As discussed in Part 2 of our series about deductions from wages payable, we will further define some deductions in this part of the series. For better understanding, please refer Part 1 and Part 2 of our series on labour code.
So, we continue in this part about the details of deductions that are allowed under this code, which were mentioned earlier, with the section reference and our opinion and understanding of the same.
1. Deductions for services rendered: Any deduction under clause (d) or (e) of subsection 2 of section 18 (Refer part 2), shall not be made from wages of employees, unless the house accommodation amenity or service has been accepted by him as a term of employment or otherwise, and the maximum limit on such deduction shall be imposed by the government. (As it can be understood from the section, any accommodation provided to employee must be under agreement, and be accepted by the employee before making any deduction. It is advisable to keep such an acceptance in documenter format with other details of the employee)
2. Deductions for recovery of advances: Any deduction under clause (f) of section 18(2), shall be subject to:
Any advance given to employee before the employment began, shall be recovered from first payment of wages to him but no recovery shall be made of such advances given for travelling expenses. (It is to be understood that total deductions under section 18 cannot exceed 50% of the wages of a particular wage period and any excess needs to be recovered from subsequent wage periods. Also, it states that no recovery of advance given as travelling expenses before employment began can be done.)
Any advance given after employment began or recovery of advances of wages not already earned shall be made by employer from the wages of concerned employees in installments determined by employer such that any or all installment in a wage period shall not exceed 50% of wages of that particular period. Also, particulars of such recovery shall be recorded in the register maintained in Form – I. (Two understanding from this section – First, the maximum deduction can be 50% and second a register to be maintained for recovery of advances with complete particulars)
3. The provisions related to deductions from wages payable shall not apply to Government establishments unless a a notification in passed by the appropriate government.
Payment of Bonus:
Now coming to second part, let’s discuss about payment of bonus as per the Wages Code:
1. Eligibility: Every employee drawing wages not exceeding such amount as determined by notification by the appropriate government and has at least put 30 days work in an accounting year. For those employees, whose wages exceed the Maximum wages prescribed, the bonus shall be paid to them considering the maximum wages allowed for bonus computation. (The maximum amount of wages for eligibility of bonus is yet to be notified by the appropriate government)
2. Rate of Bonus: Bonus is to be calculated at rate of eight and one third per cent of wages earned or hundred rupees whichever is more, whether the employer has any allocable surplus or not. In case of allocable surplus exceeding the minimum bonus payable with employer, the employer will be bound to pay every employee bonus, which shall be in proportion to their wages earned during accounting year, subject to maximum of 20% of such wages. (The minimum rate of Bonus is rupees hundred and the maximum rate would be 20% of the wages earned. Point to note is that the % limit is fixed on Wages and not on total remuneration)
3. Any demand for bonus in excess of minimum bonus based on production or productivity in an accounting year for which bonus is payable shall be determined by an agreement or settlement between the employer and employees, subject to a maximum rate of 20% of the wages earned. (In no case the maximum bonus payable under the code can exceed 20% of the wages earned in an accounting year by the employee.)
4. If an employee has not worked for all working days in an accounting year, the minimum bonus of 8 1/3 percent shall be proportionately adjusted.
5. For computing the days on which employee has worked in an accounting year, following must be considered:
The days on which he has been laid off under an agreement or permitted by standing orders under the Industrial Employment (Standing Orders) Act, 1946 or Industrial Dispute Act, 1947
Days on which he has been on leave with salary or wages
Days on which he has been absent due to temporary disablement caused by accident arising out of and in course of his employment.
The days on which employee has been on maternity leave with salary and wages during the accounting year. (These are the paid leaves allowed to employees during the accounting year. These are included in the working days while computing bonus for an accounting year)
6. Disqualification from Bonus: Employee shall be disqualified from receiving bonus under this Code if he is dismissed for:
Riotous or violent behaviour while on premises of the establishment
Theft, misappropriation or sabotage of any property of the establishment
Conviction of sexual harassment (These are the situation under which bonus shall not be payable to employee irrespective of the number of days the employee has worked in the accounting year)
7. Establishment to include all department, undertakings or branches, whether situated in same place or not, for the purpose of computation of Bonus under this code.
8. In case separate balance sheet and profit and loss account are prepared for any undertaking, department or branch then such undertaking, department or branch will be treated as separate establishment unless such undertaking, department or branch immediately before commencement of accounting year was considered as a part of establishment for purpose of computation of bonus.
9. The bonus shall be paid out of allocable surplus which shall be equal to:
60% in case of banking company
67% in case of other establishment
of the available surplus.
10. Audited accounts of companies shall not normally be questioned.
In the next part we will cover about the available surplus, set off and set on off available surplus, different accounting years for purposes of bonus payment, deductions from bonus, time limit of payment of bonus and non-applicability of bonus in certain establishments.
To read Part 1 of Code on wages CLICK HERE: Code on Wages, 2019 | Part 1 – Basics, Minimum Wages and payment deadlines – Taxontips
To read Part 2 of Code on wages CLICK HERE: Part 2 – Deductions from wages payable | Code on Wages, 2019 | Labour law – Taxontips
To read the full Code CLICK HERE: 2589GI.p65 (egazette.nic.in)
CA Sourabh Kothari (C.A., B.Com)
He is currently working as Partner – Risk and Transaction advisory with a renowned firm in Jaipur having experience in Internal Audit, IFC Audit, Business consultancy, Due Diligence and Management consultancy.
E-mail: Sourabh.email@example.com | LinkedIn: Sourabh Kothari