The Payment of Bonus & Gratuity Act. Bonus Act-1965 & Gratuity Act- 1972
The Payment of Bonus Act, 1965. Meaning of Bonus. Object of the Act Definitions Eligibility for Bonus Disqualification for bonus Determination of Bonus Special Provisions with Respect to Certain Establishments Inspectors Penalties Offences Recovery of Bonus due from the Employer
Meaning of Bonus The Dictionary meaning of the word bonus is „something to the good‟, „extra dividend to the shareholders of a company or „gratuity to workmen beyond their wages‟. It is the last meaning of the word which has acquired the significance for the labour-management relations in India. Till recently, bonus was regarded as the ex-gratia payment made by the employer to his workers for the extra effort by them in production process. From this limited connotation of the word, we have travelled a long way to reach the stage of enactment of the Payment of Bonus Act, 1965, which makes this annual payment
Object of the Act. The object of the Act is to provide for the payment of bonus to persons employed in certain establishments and for matters connected therewith. The Scheme of the Act, broadly stated is four dimensional, i.e.,1) To impose statutory liability upon an employer of every establishment covered by the Act to pay bonus to employees in the establishment.2) To define the principle of payment of bonus according to the prescribed formula3) To provide for payment of minimum & maximum bonus & linking the payment of bonus with the scheme of “set-off” and “set-on”.4) To provide machinery for enforcement of the liability for payment of bonus.
A minimum bonus of 8.33% of the wages or salary (upto Rs.3500) of an employee or Rs.100 whichever is higher ( Rs.60 in case of employee below the age of 15 years) is payable irrespective of the fact whether the establishment has made a profit or loss. Bonus is no longer linked with production and profitability. Liability for bonus is statutory liability and not a contingent liability
Application of the Act The Act extends to whole of India, it applies to:a) Every factory ( as defined in Factories Act )b) Every other establishment in which 20 or more persons are employed on any day during any accounting yearc) Once the Act is applied, it continues to be applied
Definition Accounting Year: For corporations, for companies, and in any other case. Allocable Surplus: The Allocable Surplus is the workers share in the available Surplus. In case of an employer being a Company(not a banking co.) it is 67% of the available surplus in an accounting year. And in any other case , 60% of the available surplus. Available Surplus : Gross Profit of any accounting year – any amount of depreciation, any amount by way of development rebate or investment allowance or any direct tax calculated according to the provisions.
Employee: any person (other than the apprentice) employed on a salary or wage not exceeding Rs.10000/- per month in any industry to do any skilled or unskilled, manual, supervisory, managerial, administrative, technical or clerical work for hire or reward. It makes no difference whether the terms of employment are express or implied. The base salary of the employee for calculating bonus shall be taken as Rs.3500/- as per the Bonus Act. Employer:i) In relation to an establishment which is a factor, the owner or occupier of the factor, including the agent of such owner or occupier, the legal representative of a deceased of a deceased owner or occupier and the manager of the factory.ii) In relation to any other establishment, the person who, or the authority which, has the ultimate control over the affairs of the establishment. Where the said affairs are entrusted to a manager or managing director, such manager or managing director is the employer.
Establishment in private sector: it means any establishment other than an establishment in public sector. Establishment in public sector:a) A Govt. co.b) A corporation in which not less than 40% of the capital is held whether singly or taken together by the Govt. or RBI or by both of them. Factory: as defined in Factories Act1948. Salary or Wages: It means all the remuneration capable of being expressed in terms of money, which would, if the terms of employment, express or implied, were fulfilled, be payable to an employee in respect of his employment of work done.
Eligibility and Disqualification forBonus Eligibility for bonus: Every employee shall be entitled to be paid by his employer in an accounting year, bonus, in accordance with the provisions of the Act, provided he has worked in the establishment for not less than 30 working days in that year. Where an employee has not worked for all the working days in an accounting year, the bonus payable to him shall be proportionately reduced. Disqualification for bonus: Notwithstanding anything contained in the Act, an employee shall be disqualified from receiving bonus under the Act, if he is dismissed from service for:i) Fraudii) Riotous or violent behavior while on the premises of the establishmentiii) Theft, misappropriation or sabotage of any property of the establishment.
Determination of Bonus Bonus under the Payment of Bonus Act, 1905, cannot be claimed by the workers as a matter of right. The Bonus Formula under the Act rests on the Calculation of the „available surplus‟ and it envisage the following steps.i) Computation of Gross profitsii) Determination of Available Surplus.iii) Allocable Surplus:The rules followed for distribution of allocable surplus are:
1. Amount of Bonus: How much to pay, and has to be paid even in losses also.a)Minimum Bonus: As per the act that is 8.33% of the wages or salary or Rs.100 whichever is higher.b)Maximum Bonus: Bonus at a rate higher than the minimum is payable only when the allocable surplus in a particular accounting year exceeds the amount of minimum bonus payable to employees. Maximum bonus paid can be 20% of such salary or wages.2. Calculation of bonus with respect to certain employees: If an employees salary exceeds Rs.3500 p.m. than for purpose of calculation of bonus his salary will be taken as Rs.3500/- p.m.
Calculation of Bonus Where the salary or wages of an employee exceeds Rs.3500 p.m the bonus payable will be calculated as if his salary or wages were Rs.3500 p.m.Accordingly, if any employee‟s salary is Rs.5000p.m. and the bonus declared by the employer is 15%, he will be entitled to the amount of the bonus of Rs.6300, calculated in the following manner: =3500 * 15 * 12 = 6300 100
3. „Set on‟ & „Set off‟ of allocable surplus:a) Set on: In any accounting year if the allocable surplus exceeds the amount of maximum bonus than then the excess will be carried forward for being „set on‟ to the succeeding accounting year and so on up to and inclusive of the 4th accounting year.b) Set off: in any accounting year if there is no allocable surplus , or where the allocable surplus falls short of the amount of minimum bonus, and there is no amount of sufficient amount carried forward and „set on‟ which could be utilize for the purpose of payment of minimum bonus. In such cases, the minimum amount of deficiency, as the case may be, shall be carried forward for being „set- off‟ in the succeeding accounting year and so on,
4) Proportionate reduction in bonus in certain cases: When an employee has not worked for all the working days in any accounting year, the minimum bonus of Rs100 or Rs.60 as the case may be, if such bonus is higher than the 8.33% of his salary for the days he has worked I that accounting year shall be proportionately reduced.5) Adjustment of customary or interim bonus against bonus payable under the Act.6) Deduction of certain amounts from bonus7) Time limit for payment of bonus: All amounts, payable to an employee by his employer by way of bonus under the Act, must be paid in cash. Further, the amount of bonus must be paid in the following manner in respect of the relevant cases:i) In the cases where a dispute regarding the payment of bonus is pending before any authority, the amount of bonus must be paid within one month from the date on which the award becomes enforceable, or settlement comes into operation, in respect of such dispute.ii) In other cases, however, the amount of bonus must be
Special Provisions with respect tocertain Establishments. Provision regarding New Establishments: In such new establishments, the employees of such establishments shall be entitles to be paid bonus as per the provisions: First 5 accounting years: In case of newly establish firms, in the first 5 accounting year, following the accounting year in which,the employer sells the goods produced , manufactured by him or render services as the case maybe, the bonus shall be payable by such firm only in respect of the accounting year in which the employer earns profits from such newly set-up establishments.
6th & 7th Accounting Years: The provision of „set-on‟ and „set-off‟ will be allowed for the 5th & 6th year. And in case of 7th year again set on and set off will be allowed of allocable surplus for 5th, 6th and 7th year. 8th Accounting year: From the 8th a/c year, following accounting year in which the employer sells the goods produced or manufactured by him, or renders the services, from such establishment, the provisions of the Act will apply in respect of such establishments also as they apply in respect of any other establishment.
Bonus Linked with Production orProductivity In some cases, there maybe an agreement between the employee and the employer for bonus linked to production or performance before the commencement of Bonus Act 1975, then such employees shall be entitled to receive bonus due to them under such agreement. But any such agreement or settlement whereby the employees relinquish there right to receive the minimum bonus, shall be null & void in so far as it purports to deprive them of such right. Further, such employees shall not be entitled to be paid any bonus in excess of 20% of the salary or wages earned by them during the relevant accounting
Inspectors The appropriate Government may appoint such persons as it thinks fit to be Inspectors for the purpose of the Act and define the limits within which they shall exercise jurisdiction. Powers of the Inspectors: Same that of Factories & Wages Act.
Penalties If any person contravenes any of the provisions of the Act or any rule made there under, he shall be punishable with imprisonment for a term which may extend to 6 months, or fine which may extend to Rs.1000 or with both.
Recovery of Bonus due fromEmployer In cases where any amount is due to an employee by way of his bonus under an agreement, a settlement or an award, the employee himself or any other person authorised by him , or in the case of death of employee his assignee or heirs may make an application to the appropriate Govt. for the recovery of the amount of bonus due to him. But such application has to be made within 12 months of the amount due.
The Payment of GratuityAct,1972 What is Gratuity Definition Payment of Gratuity Forfeiture of Gratuity Nomination Determination of Gratuity Recovery of Grauity Inspectors Penalties & offences
What is Gratuity Gratuity is a kind of retirement benefit, like provident fund or pension. It is a payment which is intended to help an employee after his retirement whether the retirement is result of the rules of superannuation or of some physical disability. The general principal of Gratuity scheme is that by faithful service over a long period the employee is entitled to claim certain amount as retirement benefit. Thus it is earned by an employee as a reward for long and meritorious services.
Object of the Act To ensure a uniform pattern of payment of gratuity to the employees throughout the country, and To avoid different treatment to the employees of establishments having branches in more than one State. The Act provides for a scheme of compulsory payment of gratuity by managements of factories, mines, oilfields, plantations, ports, railway companies and other establishments employing more than 10 or more persons in the event of superannuation, retirement, resignation and death or disablement due to accident or disease. The payment of gratuity is dependent on
How Gratuity is calculated It is to be calculated at the rate of 15 days salary for every completed year of service, subject to maximum of Rs 3,50,000. The right of a workman to claim gratuity can be forfeited by the employer in certain cases.
Scope of Coverage The Act applies to:a) Every factory, mine, oilfield, plantation, port and railway company.b) Every shop or establishment within the meaning of any law for the time being in force in relation to shops and establishments in a State, in which 10 or more persons are employed, or were employed , on any day of the preceding 12 months.c) Such other establishments, or class of establishments, in which 10 or more employees are employed, or were employed, on any day of the preceding 12 months, as the Central Government may deem fit.
Payment & Forfeiture of Gratuity andExemption Payment of Gratuity:a) Gratuity payable on termination of employment: To be paid to employee on his termination of his employment after has has rendered his services for not less than 5 years.b) Rate of Gratuity: For every completed year of service or part thereof in excess of 6 months, the employer shall pay gratuity to an employee at the rate of 15 days wages based on the rate of wages last drawn by employee. Maximum Gratuity: Not more than Rs 3,50,000 Forfeiture of Gratuity: If he services of an employee are terminated due to any act , willful omission, or negligence causing any damage or loss to, or destruction of property belonging to the employer, shall be forfeited to the extent of the damage or loss caused.
Compulsory Insurance andProtection of Gratuity. Complusory Insurance: As per the Act to ensure that the loyal and commited employees get the gratutity the employers are asked to take Insurance from the LIC or any other company for safegaurding this Gratuity fund in any uncertain event. This rule is applicable for establishments having more than 500 employees Exemption:The companies who have intiated a sperate Gratuity Fund than they are exempted from taking Insurance after they take appropriate approval from the Central Government. Protection of Gratuity: Case in Civil or Criminal Court may be filed.
Nomination Each employee is required to make nomination within a specified period and in the specified manner. The rule are:1) Nomination within 90/30 days: Employee who has completed 1 year of service before commencement of Gratuity Act 1972, shall make within 90 days, and each employee who completes 1 year of service after the date of commencement of these rules, within 30 days of completion of 1 year of service nomination has to be made.2) Distribution of amount of Gratuity: Can be paid to more than one nominee.3) Nomination in favour of family members:4) Modification of nomination:5) Death of nominee:6) Safe custody of nomination:
Determination & Recovery of Gratuity Determination of Gratuity: As soon as gratuity is payable the employer shall determine the amount and give notice to the employee/nominee to whom the gratuity is payable and to the Controlling Authority specifying the amount of gratuity determined. This exercise is to be done irrespective of the fact whether an application for payment has been made or not. Payment of Gratuity: Within 30 days from the date when it becomes payable. Payment of Interest: If the amount is not paid within 30 days than interest as per the Simple Rate of Interest which is earned on long-term Govt. deposits will be paid till the date the payment is made. Dispute as to gratuity: If there is any dispute in regards to receiving of gratuity than the employer will deposit the amount with the Controlling authority.
Powers of Controlling Authority: Powers as that of Civil Court. Appeal: If any person wants to appeal against any desicion of Controlling Authority than within 60 days form the date of receipt of the order to the appropriate Government. In case of employer, for his appeal will only be entertained when he produces a certificate showing that the disputed amount has been deposited with the Controlling Authority and than only his appeal can be heard. Recovery of Gratuity: employee can make an application to the Controlling Authority of non- payment of the prescribed amount and the Authority after investigation can issue a certificate of amount to Collector to recover the amount together with compound interest thereon.
Inspector Appointed by the State or Central Governement. Have power to enter, investigate the premises Take evidences. Question witnesses etc. Examine the premises and the records Exercise such other powers as prescribed by the law.
Penalties and Offences Penalty for False statement or false representation: Imprisonment upto 6 months and fine upto Rs. 10,000 or both. For Contravention of the Act: Imprisonment shall not be less than 3 months but may extend to 1 year and fine shall not be less than Rs.10,000 but it may extend to Rs.20,000.