Prevalence of the Bonus Act in Nepal

1.               Introduction

1.1            According to the Bonus Act of 1974 (2030) (Hereinafter referred to as "BA"), each profitable business must designate a portion of the bonus to be given to its employees. Enterprise is defined as those businesses as defined by Section 2(b) of the Labor Act of 1992 in Section 2(b) of the BA.


2.               Applicability of BA

2.1            The Labor Act of 2017 has been in effect since September 4, 2017, and it has replaced the Labor Act of 1992. The BA's provision hasn't been changed to reflect that, though.


2.2            According to a literal interpretation of Section 2(b) of the BA, an enterprise should be defined for bonus purposes in accordance with Section 2(b) of the Labor Act of 1992. As a result, any factory, company, organization, association, firm, or group thereof established in accordance with applicable law for the purpose of operating any industry, profession, or service, where ten (10) or more workers or employees are engaged, has been defined as an "enterprise". As a result, only entities that have been established in accordance with the laws in effect in Nepal are considered enterprises, and only those entities that have ten or more employees or workers and are registered in accordance with the laws in effect are required to allocate and distribute bonuses in Nepal.


2.3            The intent-driven interpretation of Section 2(b) of the BA, however, contends that the definition of an enterprise for bonus purposes should be the same as for labor regulation purposes. Due to the repeal of the Labor Act of 1992, the definition of an enterprise should be as stated in the Labor Act of 2017 which provided the labor law is applicable to every entity.


2.4            In addition, Section 7 of the Interpretation of Nepal Laws Act, 1954 (2010) ("Interpretation Act") states that references to a provision that has been repealed and then re-enacted, with or without modification, shall unless a different intention appears, be construed as references to the provision that has been re-enacted. The Labor Act of 2017 replaced the Labor Act of 1992 and provides a definition of an enterprise. In this situation, we believe that the 2017 Labor Act should be used to refer to the Enterprise as defined in Section 2(b) of the BA.


2.5            According to Section 2(j) of the Labor Act of 2017, an "enterprise" is any company, private firm, partnership firm, cooperative, association, or other organization that is active or that has been established, incorporated, registered, or formed in accordance with the law in order to engage in industry, conduct business, or offer a service, whether for profit or not. Therefore, regardless of registration, any entity that is operating in Nepal is considered an enterprise and is therefore required to allocate and distribute bonuses to employees if the entity generated a profit during the relevant fiscal year.


3.               Issuance of Bonus share

3.1            Every business enterprise that is subject to the application of the Labor Act is required by Section 5 (1) of the BA 1974 to allocate bonuses out of its net profit. If a business is profitable during a fiscal year, it must set aside 10% of its net profit as a bonus to give to each employee and worker for that fiscal year.


3.2            The rules for calculating bonus amounts and the maximum amount that can be paid to a single worker or employee are covered in Section 7 of the BA of 1974. The following formula should be used to determine how much bonus is due to the worker or employee:


Amount payable to individual worker/employee= Total amount allocated for bonus x 100

Gross remuneration/wages of the worker/individual during the financial year


Because of this clause, the amount distributed to the employee/employees is not equal to their gross pay or salaries for the financial year but rather is proportionate to them. However, Section 7 (3) also establishes a cap on bonus payments, which is covered in Paragraph 3.3 below.


3.3            According to Section 7(3) of the BA, the ceiling is determined based on the entire monthly income or remuneration of the worker or employee in question. According to Section 7 (3) of the BA, the maximum bonus that can be given to an employee or employees in a fiscal year is:

3.3.1       For employees earning monthly salaries up to double the amount of the minimum pay mandated by the government, up to the amount equivalent to 8 months of salary.

3.3.2       For employees receiving monthly salaries more than the minimum level of pay mandated by the government, up to the amount equal to six months' worth of income.


3.4            The management has a duty to calculate the bonus due to the worker/employees and distribute the bonus to each worker/employee in accordance with the guidelines outlined in paragraphs 3.2 and 3.3 above. Even if all company workers/employees unanimously agree to award bonuses in a different way, management cannot break from these relevant standards. However, the Company may make the requested payment if an employee expressly requests it in writing and requests that the Company pay a particular percentage of the payment from his or her overall bonus entitlement in favor of another employee.


3.5            According to Section 20 of the BA, anybody who violates a provision of the aforementioned BA is subject to a fine of up to Rs. 5,000. The Department of Labor may levy a fine of this amount. In our view, distributing bonuses in contravention of the rules set forth in Section 7 (2) would constitute an offense under Section 20 of the BA. The individual functioning in the role of management is liable to a penalty that is imposed on the firm under Section 23 of the BA 1974.

4.               Who is excluded from the bonus

4.1            The BA 1974's Section 6 outlines the requirements for employees and workers to be eligible for bonuses. Any worker or employee who has worked at least half of the total number of working days throughout a financial year is entitled to a bonus under stated Section 6 of the BA 1974. As a result, any employee who meets this requirement and is not disqualified as indicated in paragraph 4.3 below is often eligible for a bonus.

4.2            According to Section 2(d) of the BA 1974, an employee is someone working in a supervisory, technical, or other position for pay or remuneration, which also includes employees. Any official functioning at the management level is covered by this provision under Section 2(d) of the BA.

4.3            Employees who do not meet the requirements for bonus eligibility are dealt with under Sections 6 and 8 of the BA and Rules 8 of the BR. The following individuals do not qualify for bonuses under the aforementioned provisions:

·       casual employee;

·       any employee who has been subject to punishment or who has been terminated from service on any of the following grounds: (i) any employee who has stolen, or caused damage to, the property of the enterprise; (ii) any employee who has been involved in the unlawful strike or has incited others to involve in such unlawful strike; and (iii) any employee who has breached disciplinary rules of the enterprise or is responsible for creating a chaotic situation in the enterprise.