The Payment of Bonus Act 1965 applies to factories and establishments with 20 or more employees. It requires employers to pay eligible employees an annual bonus based on salary or wages, with a minimum bonus of 8.33% of salary or Rs. 100. The maximum bonus is 20% of salary. Certain employees may be disqualified from receiving bonus if dismissed for misconduct. The Act aims to promote productivity and sets standards for computing bonus payments, resolving disputes, and maintaining proper records.

1. THE PAYMENT OF
BONUS ACT 1965

2. Introduction
▫ The Payment of Bonus Act, 1965 applies to every factory and
every establishment in which twenty or more persons are
employed on any day during an accounting year.
▫ The definition of the factory is the same as under the
Factories Act, 1948. Under the Act ‘establishment’ has been
defined as the place in which one is permanently fixed for
business, with necessary equipment and an office or place of
business.
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3. Eligibility
▫ Every employee shall be entitled to be paid bonus provided
he/she has worked for at least 30 working days in a year.
Here the term ‘employee’ refers to any person employed on a
salary or wage not exceeding Rs. 1,600.00 per month. ‘Salary’
or ‘wage’ means all remuneration capable of being expressed
in terms of money, including dearness allowance.
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4. Disqualification of Bonus
▫ Under the Act an employee may be disqualified from receiving
bonus if he/she is dismissed from service for fraud , riotous or
violent behavior, theft, misappropriation, or sabotage of
property of the establishment.
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5. Payment of Minimum Bonus
▫ Every employer shall be bound to pay every employee in
respect of any accounting year a minimum bonus shall be
8.33% of the salary or wage earned by the employee during
the accounting year or Rs. 100 - whichever is higher -
whether or not the employer has any allocable surplus in the
accounting year. If an employee is below fifteen years of age,
the minimum amount in this case would be Rs. 60.
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6. Payment of Maximum Bonus
▫ Where the allocable surplus exceeds the amount of minimum
bonus payable to the employees, the employer shall be bound
to pay every employee in respect of that accounting year a
bonus which shall be an amount in proportion to the salary or
wage earned by the employee subject to a maximum of 20% of
such salary or wage.
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7. Proportionate Reduction in Bonus
▫ Where an employee has not worked for all the working days
in an accounting year, if the minimum bonus of Rs. 100 is
higher than 8.33% of his/her salary or wage for the days
he/she has worked, it shall be proportionately reduced
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8. Computation of Working Days
▫ For the purpose of computing the proportionate bonus, an
employee shall be deemed to have worked on the days on which
he/she had been laid off under an agreement, standing orders, or
the Industrial Disputes Act; was on leave with salary or wage; was
absent due to temporary disablement caused by an accident
arising out of and in the course of his/her employment; or was on
maternity leave with salary or wage.
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9. Set-on and Set-off allocable Surplus
▫ Where the allocable surplus exceeds the amount of maximum
bonus, the Act provides for carrying forward the excess for
being set on in the succeeding year
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10. Special provisions for Establishments
▫ The Act provides for protection of newly set up establishments by giving
them exemption form the payment of bonus to the employees for the initial
period. In the first five accounting years, following the accounting year in
which the employer sells the goods produced or manufactured by him/her
or renders service, bonus shall be payable only in respect of the accounting
year in which the employer derives profit and such bonus is to be calculated
in accordance with the provisions of this Act, but without applying the
provisions of Section 15. For sixth and seventh accounting years, so
reckoned , Section 15 shall apply with the modifications prescribed in sub-
section ( I-B). From the eighth accounting year the provisions of Section 15
shall also apply.
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11. Customary Interim Bonus
▫ There is no statutory recognition to ‘puja bonus’ or other customary
bonus under the Act. The bonus payable under the Act is subject to
deduction of the amount paid as “Puja bonus’ or customary bonus
and the employees shall be entitled to receive only the balance.
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12. Deduction from Bonus
▫ In any accounting year, if any financial loss is caused to the employer
due to misconduct of an employee, it can be deducted from the
amount of bonus payable to the employee in respect of that financial
year.
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13. Time Limit for the Payment of Bonus
▫ The bonus shall be paid in cash by the employer within a period of
eight months -from the close of the accounting year. The
appropriate government may extend the period up to two years.
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14. Application of the act to public-sector
Establishments
▫ In any accounting year, if an establishment in the public sector sells
goods or renders services in competition with an establishment in
the private sector, and the income from such sale or services is not
less than 20%of its income for that year, then the gross provisions of
this Act will apply to such an establishment in public sector.
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15. Reference of disputes Related to
Bonus
▫ Any dispute between the employer and his/ her employees with
respect to bonus payment is considered an industrial dispute and the
industrial relations machinery set up under the Industrial Disputes
Act shall be applied for the settlement of the bonus dispute.
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16. Maintenance of Registers, Records
▫ Every employer shall prepare and maintain . registers, records, and
other documents in the prescribed form and manner for the purpose
of this Act.
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17. Penalty
▫ If any person contravenes any of these provisions of this Act or fails
to comply with the direction given or the requisition made to
him/her, he/she is punishable with imprisonment, which may extend
to six months, or a fine of Rs. 1,000, or both.
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18. Bonus Linked with Productivity
▫ Where the employer and the employees enter into an agreement or
settlement for payment of annual bonus.
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19. Expenditure from Bonus Payment
▫ The appropriate government, having regard to the financial position
of any establishment or class of establishments, may give
exemption for such establishments from all or any of the provisions
of this Act
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20. Employees Exempted from this Act
▫ The Act is not applicable to apprentices and it excludes employees in
an establishment and in an industry carried on by or under the
authority of a department of the Central Government, State
Government
▫ Also, the Act does not apply to seamen employees registered or
listed under any scheme made under Dock Employees (Regulation of
unemployment) Act of 1948, employees of Life
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21. Employees Exempted from this Act
▫ Insurance Corporation and general insurance companies, Indian Red
Cross Society, universities and other educational institutions, inland
water Transport establishments operating on routes passing
through any other country, Reserve Bank of India Unit Trust of India,
industrial and financial corporations established in the public sector,
and employees engaged through contractors in building operations
and institutions which are not established for purposes of profit.
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