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Chapter 3: 3.1
The Payment of
Bonus Act, 1965
Applicability of the Act
Chart for Understanding

The Payment of Bonus Act applies to

Other establishment in
which 20 or more persons The Appropriate Government may
Every Factory are employed on any day
also apply the provisions of this
during an accounting
year. Act with effect from such
An establishment in accounting year as may be notified
which 20 or more in the official Gazette, to any
persons are employed establishment or class of
on any day during an The provision of this Act shall
establishments, including an
accounting year, must also apply to certain public
sector establishments [20(1)]. establishment as defined by Sec
continue to be governed
by this Act, in spite of 2(m) (ii) of the Factories Act, 1948
the fact that the number employing persons less than 20
of persons employed but not less than 10 in number
therein falls below 20 [Proviso to Sec 1(3)].
[1(5)].
Automobile Karamchari Sangh Vs. Industrial Tribunal, (1976)
A part-time employee is also an employee for the purpose of calculating the
number of employees i.e., 20 or more under Sec 1(3)(b).

Non Applicability of Act [32]


Employees employed by following employers are not covered

Water Finance Govt (Dept) Insurance /


Connection Connection Connection Institutions & others

1. Seamen, 1. RBI, UTI, 1. Departments of 1. Gen Insurance Co.,


2. Dock 2. IDBI, NABARD, CG, SG or LA, 2. Life Insurance Co.,
workers, 3. SIDBI, 2. Financial 3. Deposit Insurance Corp,
3. Cross country 4. National housing
Institution in Public 4. Uni & other Edu Insti,
Inland Water Bank (NHB),
5. Industrial Finance sector notified by 5. NPOs including hospitals,
Transport
establishmen Corporation of CG (not being 6. chambers of commerce
ts India (IFCI). Bank). 7. social welfare institutions,
8. Indian Red Cross Society
9. like nature Institutions
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3.2
Application of the Act to establishments in Public Sector [20]
Only in following 2 conditions Act applies to PSE’s
Competitive Business Income Limit

Establishment in public sector sells any goods The income from such sale or services or both
produced or manufactured by it or renders any is not less than 20% of the gross income of the
services ,in competition with an establishment establishment in public sector for that year.
in private sector in any accounting year, AND

Definitions [Sec 2]
Allocable surplus [2(4)]

Appropriate Government [2(5)]


In relation to an establishment - Here only
 An establishment in respect of which the appropriate Government under CG shall
the Industrial Disputes Act, 1947 is the Central Government have control

 In any other case, the State Government shall be Appropriate Government

Establishments under CG
Establishments under SG
(For e.g. Maharashtra SG)

Available Surplus [2(6)]

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Employee [2(13)]

3.3

Employer [2(14)]

Establishment in public Sector [2(16)]


It means an establishment owned, controlled or managed by

(a) A Government company as defined in Sec 617 of the Companies Act, 1956.

(b) a corporation in which not less than 40% of its capital is held (whether
singly or taken together) by:
(i) the Government; or
(ii) the Reserve Bank of India; or
(iii) A corporation owned by the Government or the Reserve Bank of India.

Salary or wage [2(21)]


All remuneration (other than remuneration in respect of over-time work) capable
of being expressed in terms of money.
All remuneration which will be payable to an employee in respect of his
employment or of work done, if the terms of employment, express or implied,
were fulfilled.
It includes dearness allowance, i.e., all cash payments by whatever name called,
paid to an employee on account of a rise in the cost of living.

The term Salary includes


Dearness allowance, i.e., all cash payments by whatever name called, paid to an
employee on account of a rise in the cost of living.
Retaining Allowance payable to Seasonal workmen during the off- season.
City Compensatory Allowance is “Salary and wages” and in the absence of any
agreement, must be taken into account for calculating bonus.

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Free Food Allowance or Free food by his employer in lieu of the whole or the part of
the salary or wages payable shall be deemed to form part of salary and wages.
3.4
Subsistence Allowance is also included in Salary and Wages.
But it excludes the following
The value of any house accommodation or of supply of light, water, medical
attendance or other amenity or of any service or of any concessional supply of
food grains or other articles.

Any travelling concession.

Any bonus (including incentive, production & attendance bonus).

Any contribution paid or payable by the employer to any pension fund or


provident fund or for the benefit of the employee under any law for the time
being in force.
Any retrenchment compensation or any gratuity or other retirement benefit
payable to the employee or any ex-gratia payment made to him.

Any commission payable to the employee.

Any other allowance which the employee is for the time being entitled to.

Qualifications and Disqualification for Bonus

An employee in the following cases is entitled to bonus:


A temporary workman is entitled to bonus on the basis of total number of days
worked by him.
An employee of a seasonal factory is entitled to proportionate bonus and not the
minimum bonus as prescribed under Sec 10 of the Act for e.g. Sugar Factory.
Automobile Karmachari Sangh vs. Industrial Tribunal [1970]
A part time employee as a sweeper engaged on a regular basis is entitled to bonus.
East Asiatic Co. (P.) Ltd. vs. Industrial Tribunal [1961]
A retrenched employee is eligible to get bonus provided he has worked for
minimum qualifying period.
Bank of Madurai Ltd. vs. Employees’ Union, [1970]
A probationer is an employee and as such is entitled to bonus.
Gammon India Ltd. vs. Niranjan Das
A dismissed employee reinstated with back wages is entitled to bonus.
Mathuradas Kanji vs. L.A. Tribunal AIR, [1958]
A piece-rated worker is entitled to bonus.
Employees employed through contractors on building operations shall be entitled
to bonus.

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An Employee in the following cases is not entitled to bonus:
Wheel & RIM Co. vs. Government of T.N (1971)
An apprentice is not entitled to bonus. 3.5
Employees of certain establishments specified in sec 32 are not covered by this
Act. For e.g. Any Government Employee
Disqualification of Bonus (Sec 9)An employee who has been dismissed from service for :
An employee who has been dismissed from service for Fraud
V.G Textiles Private Ltd Vs Assistant Commissioner of Labour, 2010
Riotous or violent behaviour while on the premises of the establishment
Theft, misappropriation or sabotage of any property of the establishment is not
entitled for bonus

Himachal Pradesh State Electricity Board and Others Vs Krishan Dutt


[2010]
The payment of Bonus Act does not make any distinction as to whether an
employee is daily wager, temporary, permanent, weekly paid, monthly
paid etc. The only precondition he should have worked in the
establishment for not less than 30 working days in an accounting year.
Project Manager, Ahmedabad Project, ONGC Vs. Sham Kumar Sahegal
[1995]
If an employee is prevented from working and subsequently reinstated in
service, employee’s statutory liability for bonus cannot be said to have
been lost. Nor can the employer refuse for such bonus.
Pandian Roadways Corporation Ltd. vs. Presiding Officer [1996]
An employee who is dismissed from service on any ground of misconduct
as mentioned in Sec 9, is disqualified for any bonus and not merely for
bonus of the accounting year in which he is dismissed.

Payment of Minimum Bonus [10]


Minimum Bonus

For all eligible Employees For employee below the age of 15


Subject to the other provisions of this Act, every years
employer shall be bound to pay to every employee in Where the employee has not
respect of every accounting year, a minimum bonus completed 15 years of age at the
which shall be - beginning of the accounting year, he
 8.33% of the salary or wage earned by the will be entitled to minimum bonus of
employee during the accounting year, OR  8.33% of the salary or wage
 Rs 100 whichever is higher, whether or not the earned by the employee during
employer has any allocable surplus in the the accounting year, OR
accounting year.  Rs 60 whichever is higher.

Calculation of Bonus with respect to certain Employees [12]

If company have If company have If Company have


Heads In case of loss profit but less profit more than profit more than
than min Bonus min bonus max bonus
required required required
Whether Bonus
is Compulsory?
How much

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bonus?
What about the
3.6 deficits or excess
profit

Heads S < 3500 S = 3500 S > 3500 S > 10,000


S < 10,000
Whether eligible
for Bonus as per
law
Whether
Compulsory to
pay bonus
Whether bonus
can be paid?
Amount to be
considered for
bonus

Computation of Number of Working Days


Deemed working days for computing the number of working days [14]
The day when he has been laid off under an agreement or by a standing order
under Industrial Employment (standing orders) Act, 1946 or Industrial Disputes
Act, 1947 or any other law applicable to the establishment.

He has been on leave with salary or wage.

He has been absent due to temporary disablement caused by accident arising out
of and in the course of his employment.

The employee has been on maternity leave with salary or wages during the
accounting year.

Set On and Set Off of Allocable Surplus [15]


Method of set-off of available surplus
1. Allocable Surplus ˃ Bonus payable [15(1)]
Situation Treatment
In any Accounting Carry Forward: Excess amount, subject to a limit of 20% of the total
Year, if salary or wage of the employees employed in the establishment in that
Allocable Surplus ˃ accounting year, be carried forward for being set on in the succeeding
Maximum Bonus accounting year and so on up to and inclusive of the 4th accounting year.
payable

2. No Allocable Surplus or Allocable Surplus ˂ Bonus payable [15(2)]


Situation Treatment
In any Accounting Year, if (a) Carry Forward: Minimum Bonus amount or the deficiency as
(a) No Allocable Surplus or the case may be, shall be carried forward for being set off in the
Allocable Surplus ˂ Bonus succeeding accounting year and so on up to and inclusive of the 4th
payable Accounting Year
(b) No sufficient balance in (b) Manner of Set-off: Set-off shall be done in the manner
amt c/f for set on u/s15(1) specified in Fourth Schedule.

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3. Fourth Schedule to apply to all cases [15(3)]
The principle of set on and set off as illustrated in the Fourth Schedule shall apply to all other
cases not covered by Sub-sec (1) or (2) for the purpose of payment of bonus. 3.7
4. FIFO Basis [15(4)]
Where in any accounting year any amount has been carried forward and set on or set off under
this Sec, 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.

Special Provision with Respect to New Establishments [16]

Summary
Sec 16(1A) Sec 16(1B) Sec 16(1C)
First 5 Accounting Years 6 and 7th Accounting Year
th th
8 Accounting Year
 Bonus shall be payable only  Sec 15 i.e. Set-on and set-off apply  Sec 15, shall apply
if employer derives profit. with modification. as they apply in
 Set-on and set-off in 6th Year – Excess relation to any
 Sec 15 i.e. Set-on and set-off or deficiencies of 5th and 6th year. other
do not apply.  Set-on and set-off in 7th Year – Excess establishment
or deficiencies of 5th, 6th, and 7th year.

Miscellaneous
Adjustment of interim bonus against bonus payable under the Act [17]
 If in any accounting year, an employer has paid any puja bonus or other
customary bonus to any employee, and then the former shall be entitled to
deduct the amount of bonus so paid from the amount of bonus payable by him
to the employee under this Act in respect of that accounting year. The employee
shall be entitled to receive only the balance.
 The employer can do the same thing even in a case where he has paid a part of
the bonus payable under this Act to an employee before the date on which such
bonus becomes payable

Deduction in case of misconduct under the Act [18]


Where in any accounting year, an employee is found guilty of misconduct
causing financial loss to the employer, and then the employer can lawfully
deduct the amount of loss from the amount of bonus payable by him to the
employee in respect of that accounting year only. In this case, the employee
shall get only the balance.

Time-Limit for payment of bonus [19]


All amounts payable to an employee by way of bonus shall be paid by the
employer within a period of 8 months from the closing of the accounting year.
But this period of 8 months may be extended up to a maximum of 2 years by
the appropriate Government or by any authority specified by the appropriate
Government. This extension is to be granted on the application of the employer
and only for sufficient reasons.

Maintenance of registers, records etc. [26]


Every employer shall prepare and maintain such registers, records and other documents in such
form and in such manner as may be prescribed.
Rule 4 of the Payment of Bonus Rules, 1965 prescribes three kinds of registers to be maintained
by the employers

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Register in Form A
Computation of the allocable surplus referred to in Sec 2(4)
3.8 Register in Form B
The set on and set-off of the allocable surplus u/s (15)
Register in Form C
 The details of the amount of bonus due to each of the employees
 The deductions under Secs 17 and 18
 The amount actually disbursed to the employees.

Penalty [28]

A person shall be liable to punishment

If he contravenes any of the provisions of If he fails to comply with any direction or


this Act or any rule framed there under requisition under the Act

Punishment

Imprisonment of 6 months Fine up to Rs 1000 Fine + Imprisonment BOTH


Offences by Companies [29]
Liabilities of persons
If an offence under this Act is committed by a Company, then every person who,
at the time of committing the offence was in charge of and responsible to the
company for the conduct of its business, shall be deemed to be guilty of the
offence and liable to be proceeded against and punished accordingly.
Exemption
Any such person who is liable for punishment, shall be exonerated from liabilities
and incidental punishment, if he proves that the offence was committed without
his knowledge or that he exercised all due diligence to prevent the commission of
such offence.
Punishment where the liability is proved
Where an offence has been committed by a company and it is proved that the
offence has been committed by a company with the consent and 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.

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