Indian Law on Bonus: The History of Bonus

Indian law on bonus relate to legal issues and rights of workers in the context of bonus. However, what is a bonus? How did the concept evolve? These are questions that may rush through your mind, right? So, this discussion will help you understand interesting information about how and where it all began.

Bonus is any gift, incentive or cash payment, other than the salary or wages, made to an employee by the employer. The concept of bonus first originated after the First World War, when the industrial workers demanded for bonus because they felt there was a serious between the actual living wages and the contractual remunerations. It was initially known as war bonus where the employees paid to the workers some increase in wages. Later, the term ‘war bonus’ was replaced by special allowance. During the period of the Second World War, the workers in the textile industry received cash bonus equal to a part of their actual wages, in order to keep them satisfied.

Indian Laws on Bonus: It is a Worker’s Legal Right

Indian law on the payment of bonus was originally considered as a gratuitous payment by an employer to his workers.

Post-independence, Indian Courts, such as the industrial courts, held that bonus is a worker’s legal right.  The Bombay Industrial Court ruled that since labor and capital both contribute towards earning profit for the industry, both shall be entitled to get a share of the total profit earned. A formula to calculate the percentage of bonus known as Full Bench Formula was developed by the court, which was also accepted by the Appellate Tribunal. The Full Bench Formula has been also widely accepted in many cases by the Supreme Court, with slight modifications.

With the passage of time, bonus acquired the meaning of a mandatory annual payment, which an employee is entitled to receive as a matter of right.

As a legal right, the concept of a bonus was based on the following assumptions:

• There is an ‘available surplus,’ out of the profit earned from which the bonus can be granted.
• There is a disparity between the present remuneration and living wages, which the payment of bonus can reduce.