 "A bonus of contention")
On December 24, the Rajya Sabha approved amendments to the Payment of Bonus Act, 1965, at the end of Parliament's winter session and the President granted assent on December 31. With these amendments, the wage threshold for determining applicability of the Act has increased from Rs 10,000 to Rs 21,000 a month. The wage ceiling for calculation of bonus also increased from Rs 3,500 to Rs 7,000 a month.
The amendments came after a day-long strike by 10 central trade unions in September. But what could have been a pro-labour reform is instead drawing severe criticism from industry.
"While this appears to be an attempt by the government to keep the trade unions satisfied, it will make companies' books of accounts go haywire," says a Confederation of Indian Industry (CII) official.
The bone of contention is the retrospective nature of the reforms. Industry has expressed reservations on the amendments that would take effect retrospectively from April 1, 2014. In a strongly worded letter to Labour Secretary Shankar Agarwal, All India Organisation of Employers President Sanjay Bhatia said companies would come under stress as the increased amount of bonus was not provisioned in the balance sheet for 2014-15.
Legal experts point out that the retrospective nature of the amendments will increase salary costs for employers significantly. "Companies have already allocated surplus and have made the bonus payouts. Further, many employers, especially MNCs, pay discretionary bonus based on performance. Had they known of the higher discretionary bonus, they would have reduced the variable, so that finances are not affected," says Swarnima, senior associate at Trilegal, a law firm that is advising software industry body Nasscom on the matter.
Sources point out that the draft of the proposed amendments, which was sent to industry bodies, states these changes prospectively. But, it turned retrospective in the Bill.
Moreover, Labour Minister Bandaru Dattatreya telling with the media that Prime Minister Modi had personally directed that the benefits should accrue from April 2014 has not gone down well with industry bodies.
"This is a populist measure and will create a lot of confusion. Many industries that are in financial stress may not be able to cope with this additional financial outgo. It could also lead to industrial disputes if employees get restive about their bonus arrears," says B P Pant, adviser to industry chamber Ficci.
Industry is also unhappy with the inclusion of the minimum wage component in the calculation of bonus. The amendment while increasing the wage ceiling from Rs 3,500 to Rs 7,000 has brought in a reference to minimum wages. With a view to maximising bonus earnings, the Act has factored in possibilities where the minimum wage payable to such employees may be over Rs 7,000, thereby giving employees the flexibility to draw a higher amount as bonus.
Legal experts fear this may hinder accounting policies of companies having a national presence. As the minimum wage varies across states, such companies will find it difficult to decide on the bonus amount. "This would involve aggregating relevant data pertaining to minimum wage rates, and ensuring that accurate calculations are made for each state," notes Anshul Prakash, associate partner at Khaitan & Co.
According to the provisions of the Minimum Wages Act, 1948, minimum wages have to be prescribed both at state and central level. "More often than not, publication of notifications pertaining to minimum wage rates is delayed and has been subject to anomalies," adds Prakash.
Swarnima of Trilegal points out that while employers are ready to absorb the cost of increasing the threshold, the minimum-wage factor will not allow companies to have predictability on their wage bill as the cost-to-employees will not be fixed.
On January 27, the Kerala High Court in the case of The United Planters' Association of Southern India and S B Prabhakar vs Union of India stayed the retrospective amendment and directed that is should be implemented from FY16 pending disposal of the writ petition. The interim order is applicable only for the petitioners. It is learnt that a few other industry bodies, too, are planning to file a writ petition terming the law as unconstitutional as it is retrospective in nature. With companies still groping in the dark over accounting difficulties and the additional financial outgo, the ball is in the government's court to clear the air.
THE AMENDMENTS
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Wage threshold increased from Rs 10,000 to Rs 21,000 a month
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Wage ceiling for calculation of bonus doubled to Rs 7,000 a month "or the minimum wage for the scheduled employment, as fixed by the government" (whichever is higher)
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Amendment effective April 1, 2014
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Act applies to every factory and establishment with 20 or more persons and is not linked to the performance of the employee
- Employees earning up to the wage threshold (Rs 21,000 a month) and have worked in the establishment for not less than 30 working days in the year are eligible
