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been repealed and then re-enacted, with or without modification, shall unless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.