Payment of Bonus Act

Payment of Bonus Act and Its Purpose

This act came into force from September 25, 1965 and was amended several times. Bonus is that
which is given in addition to the wages. Bonus is paid in the terms of money to the Employees as
gift or reward in addition to their wages. This act fundamentally provides for the payment of
bonus to people employed in certain establishments on the basis of profits or on the basis of
production or productivity and for matters connected. This Act impose a legislative obligation on
an employer of every establishment covered by the Act to pay bonus to employees in the
establishment; lay down principle and formula for calculation of bonus; present for payment of
minimum and maximum bonus and concerning the payment of bonus with the scheme of set-on
and set-off; and provide machinery for enforcement of liability for payment of bonus. Object of
the Act is to uphold peace and harmony between labor and capital by allowing the employees to
share the prosperity of the establishment reflected by the profits earned by the contributions
made by capital, management and labor.

Eligibility

Any provisional workman is entitled to bonus on the basis of total number of days worked by
him; employee of a seasonal factory is permitted to proportionate bonus and not the minimum
bonus as prescribed under Section 10 of the Act, part time employee as a sweeper engaged on a
regular basis is entitled to bonus, retrenched employees is eligible to get bonus provided he has
worked for minimum qualifying period [He is eligible to get bonus provided he has worked for
minimum qualifying period of 30 days in the accounting year and who has drawn a salary of less
than ` 10,000 per month in the year. (East Asiatic Co. (P) Ltd. Vs Industrial Tribunal)], a
probationer is an employee and as such is entitled to bonus, a dismissed employee reinstated with
back wages is entitled to bonus, piece-rated worker is entitled to bonus.

This act is applicable to owned and run by appropriate govt-

in competition with private sector enterprises in producing goods or providing services; and 
The revenue generated from such sale of goods or provision of services is greater than 20% of
the total revenue of such Govt. company.

If an employee is drawing a salary or wage not exceeding Rs. 3500.00 per month, he is entitled
to get bonus on his entire salary or wage. If an employee is getting a salary or wage exceeding
Rs. 3500.00 per month, but not exceeding 10000.00 per month, the bonus payable to him is to be
calculated as if his salary or wage were Rs. 3500.00 per month. An employee getting a salary or
wage exceeding Rs. 10000.00 per month is not entitled to get bonus. {Section 12}

An employee, irrespective of whether he is managerial or not, so long as he came within the

definition of employee by virtue of drawing salary falling within the maximum prescribed under
Section 2(13) of the Act, he would be eligible for payment of bonus under the Act.

Disqualification for receiving bonus under ‘The Payment of Bonus Act, 1965’:

An employee shall be ineligible from receiving bonus under the Payment of Bonus Act, 1965, if
he is dismissed from service for Fraud, or Riotous or violent behavior while on the site of the
establishment, or Theft [V.G Textiles Private Ltd vs. Assistant Commissioner of Labour, 2010
(3) LLN405 (Mad.)], misappropriation or sabotage of any property of the establishment. (Section
9) Disqualifications as decided in Judicial Decisions: An employee, in the following cases, is not
entitled to bonus:

An apprentice is not entitled to bonus [Wheel & RIM Co. vs. Government of T.N. (1971) 2 LLJ
299; 40 FJR 18], An employee employed through contractors on building operations is not
entitled to bonus (Section 32) , An employee who is dismissed from the service on the ground of
misconduct as mentioned in Section 9, is disqualified for any bonus and not merely for bonus of
the accounting year in which he is dismissed (Pandian Roadways Corporation Ltd. vs. Presiding
Officer [1996]
 Constitutional Validity of Minimum Wages Act 1948

The concept of Minimum Wages was first evolved by International Labor Organization in 1928
with reference to remuneration of workers in those industries where the, level of wages was
substantially low and therefore the labor was susceptible to exploitation, being not well
organized and having less effective bargaining power.

1. Wage Boards review the industry’s ability to pay and fix minimum wages such that they
at least envelop a family of four’s necessities of calories, shelter, clothing, education,
medical assistance, and entertainment.
2. The Act applied to certain employments (listed within the Schedule). The appropriate
government may include any employment to the list if there are 1000 workers are
working in that state.
3. Minimum wage means all pay in terms of money includes House Rent Allowance.
4. These are the types of fixing of Minimum wages: (a) a minimum time rate, (b) a
minimum piece rate, (c) a guaranteed time rate, (d) a time rate or a piece rate applicable
to overtime rate.
5. Classes of fixing minimum rates of wages : (a) different scheduled employments; (b)
different classes of labor within the same scheduled employment; (c) adults, adolescents,
children and apprentices; and (d) different localities.
6. Period to revise minimum wages by appropriate government is five years.
7. The appropriate Government shall provide special payment after each six months (i.e. 1st
April and 1st October of every year).
8. In case of not paying least amount wage a claim can be made under section 20 before the
labor authority who can make of order of payment of 10 times of difference amount.
9. Not paying Minimum salary is an offence punishable up to six months’ detention or with
fine up to Rs. 500 or with both.
 Why constitutional validity of minimum wage challenged?

The Act was alleged to be unreasonable as it somewhere interfered with the provisions of Article
19(1) (g) of The Constitution which assure freedom to trade and business. Act would create
problems for individual employees. It was said that the provisions of this Act also breach Article
14 of The Constitution which grant for equality before the law. It was said that the provisions of
this Act also infringe Article 14 of The Constitution which provides for equality before the law.
Notification fixing different rates of minimum wages for diverse localities is unfair. As the above
Act violates Article 14 and 19(1) (g) of the constitution, they cannot be termed to be proper.

The Minimum Wages Act was passed in 1948 and it came into force on 15th March, 1948. The
National Commission on Labor has described the passing of the Act as landmark in the history of
labor legislation in the country. The philosophy of the Minimum Wages Act and its significance
in the context of conditions in India has been explained by the Supreme Court in Unichoyi v.
State of Kerala: “What the Minimum Wages Act purports to achieve is to prevent exploitation
of labor and for that purpose empowers the appropriate Government to take steps to prescribe
minimum rates of wages in the scheduled industries. In an underdeveloped country which faces
the problem of unemployment on a very large scale, it is not unlikely that labor may offer to
work even on starvation wages. The policy of the Act is to prevent the employment of such
sweated labor in the interest of general public and so in prescribing the minimum rates, the
capacity of the employer need not to be considered. What is being prescribed is minimum wage
rates which a welfare State assumes every employer must pay before he employs labor”.

By following case and judgments explained below constitutional validity of the act would be
determined.

The act is not unreasonable:

Directive principles of the state policy embodied in Article 43 of the constitution are about

protecting living wages to laborers which not only ensure bare physical subsistence but also

health and decency is important for public interest. It’s although true that individual employers
might find it difficult to carry on the business on the basis of minimum wages fixed under the

Act but this must be not be the entire premise and reason to strike down the law itself as

unreasonable.

In the case of GulmuhommadTarasaheb a bidi factory by its proprietors Shamraovs State

of Bombay it was held that “ The restrictions, though they interfere to some extent with the

freedom of trade or business guaranteed under Article 19(1)(g) of the constitution, are reasonable

and , being imposed on the general interest of the general public, are protected by the terms of

the clause (6) of the article 19.”

Another important judgement that favours and supports the constitutional Validity of the

Minimum Wages Act, 1948 is , “ V. Unichonoy /VS/ State of Kerala.

The Act doesn’t violate Article 14 of the Indian Constitution.

“On a careful examination of the various of the Act and the machinery setup by this Act, Section

3(3) (iv) neither contravenes Article 19(1) of the constitution nor does it infringes the equal

protection clause of the constitution. The Courts have also held that the constitution of the

committees and the Advisory Board did not contravene the statutory provisions in that behalf

prescribed by the legislature”.

In “C.B. Boarding & Lodging, Re, it added to the above mentioned case that,“nor the reason

that two different procedures are provided for collecting information.”

Notification fixing different rates of minimum wages for different localities is not
discriminatory.

It was said that where the fixation of rates of wages and their revision were manifestly preceded

by a detailed survey and enquiry and the rates were brought into force after a full consideration

of the representations which were made by a section of the employers concerned, it would be

difficult in the circumstances to hold that notification which fixed different rates of minimum

wages for different localities was not based on intelligent differentia having a rational nexus with

the object of the Act, and thereby violated article 14.

Further, when the Government issued notification improving upon the existing minimum wages

as revised minimum wages disregarding the contrary report of the committee appointed under

Section 5-1(a) ; such notification was bad under the law and was to be made inoperative.

It was pointed out by India’s Union Labor and Employment Minister Shri MallikarjunaKharage ;
“The variation of minimum wages between the states is due to differences in socio-economic and
agro-climatic conditions, prices of essential commodities, paying capacity, productivity and local
conditions influencing the wage rate. The regional disparity in minimum wages is also attributed
to the fact that both the Central and the State Governments are the appropriate Governments to
fix, revise and enforce minimum wages in Scheduled employments in their respective
jurisdictions under the Act”.

Notwithstanding anything said in the above mentioned statements,it was held in the case of

N.M.Wadia Charitable Hospital vs. State of Maharashtra that – “ Fixing different minimum

wages for different localities is permitted under the constitution and under labor laws , hence the

question that any provision of the Minimum Wages Act is in any way against the provision of

constitution is wrong.”

Now, the constitution of India accepts the responsibility of the State to create an economic

order, in which every citizen finds employment and receives a “fair wage”. This made it
necessary to quantify or lay down clear criteria to identify fair wage. Therefore, a Central

Advisory Council, in its first session in November 1948, appointed a tripartite Committee on Fair

Wages. The committee consisted of representatives of employers, employees, and the

Government. Their task was to enquire into and report on the subject of fair wages to the labour1.

 Sanctity of the Minimum Wage Act

It is clear ruling of the Supreme Court that nonpayment of minimum wages amounts to ‘forced

labor’ prohibited under Article 23 of The Constitution. The Supreme Court holds that ‘forced

labour’ may arise in several ways, including “compulsion arising from hunger and poverty, want

and destitution.

In Sanjit Roy Vs. State of Rajasthan, the Supreme Court has held that ‘The Exemption Act in

so far as it excluded the applicability of the Minimum Wages Act, 1948 to the workmen

employed in famine relief work is “clearly violative” of Article 23. Thus, even public works

ostensibly initiated by the government for the sole purpose of providing employment are subject

to the Minimum Wage Act’.

Drawing on the Supreme Court rulings, Andhra High Court set aside the Government of India

notification mandating that prevailing state minimum wage be paid. This has been underscored

in the legal opinion provided by Additional Solicitor General, Ms. Indira Jaising, to the Central

Employment Guarantee Council (CEGC) Working Group on Wages where she made it clear that

using Section 6(1) to allow a payment of less than minimum wage in MNREGA works will

amount to forced labor.

The Act and the judgments are in favor of equality provided under Article 14 of the Constitution

and a judgment in the case namely, “Engineering Workers Union vs. Union of India.”,

pronounces the judgment that, “The provision under Section 3(2) (A), that minimum rate of

wages in scheduled employment fixed or revised, shall not apply to the employees during the

period of adjudication, violated equality clause of Article 14 and hence that section is void”.

1
In the view of the Directive Principles of State Policy as contained in the Article 43 of the Indian

Constitution, it is beyond doubt that securing of living wages to laborers which ensures not only

bare physical subsistence but also the maintenance of health and decency; it is conducive to the

general interest of the public.

The Minimum wages Act was passed to fulfill the aspiration as contained in the following

resolution:-“If the laborers’ are to be secured the enjoyment of minimum wages and they are to

be protected against exploitation by their employers, it is absolutely necessary that restraints

should be imposed upon the freedom of contract and such restrictions cannot be said to be

unreasonable. On the other hand, the cannot be heard to complain if they are compelled to pay

any minimum wages to their laborers even though the laborers , on account of their poverty and

helplessness, are willing to work even at lesser wages”.

Amendment within the Minimum Wages Act, 1948

There should be one single statutory National Floor Level wage (NFLMW) for the entire nation
below which wages in any employment can't be paid. One wage rate by its very simplicity are
going to be easy to know and implement. Standardization of minimum wages under NFLMW
should also reduce procedural complications in implementation of the law and enhance
compliance.

The Minimum Wages Act defines wages to incorporate basic, DA and HRA. Some employers
split the consolidated wages announced by the govt. into these heads in order that they are doing
not need to pay PF etc on the complete wage announced by the govt. They also then don't pay
Gratuity on the HRA component. one among the subsequent solutions are often considered:

 ¾ Wage in Minimum Wages Act to be defined as basic and DA only.

 ¾ Section 20 to be amended to supply for the recovery of the quantity determined by the
Authority, as arrears of land revenue as is completed in Payment of Gratuity Act in order
that the Authority doesn't need to file an application before the Court.
  ¾ Section 22 B (a) – Filing of claim application and its being upheld shouldn't be a
condition precedent to the initiation of prosecution proceedings.
 ¾ The Minimum Wages Act should also provide for Payment of Wages by remittance in
checking account of the worker.

Covid-19 and minimum wage to migrants

A petition was filed in Supreme Court by Harsh Mander and Anjali Bharadwaj as migrant
workers are unable to work earns money during the lockdown due to Covid-19. As the lockdown
was passed without prior information created many job loss, loss of wages of many migrant
working as auto rickshaw drivers, street vendors etc.. Petition stated that lockdown is violating
Art 21 right to life as these workers are not able to survive. Supreme court has asked the centre
for providing tests free of cost, in private and government- run laboratories.

PIL under Disaster management Act 2005 was discriminatory in nature, lockdown over the same
threat is different for different sets of people all over. DMA 2005 states to pay compensation to
people who have suffered losses during any disaster. PIL stated that states and centre are
responsible to pay minimum wages to all migrant labourers.

On the other side due to this lockdown surat diamond industry is reeling under zero exports and
domestic sales, has sought financial assistance from government to pay minimum wages. There
are lot of migrant workers who are not able to go to their native and industry is not able to pay
these workers minimum wages.