Payment of bonus act 1965

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Payment of bonus act 1965

  1. 1. PAYMENT OF BONUS ACT 1965 1 Presented by: Shalu Saraf CS Trainee
  2. 2. INDEX 1.) Introduction and Definition of Payment of bonus act 1965 2.) Aims of The payment of Bonus Act, 1965 3.) Applicability of the Act 4.) Eligibility of the Act 5.) Minimum Bonus of the Act 6.) Maximum Bonus of the Act 7.) Mode and Time for Payment of Bonus Act 8.) Employers‟ Obligations of the Act 9.) Time limit for payment 10.) Offences and penalties 11.) Set on & Set off 2
  3. 3. INDEX 12.) Methods of Calculation of bonus 1.) Calculate the statutory bonus 2.) Calculate the Available Surplus 13.) Who is entitled to bonus under the Payment of Bonus Act, 1965 ? 14.) Some Important Questions-Answers related with the Payment of Bonus Act 1965 3
  4. 4. PAYMENT OF BONUS ACT 1965 Introduction: The practice of paying bonus in India appears to have originated during first world war when certain textile mills granted 10% of 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 labor appellate tribunal evolved a formula for determining of bonus, A plea was made to raise that formula in 1959. 4
  5. 5. PAYMENT OF BONUS ACT 1965 At the second and third meetings of the 18th session of standing labor committee (G.O.I.) held in new Delhi in march/ April 1960, it was agreed that a commission be appointed to go into the que. Of bonus and evolve suitable norms. A tripartite commission was set up by the govt. of India to consider in a comprehensive manner, the que. of payment of bonus based on profits to employees employed in establishments and to make recommendation to the govt. 5
  6. 6. PAYMENT OF BONUS ACT 1965 The govt. of India accepted the recommendation of the commission subject to certain modifications. To implement these recommendation the payment of bonus ordinance, 1965, was promulgated on 29th may, 1965. To replace the said ordinance the payment of bonus bill was introduced in the parliament. 6
  7. 7. PAYMENT OF BONUS ACT, 1965 DEFINITION OF  BONUS : According to the definition given in the New English Dictionary is “A boon or gift over and above what is normally due as remuneration to the receiver and which is, holy to the good.” 7
  8. 8. PAYMENT OF BONUS ACT, 1965 AIMS OF THE PAYMENT OF BONUS ACT, 1965: The payment of Bonus Act, 1965 aims at providing for the payment of bonus to the employees of certain establishments, on the basis of profits or production or productivity and for matters connected therewith. 8
  9. 9. PAYMENT OF BONUS ACT, 1965 APPLICABILITY: (SEC. 1)  The Act applies to every factory and every other establishment employing not less than 20 persons on any day during an accounting year. The Central/State Government can, however, extend its provisions to any establishment employing less than 20 but more than 10persons.  The establishments covered under the Act shall continue to pay bonus even if the number of employees falls below 10, at a later date. 9
  10. 10. PAYMENT OF BONUS ACT, 1965 ELIGIBILITY (SEC.8):  Every employee (other than an apprentice) receiving salary or wages up to Rs.3,500 per month and engaged in any kind of work whether skilled, unskilled, manual, managerial, supervisory, technical, clerical , etc. is entitled to bonus for every accounting year, if he has worked for at least 30 working days in that year. 10
  11. 11. PAYMENT OF BONUS ACT, 1965  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 ,Social Welfare Institutions, Local Bodies, etc. are not entitled to bonus under the Act. What they are paid as bonus, is ex-gratia payment. (sec. 32) 11
  12. 12. PAYMENT OF BONUS ACT, 1965 EMPLOYEE IS DISQUALIFIED FROM RECEIVING BONUS:  If an employee is dismissed from services for: (a) fraud; (b) riotous or violent behavior while on the premises of the establishment; (c) theft, misappropriation, or sabotage of any property of the establishment; he is disqualified from receiving bonus. {Section 9} 12
  13. 13. PAYMENT OF BONUS ACT, 1965 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. {Section 10}  Rs. 100 in case of employees above 15 years and Rs 60 in case of employees below 15 years, whichever is higher 13
  14. 14. PAYMENT OF BONUS ACT, 1965 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 a maximum of 20% of such salary or wages. {Section 11} 14
  15. 15. PAYMENT OF BONUS ACT, 1965 MODE AND TIME FOR PAYMENT OF BONUS: Bonus should be paid in cash and within 8 months from the close of the accounting year . Bonus is payable only annually. ( section 22 ) 15
  16. 16. PAYMENT OF BONUS ACT, 1965 EMPLOYERS‟ OBLIGATIONS:  To calculate and pay the annual bonus as required under the Act.  To maintain the prescribed registers; and  file annual returns of bonus paid. Form D to the inspector within 30 days. 16
  17. 17. PAYMENT OF BONUS ACT, 1965 TIME LIMIT FOR PAYMENT (SEC. 19): The bonus should be paid in cash within 8 months from the close of the accounting year or 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. However if there is sufficient cause extension may be applied for. 17
  18. 18. PAYMENT OF BONUS ACT, 1965 OFFENCES AND PENALTIES (SEC. 28): For contravention of the provisions of the Act or rules the penalty is imprisonment up to 6 months, or fine up to Rs.1000, or both.  For failure to comply with the directions or requisitions made the penalty is imprisonment up to 6 months, or fine up to Rs.1000, or both.  18
  19. 19. PAYMENT OF BONUS ACT, 1965  In case of offences by companies, firms, body corporate or association of individuals, its director, partner or a principal officer responsible for the conduct of its business, shall be deemed to be guilty of that offence, unless the person concerned proves that the offence was committed without his knowledge or that he exercised all due diligence. 19
  20. 20. PAYMENT OF BONUS ACT, 1965 CALCULATION OF BONUS: 1.) Calculate the Statutory bonus 2.) Calculate the Available Surplus. 20
  21. 21. PAYMENT OF BONUS ACT, 1965 MEANING OF STATUTORY BONUS:  Statutory Bonus means bonus payable as per 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. Therefore, 8.33% is the statutory minimum bonus payable. However, depending upon availability of profit, the employer shall pay bonus subject to a maximum of 20%. 21
  22. 22. PAYMENT OF BONUS ACT, 1965  The Payment of Bonus Act, 1965, gives to the employees a statutory right to a share in the profits of his employer. Prior of the Act some employees used to get bonus but that was so if their employers were pleased to pay the same.  Payment of bonus act 1965 all the confirmed employees whose basis is less than or equal to 10000/- per month is eligible for statutory bonus @ rate of 8.33% of Basic pay. 22
  23. 23. PAYMENT OF BONUS ACT, 1965 HOW STATUTORY BONUS CALCULATE:  The Act enables the employees to get a minimum bonus equivalent to one month's salary or wages (8.33% of annual earnings) whether the employer makes any profit or not. But the Act also puts a ceiling on the bonus and the maximum bonus payable under the Act is equivalent to about 2 1/2 months' salary or wage (20% of annual earnings). 23
  24. 24. PAYMENT OF BONUS ACT, 1965 MEANING OF AVAILABLE SURPLUS:  Available Surplus = Gross Profit [as per section 4] Depreciation admissible u/s 32 of the Income tax Act - Development allowance  Calculate the gross profit in the manner specified in:First Schedule, in case of a banking company, or Second Schedule, in any other case. 1. 2. 24
  25. 25. PAYMENT OF BONUS ACT, 1965 CALCULATE THE AVAILABLE SURPLUS: Available Surplus = Gross Profit 1.) - Depreciation admissible u/s 32 of the Income tax Act 2.) - Development allowance 3.) - Direct taxes payable for the accounting year 4.) - Sums specified in the Third Schedule 5.) - Direct Taxes in respect of such gross profits as reduced by the amount of bonus, for the immediately preceding accounting year. 6.) + Direct Taxes in respect of gross profits for the immediately preceding accounting year  25
  26. 26. PAYMENT OF BONUS ACT, 1965 POINTS REGARDING AVAILABLE SURPLUS: 1. Direct taxes payable for the accounting year (calculated as per sec-7)- sums specified in the third schedule. 2. Direct taxes (calculated as per sec-7) in respect of gross profit for the immediately preceding accounting year. 3. Allocable surplus = 60% of available surplus, 67% in case of foreign companies. 4. Make adjustment for „set on‟ and „set off ‟ for calculating the amount of bonus in respect of an accounting year. 26
  27. 27. PAYMENT OF BONUS ACT, 1965 ALLOCABLE SURPLUS:  (Allocable Surplus = 60% of Available Surplus, 67% in case of foreign companies). 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 a foreign company, the allocable surplus is 67 percent of the available surplus and in other cases it is 60 percent (section 4,5 and 7) 27
  28. 28. PAYMENT OF BONUS ACT, 1965 SET ON & SET OFF (SEC. 15, SCHEDULE IV):  Where in any accounting year any amount has been carried forward and set on or set off under this section, then, in calculating bonus for the succeeding accounting year, the amount of set on or set off carried forward from the earliest accounting year shall first be taken into account.  The allocable surplus so computed is distributed amongst the employees in proportion to salary or wages received by them during the relevant accounting year. 28
  29. 29. WHO IS ENTITLED TO BONUS UNDER THE PAYMENT OF BONUS ACT, 1965  Every employee of an establishment covered under the Payment of Bonus Act, 1965 is entitled to bonus from his employer in an accounting year, provided he has worked in that establishment for not less than 30 working days in the year on a salary less than Rs.3,500 per month - (Section 2 (13)) 29
  30. 30. PAYMENT OF BONUS ACT, 1965 AN EMPLOYEE IN THE FOLLOWING CASES IS 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. Ex. :- (Automobile Karmachari Sangh vs. Industrial Tribunal (1970) 30
  31. 31. PAYMENT OF BONUS ACT, 1965 (4) A retrenched employee, provided he has worked for minimum qualifying period Exa: (East Asiatic C. (P) Ltd. Vs. Industrial Tribunal (1961). (5) A probationer is an employee and as such is entitled to bonus. Exa: (Bank of Mudra Ltd. Vs. Employee’s Union, 1970 US. 31
  32. 32. PAYMENT OF BONUS ACT, 1965 (6) A dismissed employee re-instated with back wages is entitled to bonus Exa: (Gammon India Ltd Vs. Nirnjan Das (1984) (7) A piece rated worker is entitled to bonus Exa: (Mathuradas Kani Vs. L.A. Tribunal AIR (1958) 32
  33. 33. Q-1 IS A SEASONAL WORKER ENTITLED TO GET BONUS?  Section 8 relates to the eligibility for bonus. The only requirement of that section is that the employee should have worked in an establishment for not less than thirty working days in an accounting year. Therefore, if a seasonal worker has worked in an establishment for more that thirty working days, he shall be entitled to get bonus. 33
  34. 34. Q-2 WHAT IS THE MEANING OF CUSTOMARY BONUS? Customary bonus is bonus which is being paid by way of tradition or custom at a uniform rate over a number of years and which has no link with profit. 34
  35. 35. Q-3 IS OPEN TO THE EMPLOYER TO PAY BONUS BASED ON PRODUCTION OR PRODUCTIVITY? 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 minimum and maximum basis. {Section 31A} 35
  36. 36. Q-4 ARE THE NEWLY SET UP ESTABLISHMENTS EXEMPTED FROM PAYING BONUS TO THEIR EMPLOYEES?  The newly set up establishment is exempted from paying bonus to its employees in the first five 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 five year, he has to pay bonus for that year. The provisions of set on and set off are not applicable in such cases. {Section 16} 36
  37. 37. Q-5 IF A MANAGEMENT HAS A NUMBER OF DEPARTMENTS, UNDERTAKINGS OR BRANCHES, SHOULD THEY BE TREATED AS SEPARATE ESTABLISHMENTS OR AS ONE COMPOSITE ESTABLISHMENT?  If an establishment consists of different departments or undertakings or has branches, whether situated in the same place or in different places, unless a separate balance-sheet and profit and loss account are prepared and maintained in respect of them, all such departments of undertakings or branches should be treated as parts of the same establishment for the purpose of computation of bonus, and once they are treated as parts of the same establishment, they should be continued to be treated as such. {Section 3} 37
  38. 38. Q-6 WHAT IS THE REMEDY PROVIDED UNDER THE ACT FOR RECOVERING BONUS DUE BUT NOT PAID?  If any bonus is due to an employee under a settlement, award or agreement, he can make an application for its recovery to the Government and the Government may issue a certificate to the Collector to recover the same as an arrear of land revenue. Such application should be made within one year from the date on which bonus became due to the employee from the employer. {Section 21} 38
  39. 39. Q-7 CAN AN ESTABLISHMENT WHOSE APPLICATION UNDER SEC. 36 OF THE ACT FOR EXEMPTION FOR A PARTICULAR PERIOD IS REJECTED BY THE GOVERNMENT, MAKES A SECOND APPLICATION  FOR THE SAME PERIOD? The Government has no power to entertain the second application for the same period. 39
  40. 40. Q-8 CAN AN ESTABLISHMENT BE DEEMED TO BE NEWLY SET UP BY REASON OF A CHANGE IN THE OWNERSHIP OF THE ESTABLISHMENT?  When the ownership of an establishment is transferred from one person to another, the establishment remains the same and it cannot be said to be a new establishment in the hands of the transferee. 40
  41. 41. Q-9 IS AN EMPLOYEE, WHO IS DISMISSED FROM SERVICE ON THE GROUND THAT HE HAD COMMITTED THEFT, FRAUD AND DISHONESTY IN CONNECTION WITH THE BUSINESS OF THE ESTABLISHMENT IN THE ACCOUNTING YEAR 1984-85, DISQUALIFIED FROM CLAIMING BONUS FOR THE ACCOUNTING YEAR 1981-82?  If the employee is entitled to bonus for the accounting year 1981-82, the employer cannot say that the payment will not be made because the employee is dismissed on some future date. 41
  42. 42. Q-10 IS THE EMPLOYER REQUIRED TO MAINTAIN ANY REGISTERS UNDER THE ACT?  Every employer is required to maintain, in the prescribed form, the following three registers: 1.) A register showing the computation of the allocable surplus; 2.) A register showing the set-on and set-off of the allocable surplus; 3.) A register showing the details of the amount of bonus payable to each of employees, the amount of deductions if any, and the amount actually paid. 42
  43. 43. The employer is also required to send, in the prescribed form, an annual return to the Inspector appointed under the Act. The time limit for sending the annual return is thirty days from the expiry of the time limit specified in section 19 for payment of bonus. - {Section 26 & Rule 4 and 5} 43
  44. 44. ANY QUERIES… 44
  45. 45. 45

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