A Study on Liability of bonus under the Payment of Bonus Act to the workmen employed by the contractor By S. Sensharma


The issue with regard to the liability of payment of bonus to the workmen employed by the contractor has been an issue with the Labour department for a long time. During my service period, on a number of occasions, the Labour Inspector used to ask us to show records pertaining to payment of bonus to contractor’s workmen and they used to insist that the principal employer was liable to make such payment and if it wished, it could recover the same from the contractor.

Therefore, this article has been written with a view to clarifying this issue legally and with the purpose of enlightening the Principal Employer on the same.

The payment of Bonus act, 1965 applies to every factory and to every other establishment in which 20 or more persons are employed on any day during an accounting year.

The term ‘Employee’ has been defined in section 2(13) of the Act as under:

"employee" means any person (other than an apprentice) employed on a salary or wage not exceeding 7[three thousand and five hundred rupees] per mensem in any industry to do any skilled or unskilled manual, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of employment be express or implied.

A perusal of this show that conspicuously it does not either expressly or impliedly include contract labor. If a person claims any benefit under the Act, he should fit into this definition of an employee.

Section 2(b) of the Contract Labour (Regulation and Abolition) Act, 1970 states that a workman shall be deemed to be employed as “contract labour” in or in connection with the work of an establishment when he is hired in or in connection with such work by or through a contractor, with or without the knowledge of the Principal employer. Section 2(c) of the Act defines the term “Contractor” and Section 2(g) defines the term “Principal employer”. Thus, a contractor is a person who, in pursuit of independent businesses, undertakes to do specific jobs of work for other persons, without submitting himself to their control in respect to the details of the work. It is only when the contractor engages labour for or on his own behalf and supplies the finished products to the manufacturer that he will be the Principal employer in relation to such labour and the manufacturer will not be responsible for implementing the provisions of the Contract Labour(Regulation and Abolition) Act, 1970 with regard to such labour employed by the contractor. When a contractor engages labour for and on behalf of another person that other person becomes the principal employer.

It is relevant at this stage to mention about the Division Bench judgment of the Kerala High Court in the matter of Kerala State Civil Supplies Corporation vs Industrial Tribunal reported in 2007 (115) FLR 569/ 2007 II LLJ 884. Here the High Court dealt with payment of bonus to the headload workers engaged in the godowns of the petitioner. It was contended on behalf of the petitioner that the Bonus Act provides for bonus to the employees and since the headload workers engaged for loading and unloading goods at the godown on contract are not its employees, they are not entitled to bonus under the Act from the petitioner. After analyzing the facts and the law, the Court held that the loading and unloading workers of the contractor do not answer the description of ‘employee’ of the petitioner under the Act.

It is also pertinent to mention about a judgment of Karnataka High Court in Sachindra Kumar, Factory Manager, Hindustan Unilever Ltd vs State of Karnataka reported in 2013 (138) FLR 193/ 2013 LLR 595. The Court was dealing with a criminal revision under Section 482 Cr. P.C. Here the Company was prosecuted for not paying bonus to contractor workers at par with their regular employees. The Court observed that the definition of ‘employee’ does not include a contract labour. The Court held that contract labour cannot be treated on par with the regular employees for the purpose of payment of bonus under the Payment of Bonus Act.

Section 21 of the Contract Labour(Regulation and Abolition) Act, 1970 deal with the responsibility for payment of wages. Sub-section (1) lay down that a contractor shall be responsible for payment of wages to each worker employed by him as contract labour. Sub-section (4) stipulates that in case the contractor fails to make payment of wages within the prescribed period or makes short payment, then the principal employer shall be liable to make payment of wages in full or the unpaid balance due, as the case may be, to the contract labour employed by the Contractor. The act also provides that the principal employer will ensure that the wages to the employees of the contractor must be paid in the presence of the authorized representative of the principal employer. Accordingly, the Supreme Court in Workmen of Nilgiri Coop. Mkt. Society Ltd vs State of Tamil Nadu reported in 2004 (3) SCC 514 has held that even in terms of Section 21 of the Contract Labour Act, the principal employer has a statutory obligation to see that the employees concerned (of the contractor) are paid their wages and deduct the same from the bills of the contractor.

From the above, it is clear that in case the contractor fails to pay wages or pays less wages to his workers, the principal employer is liable to disburse wages to the workmen of the contractor and deduct the same from the bills of the contractor. Therefore, the moot question to be considered is whether “bonus” is a wage or not. For this, we have to go through the definition of the term “wages” provided under the relevant Acts.  

Section 2(1) (h) of the Contract Labour (Regulation and Abolition) Act, 1970 stipulates that “wages” shall have the meaning assigned to it in clause (vi) of Section 2 of the Payment of Wages Act, 1936. The definition under the Payment of Wages Act is as under:

"wages" means all remuneration (whether by way of salary allowances or otherwise) expressed in terms of money or capable of being so expressed which would if the terms of employment express or implied were fulfilled by payable to a person employed in respect of his employment or of work done in such employment and includes -

(a) any remuneration payable under any award or settlement between the parties or order of a court;
(b) any remuneration to which the person employed is entitled in respect of overtime work or holidays or any leave period;
(c) any additional remuneration payable under the terms of employment (whether called a bonus or by any other name);
(d) any sum which by reason of the termination of employment of the person employed is payable under any law contract or instrument which provides for the payment of such sum whether with or without deductions but does not provide for the time within which the payment is to be made;
(e) any sum to which the person employed is entitled under any scheme framed under any law for the time being in force, but does not include -

(1) any bonus (whether under a scheme of profit sharing or otherwise) which does not form part of the remuneration payable under the terms of employment or which is not payable under any award or settlement between the parties or order of a court;

(2) the value of any house-accommodation or of the supply of light water medical attendance or other amenity or of any service excluded from the computation of wages by a general or special order of the State Government;

(3) any contribution paid by the employer to any pension or provident fund and the interest which may have accrued thereon;

(4) any traveling allowance or the value of any traveling concession;

(5) any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment; or

(6) any gratuity payable on the termination of employment in cases other than those specified in sub-clause (d).

The definition contains both inclusive as well as exclusive clauses. A perusal of inclusive clause (5) talks about any additional remuneration payable under the terms of employment (whether called a bonus or by any other name). Similarly, clause (1) of the exclusion clause stipulates that any bonus (whether under a scheme of profit sharing or otherwise) which does not form part of the remuneration payable under the terms of employment or which is not payable under any award or settlement between the parties or order of a court. Therefore, it is absolutely clear that any amount paid as bonus is covered under the term “wages” only if it is part of remuneration and otherwise not. Bonus payable under the Payment of Bonus Act can never be considered as part of remuneration and, therefore, cannot be considered as “wages” either under the Payment of Wages act or under Contract Labour(Regulation and Abolition) Act.

The Supreme Court in the matter of Hindustan Steel Works Construction Ltd vs Commissioner of Labour reported in 1996 (10) SCC 599 held that under Section 21 CLRA, 1970, only contractual wages which have been agreed upon by the contractor to be paid to each of his workers have to be paid and since under the definition of wages under Section 2(1) (h), no additional amounts are included, such contingencies are not covered by Section 21 of the act, the principal employer is not liable to pay the additional amount.

Now, let us look into the definition of the term ”wages” as provided in Section 2(21) of the Bonus act. It reads as under:

"salary or wages " means all remuneration (other than remuneration in respect of over-time work) capable of being expressed in terms of money, which would, if the terms of employment, express or implied, were fulfilled, be payable to an employee in respect of his employment or of work done in such employment and includes dearness allowance (that is to say, all cash payments, by whatever name called, paid to an employee on account of a rise in the cost of living), but does not include,-

(i) any other allowance which the employee is for the time being entitled to;

(ii) the value of any house accommodation or of supply of light, water, medical attendance or other amenity or of any service or of any concessional supply of food grains or other articles;

(iii) any traveling concession;

(iv) any bonus (including incentive, production and attendance bonus);

(v) any contribution paid or payable by the employer to any pension fund or provident fund or for the benefit of the employee under any law for the time being in force;

(vi) any retrenchment compensation or any gratuity or other retirement benefits payable to the employee or any ex gratia payment made to him;

(vii) any commission payable to the employee.

Explanation: Where an employee is given in lieu of the whole or part of the salary or wages payable to him, free food allowance or free food by his employer, such food allowance or the value of such food shall, for the purpose of this clause, be deemed to form part of the salary or wages of such employee;

A perusal of this reveals that it specifically excludes any bonus (including incentive, production and attendance bonus). Thus, here also a bonus is not a wage.

Now, let us see the definition of the term “wages” under the Industrial Disputes Act, 1947/ U.P Industrial Disputes Act, 1947 as under:

Section 2(rr): Industrial Disputes Act, 1947:

"wages" means all remuneration capable of being expressed in terms of money, which would, if the terms of employment, expressed or implied, were fulfilled, be payable to a workman in respect of his employment or of work done in such employment, and includes-

(i) such allowances (including dearness allowance) as the workman is for the time being entitled to;

(ii) the value of any house accommodation, or of supply of light, water, medical attendance or other amenity or of any service or of any concessional supply of food grains or other articles;

(iii) any traveling concession;

(iv) any commission payable on the promotion of sales or business or both;
but does not include-

(a) any bonus;
(b)any contribution paid or payable by the employer to any pension fund or provident fund or for the benefit of the workman under any law for the time being in force;
(c) any gratuity payable on the termination of his service;
 
Section 2(y): U.P. Industrial Disputes Act, 1947:

'Wages' means all remuneration capable of being expressed in terms of money, which would, if the terms of employment, expressed or implied, were fulfilled, be payable to a workman in respect of his employment, or of work done in such employment, and includes -

(i) such allowances (including dearness allowance) as the workman is for the time being entitled to;

(ii) the value of any house accommodation, or of supply of light, water, medical attendance or other amenity or of any service or of any concessional supply of food grains or other articles;

(iii) any travelling concession, but does not include -

(a) any bonus;
(b) any contribution paid or payable by the employer to any pension fund or provident fund or for the benefit of the workman under any law for the time being in force;
(c) any gratuity payable on the termination of his service.
 
Both these Acts exclude bonus from the definition of the term “wages”. It is relevant to note that a Division Bench of the Supreme Court in Hamdard (Wakf) Laboratories vs DLC reported in 2007 (5) SCC 281 accepted the contention of the appellant that the definition of the term ’wages’ contained in Section 2 (y) UP Industrial Disputes Act, 1947 and Section 21 of the Payment of Bonus Act, 1965 has clearly prescribed that bonus is neither ‘wage’ nor ‘allowance’ and as such the term ‘wages’ must be interpreted in the light of the statute operating in the field. It was not a part of remuneration.  
In the matter of Cominco Binani Zinc Ltd vs Pappachan reported in 1989 I LLJ 452, it was contended that the canteen was run by the contractor and the employees were engaged by the contractor. Thus no claim of bonus or gratuity can be made against them under the provisions of Industrial Disputes Act/ Payment of Wages Act/ or under any other legislation. The Kerala High Court held that the term ‘wages’ under the ID Act/ PW Act specifically excludes bonus/ gratuity from its purview, the contractor workers are not entitled to receive bonus/ gratuity from the principal employer more so since the principal employer’s liability to pay only wages is recognized under Section 21(4) of the CLRA, 1970.

Conclusion:

From the above, it is clear that the Payment of Bonus Act does not differentiate between a contract worker and other workers. It casts responsibility on all employers, covered by the act, to make payment of bonus to his employees. The principal employer not being the employer of contract workers is not liable for payment of bonus. The contractor, who engages the contract labor, has to make payment of bonus, as he is actually their employer and bonus will in no situation be the principal employer’s responsibility.
 

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