Section 27: Proportionate reduction in bonus in certain cases

Overview

This section of the Code on Wages, 2019, deals with the payment of bonus. Specifically, it explains how a bonus amount might be adjusted if an employee hasn’t been able to work for the entire accounting year (usually a financial year). It ensures fairness while acknowledging that employees who work fewer days contribute less to the company’s productivity.

Scope and Coverage

• Which employees are covered: This section applies to all eligible employees who are entitled to a bonus under the Payment of Bonus Act, 1965, and now governed by the Code on Wages, 2019. This generally includes employees earning a wage or salary below a certain threshold (currently ₹21,000 per month, but subject to change).
• Which establishments are covered: It applies to all establishments employing 10 or more employees.
• Thresholds or exclusions: The reduction applies only if the employee has *not* worked for all working days in the accounting year. Employees who have worked the full year are entitled to the full bonus.

Key Obligations and Rights

• Main duties of employers: Employers are obligated to calculate the bonus accurately, considering the number of working days the employee actually worked. They must proportionately reduce the bonus amount if the employee was absent for any reason (leave, sickness, etc.) during the accounting year. The employer must clearly communicate the basis of the bonus calculation to the employee.
• Important rights or protections for employees: Employees have the right to a bonus calculated fairly, based on their actual working days. They have the right to understand how their bonus has been calculated and to question any discrepancies. The reduction should be proportionate and not arbitrary.

Compliance and Penalties

If an employer fails to correctly calculate and pay the bonus, or if they make an unfair reduction, they can face penalties. This could include fines, and in some cases, prosecution. Labour inspectors can conduct inspections to ensure compliance with the Code on Wages. Repeated violations can lead to more severe consequences.

Practical Examples

• Example 1: Ramesh is eligible for a bonus of ₹10,000. The accounting year has 300 working days. Ramesh worked for 250 days due to medical leave. His bonus will be reduced proportionately: (250/300) * ₹10,000 = ₹8,333.33. He will receive a bonus of ₹8,333.33.
• Example 2: Priya is eligible for a bonus of ₹15,000. The accounting year has 365 working days. She took 15 days of planned leave. Her bonus will be reduced proportionately: (350/365) * ₹15,000 = ₹14,383.56. She will receive a bonus of ₹14,383.56.