Labour Laws Q/A

payment of bonus act, 1965

Bonus on Allowances
Whether different kinds of allowances including suspension allowance available to the employees will form part of wages in order to pay bonus to the employees?

Dearness allowance is undoubtedly included in the definition of ‘salary’ or ‘wages’ under section 2(21) of the Payment of Bonus Act. In one case, it has been held that the free food allowance would be ‘wages’ within the meaning of the Payment of Bonus Act, if it is part of the remuneration and was payable on fulfilling the terms of employment or it is paid in lieu of the whole or part of the salary or wages payable to an employee. On the facts of a case it has been held that the food allowance is not part of the ‘wages’. Similarly the value of uniforms and chappals/slippers could not be said to be remuneration and hence, cannot come within the term ‘wages’ or ‘salary’ of the Payment of Bonus Act.1 However, city compensatory allowance will be taken into consideration to calculate bonus payable to the employees in the absence of an agreement under section 34 of the Act between the employer and the employees relating to any formula for the payment of bonus.2 In another case also, it has been held that city compensatory allowance is part of wages.3 The Gujarat High Court has held that even on suspension allowance, a suspended employee will be entitled to bonus under the Payment of Bonus Act.4

Note: Clause (i) of sub-section (21) of section 2 of the Payment of Bonus Act can be interpreted the allowance other than, those which the employee is ‘for the time being entitled’ can also be construed that the permanent allowances could be included in wage or salary and the eligibility of some employees will be excluded.

Source: H L Kumar, Labour Problems & Remedies, Universal

1. S.P. Janakipati v. Presiding Officer, Labour Court, Madras, 1979 (II) LLJ 340 (Mad HC).
2. S. Krishnamurthy v. P.O. Labour Court, 1986 (I) LLN 710: 1986 (I) LLJ 133: 1986 (53) FLR 535.
3. Jeeva Transport Corporation v. Presiding Officer, Labour Court, Coimbatore, 2004 (4) LLN 223 (Mad HC).
4. Project Manager, Oil & Natural Gas Commission v. Sham Kumar Sehgal, 1995 LLR 619 (Guj HC).

Leave a Comment