Section 47: Audit of accounts of employers, being companies

Overview

This section of the Code on Wages, 2019, focuses on ensuring transparency and accuracy in the payment of bonus to employees in companies. It mandates an audit of the accounts related to bonus payments to verify compliance with the Code’s provisions.

Scope and Coverage

• Employees Covered: This section applies to all employees of companies who are eligible for bonus under the Payment of Bonus Act, 1965 (as incorporated into the Code on Wages).
• Establishments Covered: It specifically applies to companies as defined under the Companies Act, 2013. This excludes partnerships, sole proprietorships, and other forms of business organizations.
• Thresholds/Exclusions: There are no specific thresholds regarding the number of employees or the amount of bonus payable for this audit requirement to apply to a company. If a company is legally required to pay bonus, this audit applies.

Key Obligations and Rights

• Main Duties of Employers: Employers (companies) are obligated to ensure that their statutory auditor audits the accounts relating to bonus payments. This audit must verify that the bonus has been calculated and paid correctly, in accordance with the Code on Wages and any related rules. The employer must also submit the audit report to both the company itself and the appropriate Government.
• Important Rights/Protections for Employees: Employees have the right to expect that their bonus payments are accurately calculated and paid. This audit provides a safeguard to ensure that employers are fulfilling their obligations regarding bonus payments. Employees can request to see the audit report (though access may be limited based on company policy and data privacy concerns).

Compliance and Penalties

Failure to comply with Section 47 – meaning failing to conduct the audit or submit the report – can lead to penalties under the Code on Wages, 2019. These penalties may include fines and, in some cases, imprisonment for the responsible persons within the company. Government inspectors can also conduct inspections to verify compliance with this section.

Practical Examples

• Example 1: ABC Ltd., a manufacturing company, employs 500 workers. At the end of the financial year, they calculate and pay bonus to eligible employees. As a company, ABC Ltd. is legally required to have their auditor review the bonus accounts and submit a report to the company and the Labour Department.
• Example 2: XYZ Pvt. Ltd., a private limited company with 20 employees, pays a small bonus to its staff. Even though the bonus amount is relatively small, XYZ Pvt. Ltd. is still obligated to have their accounts relating to bonus audited and submit the report as they are a company.