in scope that riotous and disorderly behavior used in the Model Standing orders. Hence dismissal on ground of disorderly behavior will not disqualify to receive bonus unless such disorderly behavior is of violent nature. c) Theft, misappropriation or sabotage

Dismissal of the employee for commission of theft, misappropriation or sabotage of any property of the establishment will disqualified such employee from receiving bonus. Theft - Section 378 of the Indian Penal Code defines theft Every employee must perform his duties with loyalty and faithfulness. If the commits any theft, he is liable far criminal proceedings. He is also disentitled for bonus. Misappropriation - Section 408 of IPC defines Misappropriation. An employee, if dishonestly misappropriates or converts to his awn use any movable property which belongs to the employer, shall be liable far criminal proceedings far his misappropriation and may be dismissed from service disentitled far Bonus. Sabotage – Can notes devices adopted by the employee obstructing or interfering with the process of industry with a view to reduce the profits of the employer. The eligibility to bonus to employees is revised up to Rs. 3500/- per month from Rs. 2500/- with effect from 1.4.1993. The extent of benefit also is raised to Rs.2500/- from Rs. 1600/- is by the 1995 Amendment Minimum bonus and Maximum bonus Minimum Bonus Scope: Section 10 explains about the payment of Minimum Bonus. Section 10: Payment of Minimum Bonus Subject to other provisions of this Act, every employer shall be bound to pay to every employee in respect of accounting year commencing on any day in the year 1977 and in respect of every subsequent accounting year a minimum bonus which shall be 8.33% of the salary or wage earned by the employee during the accounting year or one hundred rupees, which ever is higher, whether or not the employer has any allocable surplus in the accounting year. Provided that where such employee has not completed fifteen years of age of the beginning of the accounting year the provisions of this section shall have effect in relation to such employees as if for the words "one hundred rupee" the words "Sixty rupees" were substituted. Important points on Section 10 1. Minimum Bonus 8.33%- every employee is entitled to get a minimum bonus which shall be 8.33% of the salary or wage earned by him during the accounting year or Rs. 100/- which ever is higher,

2. Section 10 has been substituted by Act 66 of 1980 with effect from 21.08.1980. The provisions of Section 10 newly inserted came into force with effect from the accounting year 1979 previously it was only 4% of Rs. 40 which ever was higher. It is now enhanced to Rs. 100 or 8.33 of salary whichever is higher. 3. In case of employee having not completed 15 years of age at the beginning of accounting year, the minimum bonus is reduced to Rs. 65. 4. It is well settled law that minimum bonus has to be paid even if the company is in loss. Whether 'or not the employer has allocable surplus in the accounting year, minimum bonus shall be payable irrespective of allocable surplus. Claim of Minimum Bonus - Not an Industrial Dispute Claim for Minimum bonus under Section 10 does not constitute on industrial dispute within Section 22 of the Bonus Act It is not necessary that it should be referred for adjudication to the Industrial Tribunal Labour Court is competent to entertain application under Section32 (2) of the Industrial Disputes Act and determine the amount of minimum bonus. No minimum bonus is payable when an establishment is exempt under section 16 of the Act. Maximum Bonus Set off and set on Section 11 explains about maximum bonus. Section 11: payment of Maximum bonus 1) Where in respect of any accounting year referred to Section 10, the allocable surplus exceeds the amount of minimum bonus payable to the employees under that Section, the employer shall in lieu or such minimum bonus, be bound to pay to every employee in respect of that accounting year bonus which shall be an amount in proportion to the salary or wage earned by the employee during the accounting year subject to maximum of 20% of such salary wage. 2) In computing the allocable surplus under this section, the amount set on the amount set off under the provision of section 15 shall be taken into account in accordance with the provisions of that section. Under Section 15 the excess amount after giving the maximum bonus under Section 11 may be set on for the succeeding year. Similarly the deficiency to pay even the minimum bonus under Section 10 may be set off in the succeeding year if there is excess after meeting the minimum bonus in that succeeding year. Set on and Set off Allocable Surplus Section 15 explains about set on and set off of allocable surplus. A fair reading of this section and fourth schedule gives a clear picture & understanding.

Section 15, set on and set off allocable surplus. 1) Where for any accounting year, the allocable surplus exceeds the amount of maximum bonus payable to the employees in the establishment under Sec. 11, then the excess shall, subject to a limit of 20% of the total salary or wage of the employees employed in the establishment in that accounting year, be carried forward for being set on in the succeeding accounting year and so on up to and inclusive of the fourth accounting year to be utilized for the purpose of payment of bonus in the manner illustrated in the fourth schedule. 2) Where for any accounting year, there is no available surplus or the allocable surplus in respect of that year falls short of the amount of minimum bonus payable to the employee in the establishment under section 10, and there is no amount or sufficient amount carried forward and set on under section (i) which could be utilized for the purpose of payment of the minimum bonus, then, such minimum amount or the deficiently, as the case maybe, shall be carried forward for being set off in the succeeding accounting year and so on up to and inclusive of the fourth accounting year in the manner illustrated in the fourth schedule. 3) The principle of set on and set off as illustrate in the Fourth schedule shall apply to all other cases, not covered by sub section (1) or sub section (2) for the purpose of payment of bonus under the Act. 4) Where in any accounting year any amount has been carried forward and set on or set off under this section then, in calculating bonus for the succeeding accounting year, the amount of set on or set off carried forward from the ear list accounting year shall first be taken into account. Proportionate reduction of Bonus in certain cases: Under Section 13 where an employer has not worked for all the working days in any accounting year, the minimum bonus ofRs.1001- or Rs.60/- as the case may be, if such bonus is higher than 8 1/3 percent of salary or wage for the days he has worked in that accounting year, shall be proportionately reduced. Computation of number of working days Under Section 14 an employee shall be deemed to be working in an establishment in any accounting year also on the days on which he has been laid off or has been on leave with salary or wage or has been absent due to temporary disablement or the employee has been on maternity leave with salary or wages. Special Provisions regarding certain establishments

Section 16 of the Act provides some benefits to newly set up establishment by exempting them from the obligation to pay bonus under the Act. A more charge in the location, management, name or ownership will not make the establishment a newly set up establishments shall be entitled to bonus under the Act in the following manner: 1. For the first five accounting years following the year in which the employer sells goods produced in such establishment, bonus shall be payable only for such accounting year in which the employer derives profits from such establishment such bonus shall be calculated under the Act for that year and that too without applying the scheme of set off and set on under Section 15 of the Act 2. To an establishment mentioned in (i) above the provisions of Section 15 shall apply with some modification for die' sixth and seventh accounting years. The modification are: a) For the sixth accounting year, the set on and set off principle will be applicable as against the allocable surplus of the fifth, sixth accounting year. b) For the seventh accounting year the set on or set off principle will be applicable in respect of the allocable surplus of the fifth, sixth and seventh accounting year. 3. From the eight accounting year following the accounting year in which the employer starts selling goods produced in such establishment, the provision of Section 15 shall apply to such establishment as they apply to any other establishment. Production or manufacture of goods during the trial running of any factory or during the prospective stage of any mine or any oil field shall not be treated as production or manufacture of goods under the provisions of section 16 the appropriate government will decide disputes on this after giving reasonable opportunity to the parties to represent their case and the decision of the government shall be final and not questionable before any court or other authority. However in case of the employer of an existing establishment with different branches, department etc. has been paying bonus to employees of all such departments or undertaking or branches on the basis of consolidated funds or profile of such branches then the employer shall be liable to pay bonus in accordance with the provisions of the Act for all the employees on the basis of the consolidated profits. Non-Statutory Bonus Under Section 17, if in a particular accounting year an employer has paid to an employee: a) Puja Bonus or other customary bonus b) interim bonus (ie) part of the bonus payable under this a act before the date on which such bonus becomes payable he shall be entitled to deduct the amount of bonus so paid

from the amount of bonus payable by him to the employees under this act in respect of that Accounting year & the employee is entitled to receive only the balance. In case of customary or contractual bonus, the liability depends exclusively on the express or the implied contract and its terms are governed by the custom or contract under which a claim thereto arrives. Deduction of certain amount from the Bonus payable under the Act Section 18 empowers an employer to deduct the amount of financial loss from the bonus payable to an employee in a particular accounting year provided that the following conditions are satisfied. (i) The misconduct of the employee should have caused financial loss to the employer. (ii) The employee should have been found guilty of such misconduct by holding a domestic enquiry. (iii) The financial loss should have been caused in the accounting year, from the bonus pertaining to which the deduction is sought to be made. Payment of Bonus Under Section 19, the payment of bonus must be only in cash. If there is dispute as to liability to pay bonus then the bonus must be made within one month from the date of award of such authority. In all other cases bonus must be paid within 8 months from the date of closing of the accounting year. However, on sufficient reasons, the government may extend the period of payment of bonus beyond the eight months, provided in any case it must not exceed two years. Such extensions permissible on satisfaction of the following conditions (i) Employer should give application to the appropriate government. (ii) Application should disclose sufficient reasons (iii) Government should hear the parties. Application of the Act to establishment in public sector Under Section 20, the provisions of this Act shall apply in relation to an establishment in public sector like an establishment in private sector if: (i) In any accounting year such establishment in public sector sells any goods produced or manufactures by or renders any services in competition with an establishment in private sector.

(ii) The income from such sale or service or both is not less than twenty percent of the gross income of the establishment in public sector for that accounting year. Reference of disputes under the Act Section 22 contemplates two types of disputes under the Act. (i) dispute with respect to bonus payable-under the act. (ii) dispute with respect to the application of the act to on establishment in public sector between the employer & his employees. Such disputes are deemed to be industrial disputes as defined in Section 2(k) of the Industrial Disputes Act & in such cases settlement method under Industrial Disputes Act or under any corresponding law in the state will apply. When a dispute between an employer and its employees in a beedi factory regarding payment of bonus arose, it was held that Section 22 of the Bonus is Act is clearly applicable. Therefore, the reference of such a dispute under U.P. Industrial Dispute Act is quite valid as it is a corresponding law relating to the investigation & settlement of industrial disputes in force in a state as envisaged under section 22 of payment of Bonus Act. Appropriate Forum Section 22 envisages that where any dispute arises between an employer and its employees with respect to the bonus payable under the Act, then such a dispute ought to be deemed to be an industrial dispute and it has to be dealt with under the industrial law as an industrial disputes. When the dispute results in an award or settlement or an agreement, the employee can recover all the bonus due from the employer as per section 21 of the payment of Bonus Act. Therefore a claim made under the Act in a Civil Court could not be sustained. Duty of the Tribunal In a dispute referred under section 22 of the Act regarding the bonus payable under the Act, the tribunal is under a duty to decide the rate of bonus payable by the employer. In the absence of the rate being specified, the employer would be handicapped in carrying out the directions contained in the award. Presumption as to balance sheet, profit and loss Section 23 raises a rebut table presumption about the accuracy of the settlement and particulars contained in the balance sheet, profit and loss account for corporations and companies produced before the said authority. The presumption is not hard and fast

presumption, incapable of being rebutted a presumption juries dejure. The presumptions not conclusive but rebut table. If the said authority is satisfied that the statements and particulars contained in the balance sheet and the profit and loss account of the corporation or the company are not accurate it may take such steps as it thinks necessary to find out the accuracy of such statements and particulars. The satisfaction of the authority is subjective satisfaction, which can't be called in question in judicial review. The authority may therefore, on being satisfied about the in accuracy of the statement or the particulars, call for the proof of the statements and particulars. Application For Clarification Section 23 (2) entitles trade unions or where there are not trade unions the employees who are party to the dispute to seek clarification relating to any item in the balance sheet or the profit and loss account by making an application to the adjudicating authority upon such application being made the authority has to satisfy itself whether such clarification is necessary. If satisfied the authority has to give an opportunity to the employer of being heard in opposition to the Application After hearing the parties the authority is enjoined to make an order directing the corporation or company as the case may be to give the trade union or the employees such clarification within a time to be specified in the direction. Such order of the authority shall be binding on the corporation or the company. Hence Section 23 gives power and jurisdiction to the tribunal to direct corporations and companies concerned to furnish clarification relating to any item in their balance sheet, Profit & loss account. The section does not limit the power of the Tribunal to give such directions only after a hearing or after evidence is adduced: Such clarification can be given or furnished by making further discover or giving further particulars. Maintenance of Registers, Records etc Section 26 of the Act enjoins on every employer to prepare and maintain such registers, records and other documents in such form & in such manner as may be prescribed by the rules under the Act. It is a mandatory provision and the employer is under the duty to produce them when called upon by an Inspector to do so. Violence of this is an offence under the Act. III. Machinery and Miscellaneous Matters Machinery Section 27 empowers the appropriate government to appoint Inspector for implementing the Act The Inspectors are given power to: (i)

Require an employer to furnish necessary information’s.

(ii)

Enter any establishment or premises for inspection

(iii)

Examination of accounts registers, other documents of salary, wages or bonus.

(iv)

Discovery of documents etc.

Inspectors are deemed to be public servants under the penal code. Any person required to furnish information or to produce documents, if fails to do so will be contravening the law attracting the penal provision under Section 28 of the Act. Production Bonus 1976 Amendment- By 1976 amendment Section 31-A is added to link payment of bonus with production or productivity under this, where an agreement or settlement has been entered in to by the employees with their employer before this amendment or where the employees enter into any agreement or settlement with their employer after the commencement of this amendment for payment of annual bonus linked with production instead of bonus based on profit than such employees shall be entitled to receive bonus due to them. Under such agreement or settlement. However, such agreement or settlement whereby the employees relinquish their right to receive minimum bonus under Section to shall be null and void in so far as it deprives them to such right. It is also provided that such employees shall not be entitled to be paid such bonus in excess of 20 percent of the salary or wage earned by them during the relevant accounting year. Section 31-A is given over riding effect. However, it is subject to the statutory minimum and maximum bonus. This for the first time production bonus is statutorily recognized even though it is based on the agreement between parties. The new section applies to all agreements or settlements whether entered into before or after 25.9.1975 being the date when the amending ordinance came into force. Section 31A relates to bonus linked with production in lieu of bonus based on profits: It does not speak about other kinds of bonus therefore, the provision does not affect customary or traditional or contractual bonus. Penalty: Section 28 prescribes a penalty of imprisonment for a term of six months or, a fine up to one thousand rupees or both imprisonment and fine against a person who contravenes any of the provisions of this Act or any rule made there under or who fails to comply with a direction or requisition under this act or any rule made there under or who fails to comply with a direction or requisition under this Act. Offences by Companies Section 29 of the Act deals with offences committed by companies. Clause 1 of Section 99 imposes an absolute liability on the offences: But liability of a less strict nature is

contemplated. Under Section 29(2) where an offences under the Act is committed by a company the officer who was in charge of and was responsible to the company for the conduct of business of the company shall be deemed to be guilty of the offence shall be liable to be proceeded against and punished as if he has committed the offence. Proviso to Section 29(i) says that a person charged of an offence under Sub section (i) has the following defenses. (i) Want of knowledge Mens has been made an ingredient of the offence. But the burden of proof has been cast on the person charged with the offence. In other words the person charged with an offence under Sub section (i) has to prove that the offence was committed without his knowledge, and not for the prosecution to prove that he had the knowledge. (ii) Due Diligence The second defense open to the accused is that even if he had the knowledge of the commission of the offence he exercised all due diligence to prevent the commission of the offence. Section 29(2) includes more persons In the list of offenders for the offence committed by the comp_. In addition to such person "any director, manager, secretary or other officer of the company" may also be deemed to be guilty of the offence under this Act if the offence has bee n committed. (i)

with his consent or connivance.

(ii)

is attributable to any neglect on his part.

From the language of this provision it is clear that the burden of proof is on the prosecution. It is for the prosecution to prove that the offence has been committed with the consent or connivance or is attributable to any neglect on the part of the director manager, secretary or other officer of the company, before a person can be deemed to be guilty of the offence. Cognizance of offence A court can take cognizance of the offence punishable under the Act only on a complaint made by or under the authority of appropriate Government. Any offence punishable under the Act can be tried only by a court not inferior to a presidency or a Magistrate of the first class. Immunity to acts in good faith; Section 31 confers immunity to Government and officers of Government, against legal proceedings in court of law by

way of suit or prosecution or otherwise, for all acts done in good faith or intended to be done in good faith provided the act is done under the Act. Act not to apply to certain classes of employees. Section 32 of the A ct makes it clear that the provisions of this act will not be applicable to following clause of empl6yees. (i) employees employed by the Life Insurance Corporation of India. (ii) Seamen defined in clause (42) of section 3 of the Merchant shipping act 1958 (44 of I958) (iii) employees registered or listed under any scheme made under the Dock Workers (Regulation of employment) Act 1948 (9 of 1948) and employed by registered or listed employers. (iv) employees employed by an establishment engaged fin any industry carried on by or under the authority of any department of the Central Government or State Government of a local authority. (v) Employees employed by: (a) The India Red Cross Society or any other Institution of alike nature (including its branches) b) Universities and-other educational institutions. c) Institution (including hospital, chambers of commerce and social welfare institutions established not for purposes of profit) Under entry V(s) two requirement must be satisfied namely:(i) that is an institution and (ii) it is establishment not for the purpose of profit. Unless, both these conditions are cumulatively satisfied the employers of such institution will not be exempted from Bonus Act under Section 32. Thus is Workmen of Tirumale Tirupathy Devasthanam Vs the Management The tribunal was required to adjudicate on the issue whether the Transport department operating under the Devasthanam is excluded under entry V (c) of Section 32 the question arose when the employee of the above transport department claimed bonus under the Act. Without taking evidence to show that the institution was "not for purpose of profit” the Tribunal gave this award. This part of the award was set aside by the Supreme Court

directing the Tribunal to decide the issue de novo after taking evidence and considering the dominant purpose of the institution. Coffee Board set up under Coffee Act only aids the marketing of coffee and helps the registered owners to earn profits. The board does not earn profits to itself and it is not an institution formed for earning profits and therefore, falls with in the exception under section 32(v) (c) of the payment of bonus Act. The fact that the management might have made some profits in the past, & not a relevant consideration in the matter of exercise of its power by the Government under section 36 of the Bonus Act. Rule Making Powers Under Section 58 the Central Government is vested with the power to frame rules to carry into effect the provisions of the Act. The rules may provide for: a) The authority for granting permission under the provisions to sub-clause (iii) of clause (i) of Section 2. b) The preparation of registers, records and other documents and the form and manner in which such registers, records and documents may be mentioned under Section 26. c) The powers which may be exercised by an Inspector under Clause(e) of Sub-section (2) of Section 27. (d) any other matter which is to be or may be prescribed. Rules Must be laid before the Houses of Parliament Sub-section (3) prescribes that every rule made under this section shall be laid with maximum expediency before each house of Parliament while it is in session for a period of 30 days. The period of 30 days may be comprised in one session or in two successive sessions. If before the expiry of the session in which the rules is to be laid down or the session immediately following both the Houses agree in making any modification in the rules or both the Houses agree that the rules should not be made, the rules shall thereafter have effect only in such modified form or be of no effect as the case may be. However, any such modification or annulment shall be without prejudice to the validity of anything previously done under any of these rule. Conclusion The payment of Bonus Act 1965 is designed to make the proper distribution of profits between the employer and employees and to upgrade the wages to “Living Wages Standards". It does not interfere with customary, contractual bonus, beside the right to ask the statutory bonus under Act 21 of 1965.

Therefore, the payment of Bonus Act, 1965 is a step forwarded to achieve the target fixed by the Article 43 of the constitution, and to bridge the gap between the wages and the living wages, and to give the social security to the employees.