Ex-gratia
Parthiv
(Querist) 03 March 2011
This query is : Resolved
a)If Companies paying ex-gratia to employees(as per agreement with labour union),will the payment of bonus act be applicable?
b)If the payment of bonus act is not applicable; which act will be applicable??
c)Can ex-gratia be paid to workers and executive staff??
RK Agrawal
(Expert) 05 March 2011
Dear parthiv
By nature, any payment that is discretionary payment to the employee comes under the purview of an ex-gratia payment.In law, an ex gratia payment is a payment made without the giver recognizing any liability or legal obligation.Ex-gratia is a term that refers to any payment made by the employer "gratis" which means, "of his own free will" and under no obligation of any law. When something has been done ex gratia, it has been done voluntarily, out of kindness or grace.
Now lets see the following ruling:
Indian Supreme Court in this case held that –“An ex gratia payment is in the nature of incentive payment which is in the discretion of the management. To make an ex gratia payment to the staff is a well recognized legitimate mode of incentive payment. Incentives are necessary for securing from the workmen co-operation and efficient work. The decision to make the payment has, therefore, to be left entirely to the discretion of the management.”[1]
[1] Coffee Board Employees’ Association v. A.C. Shiva Gowda (1992) 1 SCC 500
RK Agrawal
(Expert) 05 March 2011
Dear parthiv
In India, the Payment of Bonus Act, 1965 (‘Bonus Act’) provides for the payment of bonus to persons employed in certain establishments on the basis of profits or on the basis of production or productivity and for matters connected therewith. The Bonus Act links bonus exclusively with productivity-whether it is individual or collective. The Bonus Act prescribes for minimum bonus of 8.33% of the salary or wages[1] and a maximum bonus of 20% of the salary or wages. The Bonus Act makes it mandatory for an employer to pay bonus. Bonus is essentially “allocable surplus” and a "share in the profits" of the organization
Thus a cash bonus, which satisfies the minimum statutory requirement of bonus under the Bonus Act is a statutary bonus and thus a compulsory payment. Therefore only those discretionary payments termed as bonus can be accounted as ex-gratia paymnts which does not arise out of any statutary requirement or mandate.
Guest
(Expert) 05 March 2011
Dear Parthiv,
I agree with Mr. R.K. Agrawal to the extent incentive is concerned.
However, there is no bar on payment of ex-gratia to any category of employees of an organization. Normally, on wider terms, ex-gratia is paid to the employees when some matter of wage revision, etc. is pending and would take its own time to revise, and the management feels that some ex-gratia payment be paid to the employees over and above the present wages, as an interim measure pending settlement of wage revision after going through all pros & cons, or as an incentive, to avoid any employee/ trade union resentment over such delay or to avoid any negative impact on productivity of the employees.
Of course it is no a matter of right of the employees, as it all depends upon the sole discretion of the management.
PS Dhingra
Chief Executive Officer
Dhingra Group of Management & Vigilance Consultants
New Delhi-110089
Mobile: 09968076381
[dcgroup1962@gmail.com]
