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Profit Bonus in Pakistan

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 as Statutory or Profit Bonus as it is regulated by law and is also dependent upon profitability of firm in that specific year

Before 1972, Bonus was paid by an employer either on voluntary basis or in consequence of an award by a labor court. However, in 1972, payment of bonus was made a legal obligation. Standing Order 10-C was added in 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, Eid". The payment of those bonuses is not governed by section 10-C of the Standing Orders Ordinance. The relevant laws governing Bonus in private sector are:

  • West Pakistan Industrial and Commercial Establishments (Standing Orders) Ordinance, 1968 (Standing Order 10-C)
  • Payment of Wages Act, 1936
  • Factories Act, 1934
  • Shops and Establishments Ordinance, 1969

Who is entitled to be paid bonus?

A worker is entitled to Profit Bonus if the following three conditions are satisfied.

1. West Pakistan Industrial and Commercial Establishments (Standing Orders) Ordinance 1968 is applicable to that establishment (whether commercial or industrial) i.e. it must have the minimum number of workers as mentioned above

2. A person has to be a workman as defined in Standing Orders Ordinance 1968. 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.

3. The minimum qualifying employment period is 90 days or above.

4. 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, workmen 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 appear irrelevant in calculation f award if bonus to any 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 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 Act?

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". 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 act 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.

Which Organizations are liable to pay Profit Bonus to their workers?

In accordance with section 1(4) of the Standing Orders Ordinance, 1968, every industrial and commercial establishment, employing 20 or more workers, 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 below shows all the organizations liable to pay Profit Bonus to their workers.

Commercial Establishments Industrial Establishments Minimum Number of Workers
Advertising/commission/forwarding Agency, Factory At least 20 workers must be employed by the organization in the preceding continuous 12 months
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, theater, 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 construction industry
Other organizations as declared and notified by the government

An establishment to which the Standing Orders Ordinance applies continues to be governed by the Ordinance even when the number of person 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 labor laws. This includes establishment administered by the federal or provincial governments.

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

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 labor court as an award or settlement is linked with profits 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 month 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 and 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 total/aggregate of one month wages of workmen, 15% of the profit would be distributed among the eligible workmen
  • If profit is equal to the total/aggregate of one month wages of workmen, 30% of the profit would be distributed among eligible workmen as bonus
  • If profit is greater than the total/aggregate of one month wages of all workmen, at most 30% of the profit would be distributed among eligible workmen as bonus

Consider the following example.

Aggregate of One Month’s Wages of Workmen

(Rs.)

Employer’s Profit

(Rs.)

Profit Bonus for Workers

(Rs.)

 

 

 

 

1,600,000

480,000.00

 

1,400,000

420,000.00

 

1,200,000

360,000.00

 

1,166,670

350,001.00

 

1,000,000

300,000.00

 

850,000

255,000.00

 

520,000

156,000.00

 

400,000

120,000.00

350,000.00

350,000.00

105,000.00

 

200,000.00

30,000.00

 

150,000

22,500.00

 

100,000

15,000.00

 

Total eligible workers employed by the establishment are 30, drawing an aggregate salary of Rs. 350,000 per month.(20 workers drawing a total monthly salary of Rs. 200,000 and 10 workers drawing an aggregate monthly salary of Rs. 150,000)

When employer’s profit is lower than the monthly aggregate salary of all employees, 15% of profit is distributed among workers as a bonus. Similarly, when profit is equal to or higher than the aggregate of one month wages of workers, 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, ratio of bonus to the monthly wages is same as the ratio of total bonus payable to the aggregate of all workmen's wage for one month.

In the above example, when aggregate one month wages are Rs. 350,000 and profit of the employer is Rs. 1,000,000 (10 lakh), the profit bonus is Rs. 300,000. The Profit Bonus is 85.71% of aggregate one month wages for workmen (Rs. 300,000/350,000). Hence, bonus payable to the workmen would be 85.7% of their wages. Bonus payable to a worker (with monthly gross salary of Rs. 20,000) would be Rs. 17,140 (20,000*.857).

It is relevant to mention here that wages here mean gross wages including all allowance of regular and permanent nature. However, profit bonus is not part of the wages as it is contingent in nature i.e. dependent on 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.

Are you getting minimum wage and overtime rates as notified by the Government?  You can now inform us about the minimum wage violations at your workplace by submitting a complaint form. With your information, Workers Employers Bilateral Council of Pakistan (WEBCOP) and Wage Indicator Pakistan will sort out the matter between you (trade union, workers) and the Employer. Complaint forms are available in PDF and online version.

You can also send us your compliant form on the following address:
Workers Employers Bilateral Council of Pakistan,
A-198, Block-13, Behind Jofa Towers,
Gulshan-e-Iqbal, Off Main University Road, Karachi
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