Section 31: Payment of bonus out of allocable surplus

Overview

This section of the Code on Wages, 2019, deals with the payment of bonus to eligible employees from the establishment’s profits. It ensures that employees share in the financial success of the company they work for. This is a key benefit designed to motivate and reward employees.

Scope and Coverage

• Which employees and establishments are covered: This section applies to all establishments covered under the Code on Wages, 2019, and to all employees drawing salary or wages.
• Any thresholds or exclusions: The section applies when an establishment has an ‘allocable surplus’ (explained below). There are no specific exclusions based on employment type (permanent, temporary, etc.) as long as the employee receives salary or wages.

Key Obligations and Rights

• Main duties of employers: If an establishment makes a profit (resulting in an ‘allocable surplus’ in an accounting year), the employer must pay a bonus to every eligible employee.
• Important rights or protections for employees: Every eligible employee is entitled to a minimum bonus of either 8.33% of their salary or wages, or ₹100, whichever is higher. This ensures a baseline bonus amount even for lower-paid employees.

Compliance and Penalties

Failure to pay the bonus as required under Section 31 can lead to penalties. Labour inspectors can conduct inspections to verify compliance. Penalties may include fines and, in some cases, imprisonment for the employer or responsible personnel. Repeated violations can result in more severe consequences.

Practical Examples

• Example 1: Ramesh works in a factory and earns ₹15,000 per month. The factory has an allocable surplus. His bonus will be calculated as 8.33% of ₹15,000, which is ₹1,249.50. He will receive at least this amount as a bonus.
• Example 2: Priya works as a helper and earns ₹5,000 per month. The company has an allocable surplus. 8.33% of her salary is ₹416.50. However, because the minimum bonus is ₹100, Priya will receive a bonus of ₹100.