The question whether Retention Allowance paid to Seasonal Employees can be treated as Salary or Wage under the Payment of Bonus Act, 1965 has been dealt with by the Hon’ble Supreme Court in the matter, Chalthan Vidyut Udyog V/s Government Labour Officer (Special Leave Petition (Civil) No. 1122 of 1981, decided on 04.02.1981).
Para 3 of the above judgment states that, “Retaining allowance is a sort of incentive which is offered to the workmen to attract them to return to the factory after the expiry of the off-season.”
The Hon’ble Supreme Court in the above matter stated that retaining allowance is a remuneration paid to a workman by the management during off seasons as an incentive for him to return during the next season and work. In the present case the retaining allowance was paid to the workmen 40 days after they rejoined their work. The Hon’ble Court held that, the payment of retaining allowance shows that the workmen’s services are retained by the management, it’s a remuneration correlated to service and would, if the terms of employment, express or implied, were fulfilled, be payable to any employee in respect of his employment. Retention Allowance therefore falls within the substantive part of the definition of ‘salary or wage’ under Section 2(21) of the Payment of Bonus Act, 1965.
Relevant excerpts from the above judgement are given below-
“The retaining allowance is a remuneration on a lower scale which is paid to the workmen by the management during the off-season for their forced idleness. The payment of such allowance by the management to its workmen during the off-season when there is no work and when the factory is not working, is indicative of the fact that it wants to retain their services for the next crushing season. The very fact that retaining allowance is paid to the workmen clearly shows that their services are retained and, therefore, the jural relationship of employer and the employee continues.”
“The definition of the expression ‘salary or wage’ given in Section 2(21) of the Act is wide enough to cover the payment of retaining allowance to the workmen. It is nothing but remuneration correlated to service and it would be a misnomer to call it an allowance.”
Finally, the Hon’ble Court concludes that, “There can be no doubt that the retaining allowance paid to the workmen during the off-season falls within the substantive part of the definition of the expression ‘salary or wage’. It undoubtedly is remuneration which would, if the terms of employment, express or implied, were fulfilled, be payable to any employee in respect of his employment…”
The above view was upheld in 2001 by the Hon’ble Bombay High Court in Sangamner Bhag Sahakari Sakhar Karkhana Ltd V/s Rashtriya Sakhar Kamgar Union (W.P. No. 3450/1989, decided on 09.06.2000)