UNIT 4

Laws Related To Compensation Management

4.1 The Payment of Wages Act, 1948

With the increase number of industries in India, problems relating to payment of wages to employees working with industry are also increasing the wages to their workers at regular intervals. Which is better not uniform and employees where making on authorized deductions from wages. The industrial workers were forced to raise their head against their exploitation.

The payment of wages bill, 1935, based upon the same principle as the earlier bill of 1933 but thoroughly revised and it was introduced in the legislative assembly on 15 February, 1935. The bill was referred to the select committee. The get committee presented its report, with the amended payment of wages bill, 1935 to the Legislative Assembly on 2nd September, 1935. The act is actually implemented from year 1936.

• Object of the Act

The main objective of the act is to avoid unnecessary delay in the payment of wages and to prevent unauthorized deductions from the wages. Every person employed in any factory, upon any railway or through sub-contractor in a railway and a person employed in an industrial or other establishment. The state government may by notification extend the provisions to any class of persons employed in any establishment or class of establishment. The benefits of the act prescribe for the regular and timely payment of wages (on or before 7th day or 10th day of after wage period is greater than 1000 workers) and preventing on earth arise deductions be made from wages and arbitrary fines.

• Definitions

1. Employed Person [Sec. 2(ia)]: It includes the legal representative of a deceased employed person.

2. Employer [Sec. 2(ib)]: It includes the legal representative of a deceased employer.

3. Factory [Sec. 2(ic)]: It means a factory as defined in clause (m) of section 2of the Factories Act, 1948 includes any place to which the provisions of that Act have been applied under sub-section (1) of section 85 thereof.

4. Industrial or Other Establishment [Sec. 2(II)]: It means any-

(a) Tramway service, or motor transport service engaged in carrying Passengers or goods or both by road for hire or reward;

(aa) air transport service other than such service belonging to, or exclusively employed in the military, naval or air forces of the Union or the Civil Aviation Department of the Government of India;

(b) Dock, wharf or jetty;

(c) Inland vessel, mechanically propelled;

(d) Mine, quarry or oil-field:

(e) Plantation;

(f) Workshop or other establishment, in which articles are produced, adapted or manufactured, with a view to their use, transport or sale;

(g) Establishment in which any work relating to the construction, development or maintenance of buildings, roads, bridges or canals, or relating to operations connected with navigation irrigation, or to the supply of water or relating to the generation transmission and distribution of electricity or any other form of power is being carried on.

(h) any other establishment or class of establishments which the Central Government or a State Government may, having regard to the nature thereof, the need for protection of persons employed therein and other relevant circumstances, specify, by notification in the Official Gazette.

5. Mine [Sec. 2(iia]): Has the meaning assigned to it in clause (j) of sub section (1) of section 2 of the Mines Act, 1952.

6. Plantation [Sec. 2(iii):] as the meaning assigned to it in clause (f) of section 2 of the Plantations Labour Act, 1951.

7. Wages (Sec. 2 (vi)): Wages means all remuneration (whether by way of salary, allowances, 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 includes-

(a) Any remuneration payable under any award or settlement between the parties or order of a court;

(b) Any remuneration to which the person employed is entitled in respect of overtime work or holidays or any leave period;

(c) Any additional remuneration payable under the terms of employment (whether called a bonus or by any other name);

(d) Any sum which by reason of the termination of employment of the person employed is payable under any law, contract or instrument which provides for the payment of such sum, whether with or without deductions, 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 does not include

(i) Any bonus (whether under a scheme of profit sharing or otherwise) 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 a court;

(ii) The value of any house-accommodation, or of the supply of light, water, medical attendance or other amenity or of any service excluded from the computation of wages by a general or special order of the State Government;

(iii) Any travelling allowance or the value of any travelling concession;

(iv) Any gratuity payable on the termination of employment in cases other than those specified in sub-clause.

• Time of payment of Wages

The rules relating to time of payment of wages are as follows:

1. Every person employed upon or in any railway, factory or industrial or other establishment wherein less than 1000 employees are employed, wages shall be paid before the expiry of 7th day of the following wage period.

2. In case the number of workers exceeds 1000, the wages shall be paid before the expiry of the 10th day of the following wage-period.

3. In case if persons employed with dock, wharf, or jetty or in a mine, wages shall be paid before the expiry of the 7th day from the date of completion of the final tonnage account of the ship or wagons loaded or unloaded.

4. Where the employment of any person is terminated by or on behalf of the employer, the wages earned by him shall be paid before the expiry of the 2nd working day from the day on which his employment is terminated.

5. The appropriate government may, by general or special order, exempt the person responsible for the payment of wages from the operation of the above provisions in certain cases.

6. All payment of wages shall be made on a working day.

• MODE OF PAYMENT OF WAGES (SEC. 6)

All wages shall be paid in currency coins or currency notes or both. Payment of wages in kind is not allowed.

But whenever number of employees is large or if sum involved is large or if factory or industrial establishment is situated at remote place, in order to avoid these difficulties, employer may after obtaining written authorization of the employed person, pay him the wages either by cheque or by crediting the wages in his bank account.

• DEDUCTION FROM WAGES (SEC.7 TO 13)

In section 7 of this act various authorized deductions from wages are listed. These authorized deductions are further explained under different sections as follows:

1. DEDUCTIONS FOR FINES [SEC. 7(2)(a) AND 8]

(1) No fine shall be imposed on any employed person save in respect of such acts and omissions on his part as the employer, with the previous approval of the State Government or of the prescribed authority, may have specified by notice under sub- section

(2) A notice specifying such acts and omissions shall be exhibited in the prescribed manner on the premises in which the employment is carried on or in the case of persons employed upon a railway (otherwise than in a factory), at the prescribed place or places.

(3) No fine shall be imposed on any employed person until he has been given an opportunity of showing cause against the fine, or otherwise than in accordance with such procedure as may be prescribed for the imposition of fines.

(4) The total amount of fine which may be imposed in any one wage period on any employed person shall not exceed an amount equal to three per cent of the wages payable to him in respect of that wage period.

(5) No fine shall be imposed on any employed person who is under the age of fifteen years.

(6) No fine imposed on any employed person shall be recovered from him by installments or after the expiry of sixty days from the day on which it was imposed.

(7) Every fine shall be deemed to have been imposed on the day of the act or omission in respect of which it was imposed.

2.     DEDUCTIONS FOR ABSENCE FROM DUTY [SEC. 7(2)(b) AND 9]

(1) Deductions may be made under clause (b) of sub-section (2) of section 7 only on account of the absence of an employed person from the place or places where, by the terms of his employment, he is required to work, such absence being for the whole or any part of the period during which he is so required to work.

(2) The amount of such deduction shall in no case bear to the wages payable to the employed person in respect of the wage-period for which the deduction is made in a larger proportion than the period for which he was absent bears to the total period, within such wage period, during which by the terms of his employment, he was required to work: provided that, subject to any rules made in this behalf by the State Government, if ten or more employed persons acting in concert absent themselves without due notice (that is to say without giving the notice which is required under the terms of their contracts of employment) and without reasonable cause, such deduction from any such person may include such amount not exceeding his wages for eight days as may by any such terms be due to the employer in lieu of due notice.

3.     DEDUCTIONS FOR DAMAGE OR LOSS [SEC. 7(2)(c), (m), (n) AND (o) AND 101]

(1) A deduction under clause (c) or clause (o) of sub-section (2) of section 7shall not exceed the amount of the damage or loss caused to the employer by the neglect or default of the employed person. (1A) A deduction shall not be made under clause (c) or clause (m) or clause (n) or clause (o) of sub-section (2) of section 7 until the employed person has been given an opportunity of showing cause against the deduction or otherwise than in accordance with such procedure as may be prescribed for the making of such deduction.

(2) All such deduction and all realizations thereof shall be recorded in a register to be kept by the person responsible for the payment of wages under section 3 in such form as may be prescribed.

4.     DEDUCTIONS FOR SERVICES RENDERED [SEC. 7(2)(d), (e) AND 111]

A deduction under clause (d) or clause (e) of sub-section (2) of section 7 shall not be made from the wages of an employed person, unless the house-i accommodation amenity or service has been accepted by him, as a term of employment or otherwise, and such deduction shall not exceed an amount equivalent to the value of the house- accommodation amenity or service supplied and, in the case of deduction under the said clause (e), shall be subject to such conditions as the State Government may impose.

5.     DEDUCTIONS FOR RECOVERY OF ADVANCES [SEC. 7(2)(f) AND 12]

Deductions under clause (f) of sub-section (2) of section 7 shall be subject to the following conditions, namely:

(a) Recovery of an advance of money given before employment began shall be made from the first payment of wages in respect of a complete wage-period, but no recovery shall be made of such advances given for travelling-expenses;

(aa) Recovery of an advance of money given after employment began shall

be subject to such conditions as the State Government may impose.

(b) Recovery of advances of wages not already earned shall be subject to any rules made by the State Government regulating the extent to which such advances may be given and the installments by which they may be recovered.

6.     DEDUCTIONS FOR RECOVERY OF LOANS [SEC. 7(2)(ff) AND 12-A]

Deductions for recovery of loans granted under clause (fff) of sub-section (2) of section 7 shall be subject to any rules made by the State Government regulating the extent to which such loans may be granted and the rate of interest payable thereon.

7.     DEDUCTIONS FOR PAYMENTS TO CO-OPERATIVE SOCIETIES AND INSURANCE SCHEMES [SEC.7 (2) (j) AND (k) AND 13]

Deductions under clause (j) and clause (k) of sub-section (2) of section 7 shall be subject to such conditions as the State Government may impose. These deductions shall include:

(a) Deductions for payment to co-operative societies approved by the government or to a scheme of insurance maintained by the Indian Post Office Sec. 7(2)(j) and (b) Deductions made with the written authorization of the person employed for the payment of any premium on his life insurance policy to the Life Corporation of India or for the purchase of securities of the government of India or of any appropriate Government or for being deposited in any Post Office Saving Bank in furtherance of any saving scheme of any such Government [Sec. 7(2)(k)]

b) These deductions shall be subject to such conditions as the appropriate government may impose [Sec. 13]

• Penalty for Offence Under the Act (Sec. 20)

Penalty for delaying payment of wages within the prescribed period or making unauthorized deductions : Whoever being responsible for the payment of wages to an employed person delays of wages within the period aid down under the Act or makes unauthorized deductions shall be punishable with fine which shall not be less than  200 but which may extent to  1,000.

(1) Penalty for not paying wages on a working day or in current coin or not recording fines or not displaying the abstracts of the Act: Not paying the wages on a working day, or not paying wages in current coin or currency or both, or not recording the fines or amounts realized for damage or loss in a register, or not displaying by notice abstracts of the Act and rules, are also offences punishable with a fine which may extend to  500 for each offences.

(2) Penalty for failure to maintain, furnish records and returns: Whoever being required under this Act to maintain any records or registers or to furnish any information or return

(a) Fails to maintain such register or record; or

(b) Willfully refuses or without lawful excuse neglects to furnish such information or return; or

(c) Willfully furnishes or causes to be furnished any information or return which he knows to be false; or

(d) Refuses to answer or willfully gives a false answer to any question necessary for obtaining any information required to be furnished under this Act, Shall, for each such offence, be punishable with fine which shall not be less than two hundred rupees but which may extend to one thousand rupees.

(3) Penalty for obstructing: Whoever-

(a) Willfully obstructs an Inspector in the discharge of his duties i under this Act; or

(b) refuses or willfully neglects to afford an Inspector any reasonable facility for making any entry, inspection, examination, supervision, or inquiry authorized by or under this Act in relation to any railway, factory or 12 [industrial or other establishment); or

(c) Willfully refuses to produce on the demand of an Inspector any register or other document kept in pursuance of this Act; or

(d) prevents or attempts to prevent or does anything which he has any reason to believe is likely to prevent any person from appearing before or being examined by an Inspector acting in pursuance of his duties under this Act; Shall be punishable with fine which shall not be less than two hundred rupees but which may extend to one thousand rupees.

(4) Subsequent offences: If any person who has been convicted of any offence punishable under this Act is again guilty of an offence involving contravention of the same provision, he shall be punishable on a subsequent conviction with imprisonment for a term which shall not be less than one month but which may extend to 3 months and with fine which shall not be less than five hundred rupees but which may extend to three thousand rupees or with both.

(5) But no cognizance shall be taken of any earlier conviction made more than two years before the date on which the commission of the present.

Additional fine for failure to pay wages by the fixed date: If any person fails or willfully neglects to pay the wages of any employed person by the date fixed by the authority in this behalf, he shall, without prejudice to any other action that may be taken against him, be punishable with an additional fine which may extend to one hundred rupees for each day for which such failure or neglect continues.

Contracting out (Sec. 23): Any contract or agreement, whether made before or after the commencement of this Act, whereby an employed person relinquishes any right conferred by this Act and void in so far as it purports to deprive him of such right.

Display by notice of abstracts of the Act (Sec. 25): The person responsible for the payment of wages to persons employed in a factory or an industrial or other establishment shall cause to be displayed in such factory or industrial or other establishment a notice containing sub abstracts of this act and of the rules made there under in English and in the language of the majority of the persons employed in the factory, or industrial or other establishment as may be prescribed.

4.2 The Payment of Bonus Act, 1965

• INTRODUCTION

Bonus is one of the monetary benefits for the employees. This is a share in the profit given by the employer to employee. By giving share in the profit to employee, employer can motivate his employees for better performance. Earlier it was employer's decision whether to pay bonus to their employee or not fullstop employees were working hard but most of the time only employers enjoying profit.

Profits are made possible not only by the contribution of capital but also by the contribution of employee. Therefore, the employee has right to share in the increased profits that are made in a particular period. The distribution of increased profits among the workers is possible by giving annual bonus.

The payment of Bonus Act, 1965 has given statutory right to employees to get profit share from employer.

• OBJECT OF THE ACT

The Object of the Act is to provide the payment of bonus to persons employed in certain establishments on the basis of profits on the basis of production or productivity and for matters connected therewith.

• APPLICABILITY OF THE ACT

The Act extends to the whole of India.

The Act apply to -

(A) Every factory; and

(B) Every other establishment in which 20 or more persons are employed on any day during an accounting year.

(C) The appropriate Government may, after giving not less than two months' notice of its intention so to do, provisions of this act to any establishment or class of establishments where less than 20 but not less than 10 persons are employing.

(D) An establishment to which this Act applies shall continue to be governed by this act even if after applicability the number of persons employed therein falls below twenty.

• DEFINITIONS (SECTION 2)

Here we will discuss few important definitions as per the section 2 of this act.

1. Accounting Year [Sec. 2(1)]: "Accounting year" means -

(I) In relation to a corporation, the year ending on the day on which the books and accounts of the corporation are to be closed and balanced;

(II) In relation to a company, the period in respect of which any profit and loss account of the company laid before it in annual general meeting is made up, whether that period is a year or not;

(III) In any other case -

(a) The year commencing on the 1st day of April; or

(b) If the accounts of an establishment maintained by the employer share of are closed and balanced on any other than the 31st day of March, then, at the option of the employer, the year ending on the day on which its accounts are closed and balanced:

Provided that an option once exercised by the employer under Para (b) of this sub- clause shall not again be exercised except with the previous formation in writing of the prescribed authority and upon such conditions as that authority may think fit.

2. Allocable Surplus [ Sec. 2(4)]: " Allocable Surplus" means -

(a) In relation to an employer, being a company [ (Note: Ins. by Act 66 of 1980 (w.e.f. 21st August, 1980) (other than a banking company)] which has not made the arrangements prescribed under the Income- tax Act for the declaration and payment within Indian of the dividend payable out of its profit in accordance with the provisions of Sec. 194 of the Act, sixty-seven per cent of the available surplus in an accounting year;

(b) In any other case, sixty per cent of such available surplus.

3. Available Surplus [Sec. 2(6)]: "Available Surplus" means the available surplus computed under Sec.5.

4. Award (Sec. 7): "Award" means an interim for a financial determination of any industrial dispute or of any question relating thereto to buy any Labour Court. Industrial Tribunal or National Tribunal constituted under the Industrial Disputes Act, 1947 (14 of 1947), or by any other authority constituted under any corresponding law relating to investigation in settlement of industrial disputes in force in a State and includes and arbitration award made under Sec. 10A of that Act or under that law.

5. Corporation [(Sec. 2(11)]: "Corporation" means anybody corporate established by or under any Central, Provincial or State Act but does not include a company or a co-operative society.

6. Employee [(Sec. 2(13)]: "Employee" means any person other than an apprentice employed on a salary or wage not exceeding Rs. 10000/- per month in any industry to do any skilled or unskilled manual, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of employment be express or implied.

By amending Section 2(13) of the Principal Act, the Amendment Act 2015 has now widened the scope of employees eligible for payment of bonus from those drawing salary of Rs. 10000/- per month, to Rs. 21000/- per month.

7. Employer [Sec. 2(14)]: "Employer" includes -

(I) In relation to an establishment which is factory, the owner or occupier of the factory, including the agent of such owner or occupier, the legal representative of a deceased owner or occupier and where a person has been named as a manager of the factory under clause (f) of sub-section (1) of Sec. 7 of the Factories Act, 1948, the person named; and

(II) In relation to any other establishment, the person who, or the authority which, has the ultimate control over the affairs of the establishment and where the said affairs are entrusted to manager, managing director or managing agent, such manager, managing director or managing agent.

8. Establishment in Private Sector [Sec. 2(15)]: "Establishment in private sector means any establishment other than an establishment in public sector.

9. Establishment in Public Sector [Sec. 2(16)]: "Establishment in public sector means an establishment owned, controlled or managed by - (a) A Government company as defined in Sec. 617 of the Companies Act, 1956 (1 of 1956);

(b) A corporation in which not less than forty per cent of its capital is held (whether singly or taken together) by -

(i) The Government; or

(ii) The Reserve Bank of India; or

(iii) A Corporation owned by the Government or the Reserve Bank of India;

10. Salary or Wages [Sec. 2(21]: "Salary or wage" means all remuneration (other than remuneration in respect of overtime work) capable of being expressed in terms of money, which would, if the terms of employment, express or implied, were fulfilled, be payable to art employment or of work done in such employment and includes dearness allowance (that is to say, all cash payments, by whatever named called, paid to an employee on account of a rise in the cost of living, but does not include -

(i) Any other allowance which the employee is for the time being entitled to;

(ii) The value of any house accommodation or of such of light, water, entitled to medical attendance or other amenity or of any service of any Confessional supply of food grains or other articles;

(iii) Any travelling concession;

(iv) Any bonus (including incentive, production and attendance bonus);

(v) Any contribution paid or payable by the employer to any pension bonus): fund or provident fund or for the benefit of the employees under any law for the time being in force;

(vi) Any retrenchment compensation or any gratuity or other retirement benefit payable to the employees or any ex gratia payment made to him;

(vii) Any commission payable to the employee.

Explanation: Where an employee is given in lieu of the whole or part of the salary or wage payable to him, free food allowance or free food by his employer, such food allowance or the value of such food shall, for the purpose of this clause, be deemed to form part of the salary or wage of such employees.

15. Establishments to include Departments, Undertakings and Branches (Sec. 3)

Where an establishment consists of different departments or undertakings or has branches, whether situated in the same place or in different places all such departments or undertakings or branches shall be treated as parts of the same establishment for the purpose of computation of bonus under this Act.

Provided that where for any accounting year a separate balance-sheet and profit and loss account are prepared and maintained in respect of any such department or undertaking or branch, then, such department or undertaking or breach shall be treated as separate establishment for the purpose of computation of bonus under this Act for that year, unless such department or undertaking or branch was immediately before the commencement of that accounting year treated as part of the establishment for the purpose of computation of bonus.

16. Computation of Available Surplus (Sec. 5)

The available surplus in respect of any accounting year shall be the gross profits for that year after deducting there from the sums referred to in Sec. 6.

Provided that the available surplus in respect of the accounting year commencing on any day in the year 1968 and in respect of every subsequent accounting year shall be the aggregate of -

(a) The gross profits for that accounting year after deducting there from the sums referred to in Section 6; and

(b) An amount equal to the difference between -

(i) The direct tax, calculated in accordance with the provisions of Section 7, in respect of an amount equal to the gross profits of the employer for the immediately preceding accounting year; and

(ii)The direct tax, calculated in accordance with the provisions of Section 7, in respect of an amount equal to the gross profits of the employer for such preceding accounting year after deducting there from the amount of bonus which the employer has paid or is liable to pay to his employees in accordance with the provisions of this Act for that year.

17. Sums Deductible from Gross Profits (Sec. 6)

The following sums shall be deducted from the gross profits as prior charges, namely:

(a) Any amount by way of depreciation admissible in accordance with the provisions of sub-section (1) of Section 32 of the Income-tax Act, or in accordance with the provisions of the agricultural Income-tax law, as the case may be: Provided that where an employer has been paying bonus of his employees under a settlement or an award or agreement made before the 29th May, 1965, and subsisting on that date after deducting from the gross profits notional normal depreciation, then the amount of depreciation to be deducted under this clause shall, at the option of such employer (such option to be exercised once and within one year from that date) continue to be such notional normal depreciation;

(b) Any amount by way of development rebate or investment allowance or development allowance which the employer is entitled to deduction from his income under the Income-tax Act;

(c) Subject to the provisions of Section 7, any direct tax which the employer is liable to pay for the accounting year in respect of his income, profits and gains during the year;

(d) Such further sums as are specified in respect of the employer in the Third Schedule.

• ELIGIBILITY AND DISQUALIFICATION FOR BONUS

18. ELGIBILITY FOR BONUS (SEC. 8)

Every employee shall be entitled to be paid by his employer in an accounting year, bonus, in accordance with the provisions of this Act, provided he has worked in the establishment for not less than thirty working days in that year.

Whenever employee is not working for minimum days for any accounting year, the bonus payable to him shall be proportionately reduced.

Case: In Project Manager ONGC v/s Sham Kumar Sahegal (1995) 1 LLT, 863, it was held that an employee suspended but subsequently reinstated with full back wages cannot be treated to be ineligible for bonus for the period of suspension.

19. DISQUALIFICATION FOR BONUS (SEC.9)

 Notwithstanding anything contained in this Act, an employee shall be disqualified from receiving bonus under this Act, if he is dismissed from service for -

(a) Fraud; or

(b) Riotous or violent behaviour while on the premises of the establishment; or

(e) Theft, misappropriation or sabotage of any property of the establishment.

Case: In Pandian Roadways Corporation Ltd. v/s Principal Labour Court, 19962 LLT, 606, it was held that if an employee is dismissed from service for any act of misconduct enumerated in section 9, he stands disqualified from receiving any bonus under the act and not the bonus only for the accounting year in which the dismissal takes place.

• MINIMUM AND MAXIMUM BONUS

20. PAYMENT OF MINIMUM BONUS (SEC. 10)

Subject to the other provisions of this Act, every employer shall be borne to pay to every employee in respect of the accounting year commencing ot any day in the year 1979 and in respect of every subsequent accounting year, a minimum bonus which shall be 8.33 per cent of the salary or wag earned by the employee during the accounting year or one hundred rupees whichever is higher, whether or not the employer has any allocable surplus in the accounting year.

Case: In State oys Sandar Singh Maithia (1979) Lab. I.C. it was held that section 10 of this act is not violation of articles 19 and 301 of the Indian Constitution Even if the employer suffers losses during the accounting year, he is bound to pay minimum bonus as prescribed by Sec. 10.

21. PAYMENT OF MAXIMUM BONUS (SEC. 11)

(1) Where in respect of any accounting year referred to in section 10, the allocable surplus exceeds the amount of minimum bonus payable to the employees under that section, the employer shall, in lieu of 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 a maximum of twenty per cent of such salary or wage.

(2) In computing the allocable surplus under this section, the amount se on or the amount set off under the provisions of section 15 shall be taken into account in accordance with the provisions of that section.

22. Calculation of Bonus with Respect to Certain Employees (Sec. 12)

The Principal Act provided that the bonus payable to an employee shall be in proportion to his/ her salary. However, where an employee's salary was over 3,500 per month, for the purposes of calculating bonus, the salary was to be assumed to be 3500 per month. With a view to maximize bonus earnings, the Amendment Act has increased the wage ceiling for calculation of Bonus from 3500/-to 7,000/-.

23. Proportionate Reduction in Bonus in Certain Cases (Sec. 13)

Where an employee has not worked for all the working days in an accounting year, the minimum bonus of one hundred rupees or, as the case may be, of sixty rupees, if such bonus is higher than 8.33 per cent of his salary or wage for the days he has worked in that accounting year shall be proportionately reduced.

24. Computation of Number of Working Days (Sec. 14)

For the purposes of section I3, an employee shall be deemed to have worked in an establishment in any accounting year also on the days on which -

(a) He has been laid off under an agreement or as permitted by standing orders under the Industrial Employment (Standing Orders) Act, 194620 of 1946), or under the Industrial Disputes Act, 1947 (14 of 1947) or under any other law applicable to the establishment;

(b) He has been on leave with salary or wage;

(c) He has been absent due to temporary disablement caused by accident arising out of and in the course of his employment; and

(d) The employee has been on maternity leave with salary or wage, during the accounting year.

• SET ON AND SET OFF OF MALLOCABLE SURPLUS (SEC. 15)

1. Set On : Where for any accounting year, the allocable surplus exceeds the amount of maximum bonus payable to the employees in the establishment under section 11, then, the excess shall, subject to a limit of twenty per cent 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 utilised for the purpose of payment of bonus in the manner illustrated in the Fourth Schedule.

2. Set Off: 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 employees in the establishment under section 10, and there is no amount or sufficient amount carried forward and set on under sub-section (1) which could be utilised for the purpose of payment of the minimum bonus, then, such minimum amount or the deficiency, as the case may be, 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 illustrated 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 this 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 earliest accounting year shall first be taken into account.

Adjustment of Customary or Interim Bonus against Bonus Payable under the Act (Sec. 17)

Where in any accounting year-

(a) An employer has paid any puja bonus or other customary bonus to an employee; or

(b) An employer has paid a part of the bonus payable under this Act to an employee before the date on which such bonus becomes payable, then, the employer shall be entitled to deduct the amount of bonus so paid from the amount of bonus payable by him to the employee under this Act in respect of that accounting year and the employee shall be entitled to receive only the balance.

• Deduction of Certain Amounts from Bonus Payable under the Act (Sec. 18)

Where in any accounting year, an employee is found guilty of misconduct causing financial loss to the employer, then, it shall be lawful for the employer to deduct the amount of loss from the amount of bonus payable by him to the employee under this Act in respect of that accounting year i only and the employee shall be entitled to receive the balance, if any.

• Time-limit for Payment of Bonus (Sec. 19)

All amounts payable to an employee by way of bonus under this Act shall be paid in cash by his employer -

(a) Where there is a dispute regarding payment of bonus pending before any authority within a month from the date on which the award becomes enforceable or the settlement comes into operation, in respect of such dispute;

(b) In any other case, within a period of eight months from the close of the accounting year:

(c) The appropriate Government or authority specify by the appropriate Government, upon an application made to it by the employer and for sufficient reasons, by order, extend the said period of eight months to such further period or periods as it thinks fit; so, however, that the total period so extended shall not in any case exceed two years.

4.3 The Payment of Gratuity Act, 1972

Payment of gratuity Act is one of the social security benefits to employees for their old age. Gratuity is amount that is received by an employee from his/her employer in gratitude for the services offered by the employee. Gratuity is a lump sum payment made by the employer as a mark of recognition of the service rendered by the employee when he retires or leaves service.

Earlier payment of gratuity was not compulsory, that means it was not right of employee but later on as per the payment of gratuity Act 1972, receiving gratuity from employer is right of the employee.

• Applicability of the Act

Application of the act to an employed person depends on two factors. Firstly, he should be employed in an establishment to which the act applies. Secondly, he should be an "employee" as defined is section 2(e).

According to Section 1(3), the Act applies to:

1. Every factory, mine, oilfield, plantation, port and Railway Company;

2. Every shop or establishment within the meaning of any law for the time being in force in relation to shops and establishments in a State, in which ten or more persons are employed, or were employed, on any day of the preceding twelve months;

3. Such other establishments or class of establishments in which ten or more employees are employed, or were employed, on any day of the preceding twelve months as the Central Government may, by notification specify in this behalf.

4. In exercise of the powers conferred by clause (c), the Central Government has specified Motor transport undertakings, Clubs Chambers of Commerce and Industry, Inland Water Transport establishments, Solicitors offices, Local bodies, Educational Institutions, Societies, Trusts and Circus industry, in which 10 or more persons are employed or were employed on any day of the preceding 12 months, as classes of establishments to which the Act shall apply.

5. The Act continues to be applicable to any establishment or institution even if the number falls below 10 subsequent to its coverage. Central Government may by notification extend the coverage to any establishment/institution.

• DEFINITIONS

Appropriate Government [Sec. 2(a)]: "Appropriate Government" means-

(i) In relation to an establishment:

•Belonging to, or under the control of, the Central Government,

•Having branches in more than one State,

•Of a factory belonging to, or under the control of the Central Government.

•Of a major port, mine, oilfield or railway company belonging to, or under the control of the Central Government.

(ii) In any other case, the State Government [Section 2(a)]: It may be noted that many large establishments have branches in more than one State. In such cases the appropriate Government' is the Central Government and any dispute connected with the payment or non-payment of gratuity falls within the jurisdiction of the 'Controlling Authority and the 'Appellate Authority appointed by the Central Government under Sections 3 and 7.

2. Continuous Service [Sec. 2(c)]: This act defines it to mean uninterrupted service including service interrupted by sickness, accident, leave, absence from duty without leave, lay off, strike or a lock-out or cessation of work not due to any fault of the employee concerned. If an employee s service is interrupted by other than causes mentioned above, the service will be deemed to be interrupted it will fall within the definition of "continuous service". In the case of an employee who is not in uninterrupted service for one year or 6 months he shall be deemed to be in continuous service:

A) For the said period of one year: If the employee during the period of twelve calendar months preceding the date with reference to which calculation is to be made, has actually worked under the employer for not less than-

(i) 190 days, in the case of an employee employed below the ground in a mine or in an establishment which works for less than 6 days in a week, or

(ii) 240 days, in any other case.

(B) For the said period of six months: 1f the employee during the period of 6 calendar months preceding the date with reference to which the calculation is to be made, has actually worked under the employer for not less than

(i) 95 days, in the case of an employee employed below the ground in a mine or in an establishment which works for less than 6days in a week, or

(ii) 120 days, in any other case.

(C) An employee of a seasonal establishment shall be deemed to be in continuous service if he has actually worked for not less than 75% of the no. of days in which the establishment was in operating during such period.

3. Controlling Authority [Sec. 2(d)]: The appropriate Government may, by notification, appoint any officer to be a controlling authority, who shall be responsible for the administration of this Act and different controlling authorities may be appointed for different areas.

4. Superannuation [New Sec. 2(r)]: The expression 'superannuation' in relation to an employee, means

(i) The attainment by the employee of such age as is fixed in the contract or condition of service as the age on the attainment of which the employee shall vacate employment and

(ii) In any other case, the attainment by the employee of the age of Thus, the term' superannuation means retirement of an employee on attainment of certain age, where in respect of an employee entitled to the benefits of the Act, no age of superannuation has been fixed by contract or any condition of service but if the employee fixes 58 years as the age of superannuation of the employee, it is not a unilateral action on the part of the employer since the age of 58 years as the age of superannuation has been fixed by the Parliament.

5. Notification [Sec. 2(k)]: It means a notification published in the Official Gazette.

6. Family [Sec. 2(h)]: Section 2(h) of the Payment of Gratuity Act, 1972 defines the term family. It varies with the fact that the employee is the male or a female employee.

In the case of male employee, family shall be deemed to consist of himself, his wife, his children, whether married or unmarried, his dependent parents, and the dependent parents of his wife and the widow and children of his predeceased son, if any.

In the case of the female employee, family shall be deemed to consist of herself, her husband, her children, whether married or unmarried her dependent parents and dependent parents of her husband and the widow and children of her predeceased son it any.

7. Employee [See. 2(e)]: It is very important to understand the definition of employee under this Act. Employee means any person (other than an apprentice) employed on wages to do any skilled, semi- skilled, or unskilled manual supervisory, technical or clerical work, whether the terms of such employment are express or implied and whether or not such person is employed in a managerial or administrative capacity. However, it does not include any such person who holds a post under the Central Government or a State Government and is governed by any other Act or by any rules providing for payment of gratuity.

Employee as per Section 2(e) of the Payment of Gratuity Act, 1972, as amended by the Amendment Act, 1994, means any person (other than an apprentice) employed in any establishment, factory, mine, oilfield plantation, port, Railway Company or shop. He may be employed to nay skilled, semi-skilled, or unskilled, manual, supervisory, technical or clerical work. The term of employment may be express or implied. The term further includes any such person who is employed in a managerial or administrative capacity. But it does not include any such person who holds the post under the Central Government or a State Government and is governed by any other Act or rules providing for payment of gratuity.

The monetary ceiling of 3,500 p.m. as the salary or wage on an employee for being converted under payment of gratuity (Amendment Act, 1994) Accordingly, now all employees of the specified establishments expect apprentices, are entitled to gratuity under the Act.

8. Employer Sec. 2(f): Section 2(f) of the Payment of Gratuity Act. 1972 defines the term Employer as follows:

"In relation to any establishment, factory, mine, oilfield, plantation, port, Railway Company or shop belonging to or under the control of, the Central Government or a State Government employer means a person or authority appointed by the appropriate Government for the supervision and control of employees. Where no person or authority has been so appointed, employer means the head of the ministry or the Department concerned."

In case of any of the above establishment belonging to, or under control of any local authority, employer means the person appointed by such authority for the supervision and control of employees or where no person has been so appointed, the chief executive officer of the local authority.

In any other case, employer means the person, who or the authority which has the ultimate control over the affairs of the establishment, factory, mine, oilfield, plantation, port, Railway Company or shop. Where the said affairs are entrusted to any other person, employer means such other person, whether called a manager, managing director or by any other name.

9. Wages Sec. 2(s): The term 'wages as per section 2(s) of the Payment of Gratuity Act, 1972 means all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employment and which are paid or payable to him by cash. It includes dearness allowances'. But, it does not include any bonus, commission, house rent allowance, overtime wages and any other allowance.

The chief feature of the definition of the wages is aforesaid i.e it refers to the payments made in cash, paid or payable to an employee. The computation of the value of the food supplied by the employer to the employee in terms of money for the purpose of adding it to the monthly salary apparently seems to be outside the purview of the above definition, because the supply of the free food cannot form part of and be added to the cash salary paid to him total wages for computing the amount payable to him.

10. Retirement [Sec. 2(q)]: "Retirement" means termination of the service of an employee otherwise than on superannuation Section 2(a) l In State of Punjab ws Labour Court, 1980, it was held that retirement includes retrenchment.

• WHEN IS GRATUITY PAYABLE? [SEC. 4(1)]

 According to Section 4(1) of the Payment of Gratuity shall be payable to an employee on the termination after he has rendered continuous service for not less than five years:

 (a) On his superannuation, or

(b) On his retirement or resignation, or

(c) On his death or disablement due to accident or disease.

Gratuity cannot be claimed by a workman who has not put in service for the specified period of five years. Where a workman is discharged before he has put in service for the minimum period, no liability attaches to the employer.

However, completion of continuous service of 5 years shall not be necessary where the termination of the employment of any employee is due to death or disablement. In case of his death, gratuity is payable to his nominee, or, if no nomination has been made, to his heirs. Where such nominee or heir is a minor, the share of such minor, shall be deposited with the Controlling Authority who shall invest the same for the benefit of such minor attains majority.

• TO WHOM IS GRATUITY PAYABLE? [SEC. 4]

It is payable normally to the employee himself. However, in the case death of the employee, it shall be paid to his nominee and if no nom has been made, to his heirs and where any such nominees or heirs is a minor, the share of such minor, shall be deposited with the controlling authority who shall invest the same tor the benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains majority.

• RATE OF GRATUITY [SEC. 4(2)]

Gratuity shall be payable for every completed year of service or part of the year is in excess of 6 months than it will be taken as one year. For each completed year of service Gratuity is payable at the rate of 15 days of wages.

Amount of Gratuity is computed on the basis of the rate of wages la drawn by the employee.

Gratuity = (Monthly Salary / Wages last drawn x 15 days’ x no. of years of service) ÷ 26

In the case of a piece rated employee, the rate of daily wages shall be computed on the basis of average of the total wages earned by him for a period of 3 months immediately preceding the termination of his employment. In this calculation overtime wages paid is not considered.

Gratuity = (Average of last 3 months’ wages ×15 days × no. of years of service) ÷ No. of days worked.

In the case of employees working with seasonal establishment, the rate of gratuity shall be computed 7 days of wages for each season.

• MAXIMUM AMOUNT OF GRATUITY PAYABLE [SEC. 4(3)]

Payment of Gratuity (Amendment) Act, 2018 brought in force on 29th March, 2018. As per this amendment act the maximum amount of gratuity is enhanced from  10 Lakhs to 20 Lakhs.

Before implementation of 7th Central Pay Commission, the ceiling under Central Civil Services (Pension) Rules, 1972 was 10 Lakh. However, with implementation of 7th Central Pay Commission, in case of Government servants, the ceiling has been raised to 20 Lakhs.

Therefore, considering the inflation and wage increase even in case of employees engaged in private sector, this Government decided that th entitlement of gratuity should also be revised in respect of employees who are covered under the Payment of Gratuity Act, 19/2. Accordingly, th Government initiated the process for amendment to Payment of Gratuity Act, 1972 to increase the maximum limit of gratuity to such amount as may be notified by the Central Government from time to time. Now, the government has issued the notification specifying the maximum limit to 20 Lakh.

• EXEMPTIONS [SEC. 5]

The appropriate Government may exempt any factory or establishment covered by the Act or any employee or class of employees if the gratuity or pensionary benefits for the employees are not less favorable than conferred under the Act.

• FORFEITURE OF GRATUITY [SEC. 4(6)]

The Act deals with this issue in two parts.

1. Section 4(6)(a) provides that the gratuity of an employee whose services have been terminated for any act of willful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer, shall be forfeited to the extent of the damage or loss caused. The right of forfeiture is limited to the extent of damage. In absence of proof of the extent of damage, the right of forfeiture is not available.

2. Section 4(6)(b) deals with a case where the services of an employee have been terminated:

(a) For riotous and disorderly conduct or any other act of violence on his part, or

(b) For any act which constitutes an offence involving moral turpitude provided that such offence is committed by him in the course of his employment.

In such cases the gratuity payable to the employee may be wholly or partially forfeited. Where the service has not been terminated on any of the above grounds, the employer cannot withhold gratuity due to the employee. Where the land of the employer is not vacated by the employee gratuity cannot be withheld. If assignment of gratuity is prohibited, it cannot be withheld for non-vacation of service quarters by retiring employees.

• DETERMINATION OF THE AMOUNT OF GRATUITY (SECTION 7)

1. A person who is eligible for payment of gratuity under this Act or any person authorized, in writing, to act on his behalf shall send a written application to the employer, within such time and in such form, as may be prescribed, for payment of such gratuity.

2. As soon as gratuity becomes payable, the employer shall, whether an application referred to in sub-section (1) has been made or not, determine the amount of gratuity and give notice in writing to the person to whom the gratuity is payable and also to the controlling authority specifying the amount gratuity so determined.

3. The employer shall arrange to pay the amount of gratuity within thirty days from the date it becomes payable to the person to whom the gratuity is payable.

4. If the amount of gratuity payable under sub-section (3) is not paid by the employer within the period specified in sub-section (3), the employer shall pay, from the date on which the gratuity becomes payable to the date on which it is paid, simple interest at such rate, not exceeding the rate notified by the Central Government from time to time for repayment of long-term deposits, as that Government may, by notification specify.

5. But no such interest shall be payable if the delay in the payment is due to the fault of the employee and the employer has obtained permission in writing from the controlling authority for the delayed payment on this ground.

• NOMINATION (SEC. 6)

1. Each employee, who has completed one year of service, shall make, within such time, in such form and in such manner, as may be prescribed, nomination for the purpose of the second proviso to sub section (1) of section 4.

2. An employee may, in his nomination, distribute the amount of gratuity payable to him under this Act amongst more than one nominee.

3. If an employee has a family at the time of making a nomination, their nomination shall be made in favour of one or more members of his family, and any nomination made by such employee in favour of a person who is not a member of his family, shall be void.

4. If at the time of making a nomination the employee has no family, the nomination may be made in favour of any person or persons but if the employee subsequently acquires a family, such nomination shall forthwith become invalid and the employee shall make, within such time as may be prescribed, afresh nomination in favour of one or more members of his family.

5. A nomination may, subject to the provisions of sub-sections (3) and (4), be modified by an employee at any time, after giving to his employer a written notice in such form and in such manner as may be prescribed, of his intention to do so.

6. If a nominee predeceases the employee, the interest of the nominee shall revert to the employee who shall make a fresh nomination, in the prescribed form, in respect of such interest.

7. Every nomination, fresh nomination or alteration of nomination, as the case may be, shall be sent by the employee to his employer, who shall keep the same in his safe custody.

• PENALTIES (SEC. 9)

Whoever, for the purpose of avoiding any payment to be made by himself under this Act or of enabling any other person to avoid such payment, knowingly makes or causes to be made any false statement or false representation shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to ten thousand rupees or with both.

An employer who contravenes, or makes default in complying with, any of the provisions of this Act or any rule or order made there under shall be punishable with imprisonment for a term which shall not be less than three months but which may extend to one year, or with fine which shall not be less than ten thousand rupees but which may extend to twenty thousand rupees, or with both.

REFERENCE:

1. LABOUR.GOV.IN
2. INDIANKANOON.ORG
3. INDIACODE.NIC.IN
4. CLC,GOV.IN