2. INTRODUCTION
The practice of bonus in India appears to have originated
during WW1 when certain textile mills granted 10% wages
as war bonus to their workers in 1917. In certain cases of
Industrial disputes demand for payment of bonus was also
included.
In 1950, the Full Bench of the Labour Appellate Tribunal
evolved a formula for determination of bonus, A please was
made to raise that formula in 1959
At the second and third meetings of the 18th session of
Standing Labour Committee (G.O.I) held in New Delhi in
March /April 1960, it was agreed that a commission be
appointed to go into the question of bonus and evolve
suitable norms.
3. CONTINUED…
A Tripartite Commission was set up by the G.O.I to
consider in comprehensive manner, the question of
payment of bonus based on profits to employees
employed in establishments and to make
recommendations to the Government.
The Government of India accepted the
recommendation of the Commission subject to certain
modifications.
The payment of Bonus Ordinac,1965, was
promulgated on 29th May,1965. to replace the said
ordinance the Payment of Bonus Bill was introduced
in the parliament.
4. DEFINITION OF BONUS
According to New English Dictionary- A boon or gift
over and above what is normally due as remuneration
to the receiver and which is, holy to the good.
'Bonus' is something to the good; especially extra
dividend to the shareholders of the company;
distribution of profits to the insurance
policyholders
5. OBJECTIVES OF PAYMENT OF
BONUS ACT,1965
It aims to regulate the amount of bonus to be paid to
the persons employed in establishments based on its
profit and productivity.
To impose a legal responsibility upon the employer of
every establishment covered by the Act to pay the
bonus to employees.
To designate the minimum and maximum percentage
of bonus.
To prescribe the formula for calculating bonus.
To provide redressal mechanism.
6. APPLICABILITY OF PAYMENT OF
BONUS ACT,1965
Under section 1 of the Act, it is specified that the Payment of Bonus
Act is applicable to the whole of India.
It applies to any factory or establishment which had twenty or more
workers employed on any day during the year.
The act does not apply to the non-profit making organisations.
It is not applicable to establishments such as LIC, hospitals which are
excluded under Section 32.
It is not applicable to establishments where employees have signed an
agreement with the employer.
It is not applicable to establishments exempted by the appropriate
government like sick units.
According to the Bonus Act, any different departments or undertakings
or branches of an establishment of whether located in the same place or
at different areas should be considered as parts of the similar
establishment for computation of bonus under the Act..
7. ELIGIBILTY
Section 8: Every employee receiving salary or wages up to Rs.21,000 p.m. engaged in any kind of work
whether skilled, unskilled, managerial, manual, supervisory, administrative, technical or clerical work for
hire or reward etc. is entitled to bonus for every accounting year, whether the terms of employment be
express or implied, only if he has worked for at least 30 working days in that year [Section 2(10)].
Section 2(13) defines “Employee”.
Section 32-Act not to apply to certain classes of employees employed by :
Employees of the general insurance companies, LIC, Central/State Government establishments, Indian
Red Cross Society, Universities and Educational Institutions, Hospitals, Chambers of Commerce, Reserve
Bank of India, Industrial Finance Corporation of India, Unit Trust of India, And all other Financial
Corporation established under Section 3, or any Joint Financial Corporation established under Section 3-
A, of the State Financial Corporations Act, 1951, Social Welfare Institutions, Local Bodies, etc. are not
entitled to bonus under the Act. What they are paid as Bonus, is Ex-gratia payment.
Section 2 (13) Apprentice is not eligible for Bonus.
•Bonus is payable only annually and it cannot be directed to be paid on half-yearly basis.
• When an employee is not eligible for the statutory bonus but the company wants to share bonus, it can
be given as ex-gratia.
8. AN EMPLOYEE IN THE FOLLOWING CASES IS ALSO ENTITLED TO BONUS:
(1) A temporary workman on the basis of total number of days worked by him.
(2) An employee of a seasonal factory is entitled to proportionate bonus and not
minimum bonus, as prescribed by the Act.
(3) A part-time employee, as a sweeper engaged on a regular basis.
(4) A retrenched employee, provided he has worked for minimum qualifying period.
(5) A probationer is an employee and as such is entitled to bonus.
(6) A dismissed employee re-instated with back wages is entitled to bonus.
(7) A piece rated worker is entitled to bonus.
Section 16. SPECIAL PROVISIONS WITH RESPECT TO CERTAIN
ESTABLISHMENTS:
The newly set up (whether before or after the commencement of this Act)
establishment
is exempted from paying bonus to its employees in the first 5 years following the
year in
which the employer sells the goods produced or manufactured by him. If, however, the
employer derives profit in any of the first 5 years, he has to pay bonus for that year.
The
provision of set on and set off are not applicable in such cases.
sub-section (1), an establishment shall not be deemed to be newly set up merely by
9. Section 9- DISQUALIFICATION FOR BONUS:
An employee shall be disqualified from receiving bonus, if he is dismissed from service
for fraud or riotous or violent behaviour while in the premises of the
establishment or theft, misappropriation or sabotage of any property of the
establishment.
Section 10- MINIMUM BONUS:
The minimum bonus which an employer is required to pay even if he suffers losses
during the accounting year or there is no allocable surplus (except in case of new
establishments), is 8.33% of the salary or wages of the employee during the
accounting year.
• Rs. 100 in case of employees above 15 years and Rs. 60 in case of employees
below 15 years. Whichever is higher.
MAXIMUM BONUS:
If in any accounting year, the allocable surplus exceeds the amount of minimum bonus,
the employer shall pay bonus in proportion to the salary or wages earned by the
employee during that accounting year, subject to maximum of 20% of such salary or
wages.
Section 22- MODE AND TIME FOR PAYMENT
Bonus should be paid in Cash and within 8 months from the close of the accounting
year. Bonus is payable only annually. Since the financial year in India ends in March,
10. EMPLOYERS’ OBLIGATIONS:
•To calculate and pay the annual bonus as required under the Act
•To submit an annul return of bonus paid to employees during the year, in Form D, to
the Inspector, within 30 days of the expiry of the time limit specified in section-19 for
payment of bonus.
•To co-operate with the Inspector, produce before him the registers/records
maintained, and such other information as may be required by them (allocable surplus;
set-on and set-off of the allocable surplus; details of the amount payable as bonus,
amount of deduction and actual amount paid to the employees).
•To get his account audited as per the directions of a Labour Court/Tribunal or of any
such other authority.
EMPLOYERS’ RIGHTS:
• Right to forfeit bonus of an employee, who has been dismissed from service for fraud,
riotous or violent behaviour, or theft, misappropriation or sabotage of any property of
the establishment.
• Right to make permissible deductions from the bonus payable to an employee, such
as, festival/interim bonus paid and financial loss caused by misconduct of the
employee.
11. RIGHTS OF EMPLOYEES:
1. Right to claim bonus payable under the Act and to make an application to the
Government, for the recovery of bonus due and unpaid, within one year of its
becoming due.
2. Right to refer any dispute to the Labour Court/Tribunal Employees, to whom the
Payment of Bonus Act does not apply, cannot raise a dispute regarding bonus
under the Industrial Disputes Act.
3. Right to seek clarification and obtain information, on any item in the accounts of the
establishment.
Section13- PROPORTIONATE REDUCTION IN BONUS IN CERTAIN CASES:
Where an employee has not worked for all the working days in an accounting year, the
minimum bonus of one hundred rupees or, as the case may be, of sixty rupees, if such
bonus is higher than 8.33 per cent of his salary or wage for the days he has worked in
that accounting year shall be proportionately reduced.
•Note- It is open to any employer to pay bonus linked with production or productivity
instead of bonus based on profits, if there is an agreement to that effect between him
and his employees, but subject to the provisions of the Act in respect of payment of
12. TIME LIMIT FOR PAYMENT
Time limit for payment is specified in Section 19
of the Payment of Bonus Act, 1965.
Section 19. Time-limit for payment of bonus
[All amounts] payable to an employee by way of
bonus under this Act shall be paid in cash by his
employer,-
(a) where there is a dispute regarding payment of
bonus pending before any authority under section
22, within a month from the date on which the award
becomes enforceable or the settlement comes into
operation, in respect of such dispute;
(b) in any other case, within a period of eight months
from the close of the accounting year.
13. CONTINUED…
PROVIDED that the appropriate government or
such authority as the appropriate government
may specify in this behalf may, upon an
application made to it by the employer and for
sufficient reasons, by order, extend the said
period of eight months to such further period or
periods as it thinks fit; so, however, that the total
period so extended shall not in any case exceed
two years.
14. KEY POINTS
1. The bonus should be paid in cash within one
month from the date of enforcement of the award
or coming into operation of a settlement following
an industrial dispute regarding payment of bonus.
2. Or, within 8 months from the close of the
accounting year.
3. However if there is sufficient cause extension may
be applied for.
15. PENALTIES AND OFFENCES
Penalty
Penalties are dealt with in Section 28 of the Payment of
Bonus Act, 1965
28. Penalty.—If any person—
a) contravenes any of the provisions of this Act or any rule
made thereunder; or
b) to whom a direction is given or a requisition is made
under this Act fails to comply with the direction or
requisition, he shall be punishable with imprisonment for a
term which may extend to six months, or with fine which
may extend to one thousand rupees, or with both.
16. CONTINUED...
Offences
Offences are dealt in Section 29.
29. Offences by companies
(1) If the person committing an offence under this Act is a
company, every person who, at the time the offence was
committed was in charge of, and was responsible to, the
company for the conduct of business of the company, as
well as the company, shall be deemed to be guilty of the
offence and shall be liable to be proceeded against and
punished accordingly:
PROVIDED that nothing contained in this sub-section shall
render any such person liable to any punishment if he proves
that the offence was committed without his knowledge or that
he exercised all due diligence to prevent the commission of
17. CONTINUED…
(2) Notwithstanding anything contained in sub-section (1),
where an offence under this Act has been committed by a
company and it is proved that the offence has been
committed with the consent or connivance of, or is
attributable to any neglect on the part of, any director,
manager, secretary or other officer of the company, such
director, manager, secretary or other officer shall also be
deemed to be guilty of that offence and shall be liable to be
proceeded against and punished accordingly.
Explanation : For the purposes of this section,-
(a) "company" means any body corporate and includes a firm
or other association of individuals; and
18. CALCULATION OF BONUS
1) Calculate the statutory bonus-
Meaning- statutory bonus means bonus payable as per the statute, i.e., the
Payment of Bonus Act, as per the act, an amount equal to 8.33% of the
Basic+ Dearness allowance paid to an employee who is eligible for bonus is
to be paid irrespective of availability of surplus or profit.
The Payment of Bonus Act, 1965 gives to the employee a statutory to share
in the profits of his employer.
Calculation- according to The Payment of bonus Act all the confirmed
employees whose basic salary is less than or equal to Rs. 7,000 per month
is eligible for statutory bonus @ of 8.33% of Basic pay but the act also puts
a ceiling on the bonus and the maximum bonus payable under the act is
equivalent to about 2 ½ months salary or wages ( 20% of annual earnings).
Where the salary or wage of an employee exceeds Rs. 7,000 per month, or
the minimum wage for the scheduled employment , as fixed by the
appropriate government whichever is higher the bonus payable to such an
employee under section 10 or as the case maybe section 11 shall be
calculated as if the salary or wage were Rs. 7000 or the minimum wage for
the scheduled employment, whichever is higher. ( As amended W.e.f
1.4.2014)
19. EXAMPLE
SITUATION A- where the basic salary of the employee is less than or
equal to Rs. 7000
Q. If Rohan has a basic salary of Rs. 5000 per month then calculate bonus
per month and per annum
Ans. Basic salary*8.33%= Bonus per month
5000*8.33% = Rs.416.5 per month * 12= Rs. 4,998 per annum
SITUATION B- where the basic salary of the employee is higher than Rs.
7000
Q. If Rohan has a basic salary of Rs. 15,000 per month then calculate
bonus per month & per annum
Ans. Basic salary*20%= Bonus per month
7000*20% = Rs. 1,400 per month*12= Rs. 16,800
SITUATION C- where the basic salary of the employee is higher than Rs.
21,000
Ans. There is no bonus applicable to employees having a basic salary of
20. 2) CALCULATE THE AVAILABLE
SURPLUS
Available Surplus= Gross profit[as per sec 4] (-
)Depreciation admissible under Sec 32 of the income tax act
(-) Development allowance.
Calculate the gross profit in the manner specified in First
schedule, in case of banking company or second schedule,
in any other case.
FORMULA OF AVAILABLE SURPLUS
i. Direct taxes payable for the accounting year ( calculated as
per sec 7)-sums specified in third schedule.
ii. Direct taxes ( calculated as per sec 7) in respect of gross
profit for the immediately preceding accounting year.
iii. Allocable surplus = 60% of available surplus, 67% in case
of banking companies.
iv. Make adjustment for ‘set on’ and ‘set off’ for calculating the
amount of bonus in respect of an accounting year.
21. ALLOCABLE SURPLUS
The bonus is to be paid out of the allocable surplus.
The allocable surplus so computed is distributed
amongst the employees in proportion to salary or wages
received by them during the relevant accounting year.
In case of Banking company, the allocable surplus is 67
percent of the available surplus and in other cases it is
60 percent ( section 4,5 and 7)
22. WHO IS ENTITLED TO BONUS
UNDER THE PAYMENT OF BONUS
ACT, 1965
A temporary workman on the basis of total number of days
worked by him.
An employee of a seasonal factory is entitled to proportionate
bonus and not minimum bonus as prescribed by the act.
A part time employee, as a sweeper engaged on a regular
basis. ( ex – Automobile Karamchari sangh vs industrial
tribunal)
A retrenched employee provided he has worked for a
minimum qualifying period.(ex- East Asiatic P ltd. Vs
industrial tribunal 1961)
A probationer is an employee and as such is entitled to
bonus.( ex- Bank mudra Ltd v Employee’s Union, 1970)
A dismissed employee re instated with back wages is entitled
to bonus.(ex- Gammon India ltd v Niranjan das 1984)
