India: Retrospective Effect from FY 2014-15 of Payment of Bonus (Amendment) Act, 2015 Stayed by various High Courts
Brief Background
The Payment of Bonus Act, 1965 provides for the payment of
statutory bonus to eligible employees. The bonus payable is to be determined on
the basis of profits or on the basis of production or productivity of the
establishment. The Act is applicable to factories and establishments employing
at least 20 persons, although in some Indian states, the Government has
extended the applicability of the law by reducing the threshold to factories
and establishments employing at least 10 persons. The Act requires an employer
to pay to an eligible employee a minimum bonus at the rate of 8.33% of the
salary earned by the employee during the accounting year or INR 100 (USD 1.5),
whichever is higher. As per law, the maximum statutory bonus can be limited to
20% of the employee’s salary.
In or about February 2013, the country faced nationwide
general strikes by trade unions for removal of all ceilings under the Payment
of Bonus Act, 1965. On September 2, 2015, 10 central trade unions were reported
to have gone on a one-day strike demanding an increase in the wage ceiling and
bonus calculation ceiling. Pursuant to these strikes, the Central Government
gave assurances to the public regarding the sought amendment, also in light of
the fact that the last revision of the two ceilings were made a long time ago
in 2007. The Payment of Bonus (Amendment) Bill, 2015 was introduced in the Lok
Sabha (House of People) of the Indian Parliament on December 7, 2015. The
amendment was proposed to be made effective from April 1, 2015. However, Indian
Prime Minister Mr. Narenda Modi signed off a last moment direction that the
benefits should accrue from April 1, 2014, and on December 23, 2015, the Rajya
Sabha (House of Ministers) of the Indian Parliament passed the bill, being
effective from April 1, 2014, with a voice vote. The bill sought to amend the
Payment of Bonus Act, 1965 as existing. The President of India gave his assent
on the Bill on December 31, 2015 thus, making it an Act. The Payment of Bonus
(Amendment) Act, 2015 as passed was published on the E-Gazette website on
January 1, 2016 for notice upon the general public.
Key amendments brought about by the Payment of Bonus
(Amendment) Act, 2015:
- Eligibility Wage Ceiling increased - under the provisions of the previous Act, an employee who had worked for at least 30 days (in an accounting year) and drew a salary of INR 10,000 (Approx. USD 150) per month, was eligible to receiving statutory bonus. The amendment increases this eligibility limit to a salary threshold of INR 21,000 (Approx. USD 325) per month.
- Ceiling for Bonus Calculation increased - under the previous Act, if an eligible employee’s salary were more than INR 3,500 (Approx. USD 55) per month, for the purposes of calculation of bonus, the salary would be assumed to be limited to INR 3,500 per month. The amendment raises this wage ceiling to INR 7,000 (Approx. USD 110) per month or the minimum wage notified for the employment under the Minimum Wages Act, 1948, whichever is higher.
- Retrospective amendment - the amendment has been given effect from April 1, 2014.
Reactions from various Associations on the Retrospective
Effect from FY 2014-15
Many were of the view that the retrospective nature of the
amendments should have been avoided and employers should have been given
adequate time to plan for such increase in their salary costs. The main concern
was that employers would not have budgeted for this expense in the previous
financial year (2014-2015) for which the books of accounts were already closed
and taxes also paid. Such retrospective application from April 2014 would lead
to financial stress, especially on the manufacturing sector where the number of
workers is high.
As per media reports by The Hindu, an Indian daily, the
Confederation of Indian Industries (CII) had written to the Labour Ministry on
January 8, 2016 seeking a clarification to be given to allow industries to give
bonus installments over the next two financial years to ease off the burden. It
also demanded that the excess bonus received by employees, besides the minimum
bonus, be adjusted in the next two financial years so as to “accommodate the
newer workforce using the same or reduced allocable surplus.” In another
report, a FICCI representative had reportedly stated that the industry had
urged the government to amend the law prospectively from 2016-17 rather than
give it a retrospective effect. The Micro, Small and Medium Enterprises (MSME)
chamber, Indian Industries Association (IIA) in the Indian state of Uttar
Pradesh is also known to have strongly opposed the retrospective implementation
of the amendment, stating that MSMEs have no means to pay such bonus in
arrears, while the Government by way of collecting taxes can pay the bonus.
Even NASSCOM reportedly made representations on the retrospective
applicability, financial impact, administrative challenges and the ambiguities
in the revised Act to the concerned ministries.
Stay on Retrospective Effect from April 1, 2014
Upon representations from various industry bodies by way of
writ petitions in various State High Courts challenging the retrospective
effect from FY 2014-15, several high courts have stayed the retrospective
operation temporarily.
For all of the above stay orders, it is clarified that the
amendment would take effect from the financial year 2015-16 onwards, and
not 2014-15 as earlier stipulated.
Thus, within a period of two to four months, six states in
India have already obtained a stay on the retrospective operation of the
amendment from FY 2014-15. It seems it is only a matter of time till all states
follow suit. Meanwhile, the Indian Government’s continuing focus on labour law
reforms calls for attention to a few important proposed changes to the Indian
labour laws including the Labour Code on Wages Bill, 2015 which seeks to
consolidate, simplify and rationalise various labour laws in India pertaining
to wages, namely, the Payment of Bonus Act, 1965, Minimum Wages Act, 1948,
Payment of Wages Act, 1936 and the Equal Remuneration Act, 1976.With the
financial management of even private companies at stake, this area of law is
surely one to watch out for.
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