Bonus Pay
Bonus is the share of employees in the profit of an employer. It is paid to the employees in recognition of the good services rendered by them while serving the organization. However, Bonus is conditional on the profitability of a firm. 10-C PROFIT BONUS
Bonus is the share of employees in the profit of an employer. It is paid to the employees in recognition of the good services rendered by them while serving the organization. However, Bonus is conditional on the profitability of a firm.
What is Bonus?
Bonus is the share of employees in the profit of an employer. It is paid to the employees in recognition of the good services rendered by them while serving the organization. However, Bonus is conditional on the profitability of a firm. If no profit is made by the firm, then no bonus whatsoever is payable. It is also termed a Statutory or Profit Bonus as it is regulated by law and is also dependent upon the profitability of the firm in that specific year.
How is Bonus defined under Pakistani labour law?
Before 1972, Bonus was paid by an employer either on voluntary basis or in consequence of an award by a labour court. However, in 1972, payment of bonus was made a statutory obligation. Standing Order 10-C was added to the West Pakistan Industrial and Commercial Establishments (Standing Orders) Ordinance 1968. Bonus is now a statutory right for workers who have worked at least 90 days in an organization in the previous year. Statutory or Profit Bonus is different from other bonuses that workers may receive on the basis of "production, attendance, or on Eid". The payment of those bonuses is not governed by section 10-C of the Standing Orders Ordinance. Similar provisions are found in the Khyber Pakhtunkhwa Industrial and Commercial Employment (Standing Orders) Act, 2013 (Standing Order 14), the Sindh Terms of Employment (Standing Orders) Act, 2015 (Standing Order 13), and the Balochistan
Industrial and Commercial Employment (Standing Orders) Act, 2021 (Standing Order 13). Profit bonus is generally referred to as 10-C profit bonus (referring to the standing order) under the 1968 Ordinance. However, with the enactment of separate provincial legislation, the relevant standing orders have changed, as specified above.
The relevant laws governing Bonus in the private sector are:
Factories Legislation
- The Factories Act, 1934 (Islamabad Capital Territory)
- The Factories Act, 1934 (adapted by the province of Punjab through the Amendment Act of 2012)
- The Khyber Pakhtunkhwa Factories Act, 2013
- The Sindh Factories Act, 2015
- The Balochistan Factories Act, 2021
Shops and Establishments Legislation
- The Shops and Establishments Ordinance, 1969 (Islamabad Capital Territory)
- The Shops and Establishments Ordinance, 1969 (adapted by the province of Punjab through the Amendment Act of 2014)
- The Khyber Pakhtunkhwa Shops and Establishments Act, 2015
- The Sindh Shops and Commercial Establishment Act, 2015
- The Balochistan Shops and Commercial Establishment Act, 2021
Standing Orders Legislation
- The Industrial and Commercial Establishments (Standing Orders) Ordinance, 1968 (applicable in ICT)
- Industrial and Commercial Employment (Standing Orders) Ordinance, 1968 (adapted by the province of Punjab through the Amendment Act of 2012)
- The Khyber Pakhtunkhwa Industrial and Commercial Employment (Standing Orders) Act, 2013
- The Sindh Terms of Employment (Standing Orders) Act, 2015
- The Balochistan Industrial and Commercial Employment (Standing Orders) Act, 2021
Payment of Wages Legislation
- Payment of Wages Act, 1936 (applicable in ICT)
- Payment of Wages Act, 1936 (adapted by Punjab in 2014)
- The Khyber Pakhtunkhwa Payment of Wages Act, 2013
- The Sindh Payment of Wages Act, 2015
- The Balochistan Payment of Wages Act, 2021
Who is entitled to be paid a bonus?
Any worker is entitled to a Profit Bonus if the following four conditions are satisfied:
- West Pakistan Industrial and Commercial Establishments (Standing Orders) Ordinance 1968 (or other applicable provincial legislation on the subject) is applicable to that establishment (whether commercial or industrial) and it has at least 20 workers in employment in the preceding 12 months. The requirement for the number of employees can be different in different provinces, as follows:
| Area/Province | Industrial Establishment | Commercial Establishment | Relevant Standing Order |
|---|---|---|---|
| Balochistan | 10 workers | 10 workers | S.O 13 |
| Islamabad Capital Territory | 20 workers | 20 workers | S.O 10-C |
| Khyber Pakhtunkhwa | 10 workers | 10 workers | S.O 14 |
| Punjab | 20 workers | 20 workers | S.O 10-C |
| Sindh | 20 workers | 10 workers | S.O 13 |
- A person has to be a workman as defined in Standing Orders Ordinance 1968 (or other applicable provincial legislation as the case may be). A workman is any person employed in any industrial or commercial establishment to do any skilled or unskilled, manual or clerical work for hire or reward;
- The minimum qualifying employment period is 90 days or above during the preceding 12 months;
- The establishment must have declared profit in the year for which bonus is to be awarded. There should be net profit after allowing for all working costs/charges.
According to section 10-c of the Standing Orders Ordinance 1968 (or other applicable provincial legislation as the case may be), workers who have been in employment of the employer in that year for a continuous period of at least 90 days are eligible for payment of bonus.
However, length of employment over 90 days is irrelevant in the calculation of the award of a bonus to an employee. All workers who have worked over 90 days, whether permanent or temporary, are eligible for bonus in that year. A worker who has only worked a hundred days in a bonus year will get the same bonus as another workman who has worked the whole year in that organization. However, bonus would be similar only if they draw equal wages. Hence, Bonus is not paid on the pro-rata basis i.e., higher bonus for those who served a longer period of time and vice versa.
Who is a "workman" under the law?
According to section 2(i) of the Standing Orders Ordinance 1968, "workman is any person employed in any industrial or commercial establishment to do any skilled or unskilled, manual or clerical work for hire or reward". Similar definitions can be found under the provincial legislation on the subject. It means that it is the nature of work or job description that has to be considered. If a substantial part of an employee's job is manual or clerical; he would be considered a workman under the legislation and thus eligible for profit bonus.
Pay or designation/post in determining whether an employee is a workman would be immaterial. For example, a post may appear supervisory; however, the incumbent may be performing manual or clerical work.
| Commercial Establishments | Industrial Establishments |
|---|---|
| Advertising/commission/forwarding Agency | Factory |
| clerical department of a factory | Railways |
| joint stock company | Tramway or motor omnibus service |
| Insurance company, banking company, bank | Inland steam vessel |
| broker office, stock exchange | Dock, wharf |
| Club, hotel, restaurant | Mine, quarry or oilfield |
| Cinema, theatre | Plantations |
| Other organizations as declared and notified by the government | Workshop or other establishments where articles are produced and adapted for further use |
| Establishment of a contractor | |
| Establishment in connection with the construction industry | |
| Other organizations as declared and notified by the government |
Which Organizations are liable to pay Profit Bonus to their workers?
In accordance with section 1(4) of the Standing Orders Ordinance 1968 (or other applicable provincial legislation on the subject), every industrial and commercial establishment, employing 20 or more workers (for number of workers, please see the first table), is required to pay profit bonus to a worker once he/she has met the minimum criteria and the establishment has declared profit in that year. The table above shows all the organizations liable to pay Profit Bonus to their workers.
An establishment to which the Standing Orders Ordinance applies continues to be governed by the Ordinance even when the number of persons employed therein falls below 20 workers.
Are the establishments in public sector covered by the Act?
According to section 1(4), Standing Orders Ordinance 1968 is not applicable to the employees of any public sector establishment provided that statutory rules of service, conduct and discipline are applicable to these establishments. In the absence of statutory rules of service, either the government establishment will form its own rules or apply current labour laws. This includes establishment administered by the federal or provincial governments. Similar provisions can be found in the provincial legislation on the subject.
Are only current workers entitled to bonus?
The law requires that all those "workers who have been in employment in that year for a continuous period of at least 90 days" are eligible for profit bonus. So, it includes all the workers (working currently in the establishment) or those who left the organization before announcement and declaration of profit by the employer. It is the responsibility of an establishment to locate those workers and award bonus.
Can an employee be held ineligible for payment of Bonus?
An employee, irrespective of his designation and pay, so long as he falls within the definition of workman by nature of his work (manual or clerical in nature), would be eligible for payment of bonus.
Is a seasonal worker entitled to get bonus?
As discussed above, the only requirement is that the employee should have worked in an establishment for a period of at least 90 days in a financial year. Therefore, if a seasonal worker has worked in an establishment for more than 90 working days, he is entitled to get bonus.
What is the meaning of customary bonus?
Customary bonus is bonus which is being paid by way of tradition or custom at a uniform rate (e.g., on Eid) over a number of years but has no link with profit. Profit bonus is different from and is in addition to other bonuses payable to a workman. Even when a customary bonus or bonus decided by a labour court as an award or settlement is linked with the profits of a firm, workers will get only one bonus.
What is the time limit for making payment of bonus to the employees?
In a profitable year, bonus must be paid within a period of 3 months from the closing of the financial year. It is not permitted to delay payment of bonus due to any reason, including non-finalization of accounts, lack of ready funds or dislocation of work.
How is Bonus Calculated?
According to the law, bonus is paid on the profit, and its distribution would be as follows:
- If profit is less than the total/aggregate of one-month wages of workers (payroll), 15% of the profit would be distributed among the eligible workers;
- If profit is equal to the total/aggregate of one-month wages of workers, 30% of the profit would be distributed among eligible workers as bonus;
- If profit is greater than the total/aggregate of one-month wages of all workers, at most 30% of the profit would be distributed among eligible workers as bonus
Consider the following example.
| Aggregate of One Month’s Wages of workers(Rs.) | Employer’s Profit(Rs.) | Cumulative Profit Bonus for All Workers(Rs.) |
|---|---|---|
| 7,000,000 | 2,100,000 | |
| 6,000,000 | 1,800,000 | |
| 5,000,000 | 1,500,000 | |
| 4,666,667 | 1,400,000 | |
| 3,500,000 | 1,050,000 | |
| 2,500,000 | 750,000 | |
| 1,600,000 | 480,000 | |
| 1,500,000 | 450,000 | |
| 1,400,000.00 | 1,400,000 | 420,000 |
| 1,000,000 | 150,000 | |
| 700,000 | 105000 | |
| 500,000 | 75,000 | |
| Total eligible workers employed by the establishment are 30, drawing an aggregate salary of Rs. 1,400,000 per month. Of these, 20 workers are drawing a total monthly salary of Rs. 1,000,000 and 10 workers drawing an aggregate monthly salary of Rs. 400,000) When an employer’s profit is lower than the monthly aggregate salary of all employees, 15% of the profit is distributed among workers as a bonus. Similarly, when profit is equal to or higher than the aggregate of workers' one-month wages, 30% of the profit is distributed among workers as a bonus. | ||
How bonus is shared among individual workers?
In accordance with section 10-C of the Standing Orders Ordinance (or S.O 14 and 13 of the KPK, Sindh and Balochistan legislation, respectively), the ratio of bonus to the monthly wages is the same as the ratio of total bonus payable to the aggregate of all workers' wage for one month.
In the above example, when aggregate one-month wages are Rs. 1,400,000, and the profit of the employer is Rs. 2,500,000 (25 lakh), and the profit bonus is Rs. 750,000. The Profit Bonus is 53.57% of aggregate one-month wages for workers (Rs. 750,000/1,400,000). Hence, bonus payable to the workers would be 53.57% of their monthly wages. The bonus payable to a worker (with a monthly gross salary of Rs. 40,000) would be Rs. 21,428 (40,000*.5357). Similarly, bonus payable to a worker receiving a monthly salary of Rs. 50,000 per month would be Rs. 26,785.
It is relevant to mention here that wages here mean gross wages, including all allowances of regular and permanent nature. However, a profit bonus is not part of the wages as it is contingent in nature, i.e., dependent on the profitability of the firm.
What is the mode of payment for Profit Bonus?
According to the Standing Orders Ordinance, profit bonus can be paid either in the form of cash or National Investment Trust Units of equivalent value.
