Introduction

The Payment of Bonus (Amendment) Act, 2015 (Amendment Act) was introduced on 1 January 2016 bringing reforms in the scope and calculation methodology and making Payment of Bonus Act, 1965 (Principal Act) applicable to a larger section of employees. The Amendment Act was made retrospectively applicable from 1 April 2014.

However, this retrospective applicability of the Amendment Act has been stayed by the Hon’ble High Court of Kerala by way of an interim order.

Background

The Amendment Act introduced several key changes, including the increase of the scope of the Principal Act to include employees drawing a salary of INR 21,000 per month from the extant INR 10,000 per month, and specifying that in the event an employee’s salary or wage exceeds INR 7,000, for the purposes of calculating bonus, the salary would be considered to be INR 7,000. The Principal Act originally specified that that in the event an employee’s salary or wage exceeds INR 3,500, for the purposes of calculating bonus, the salary would be considered to be INR 3,500. Most importantly, the provisions of the Amendment Act were made retrospectively applicable, with the effective date of applicability being 1 April 2014.

Update

The retrospective applicability of the Amendment Act had been challenged in the High Court of Kerala through the writ petition The United Planters’ Association of Southern India and Others v the Union of India and Others, (W.P. (c) 3025/2016(C)) seeking, inter-alia, a stay on the retrospective applicability of the Amendment Act.

The Hon’ble High Court has, by its interim order dated 27 January 2016 stayed the applicability of the Amendment Act to the extent it gives retrospective effect from 1 April 2014 and further specified that the Amendment Act should be implemented from 2015-16, pending disposal of the writ petition.

Comment

We had, in an earlier publication, highlighted that the Amendment Act is a step towards ensuring that the labour laws keep abreast with the economic reforms taking place in India. However, the implementation of the Amendment Act retrospectively caused confusion amongst employers; major criticism that arose was that employers did not have sufficient time to prepare and adapt to the amendments – and further, that the Amendment Act causes undue financial stress on the employers.

It remains to be seen how the judiciary balances the pro-labour reforms aimed at benefiting the employees with the interests of the employers in times to come.