PAYMENT OF BONUS ACT 1965

(STATUTORY FORMULA& AVAILABLE SURPLUS

FORMULA ) AND
EMPLOYEES ENTITLED TO BONUS
BY
Dr.R.ANITHA

1
 FLOW OF PRESENTATION

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
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
15.)Conclusions 16.)Review Of The Topic
17.) Bibliography

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INTRODUCTION PAYMENT OF BONUS ACT
1965

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 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.”

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 AIMS OF THE PAYMENT OF BONUS ACT, 1965

The payment of Bonus Act, 1965 aims at

providingfor the payment of bonus to the
employees of certain establishments, on the basis
of profits or production or productivity and for
matters connected therewith.

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APPLICABILITY
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.

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ELIGIBILITY
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.

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 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.

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 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

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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.

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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 )

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 EMPLOYERS’ OBLIGATIONS

To calculateand pay the annual bonus as

required under the Act.

To maintain the prescribed registers and file

annual returns of bonus paid.

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TIME LIMIT FOR PAYMENT
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.

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 OFFENCES AND PENALTIES
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.

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 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.

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 CALCULATION OF
BONUS
1.) Calculate the Statutory bonus
2.) Calculate the Available Surplus.

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 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
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subject to a maximum of 20%.
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.

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 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).

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 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.

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 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 gross profits for the
immediately preceding accounting year
6.) – Direct Taxes in respect of such gross profits as
reduced by the amount of bonus, for the
immediately preceding accounting year. 24
 FORMULA OF 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.
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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)

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SET ON & SET OFF
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.

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 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)

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 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.
Exa :- (Automobile Karmachari Sangh vs.
Industrial Tribunal (1970) 29
(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.
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(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)

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 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.

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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.

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 Q-3 IS OPEN TO THE EMPLOYER TO PAY BONUS
BASED ON PRODUCTION OR PRODUCTIVITY?:

If 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}

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 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}

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 Q-5. 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.

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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}

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 REVIEW OF THE TOPIC
1.) Introduction 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 BonusAct
8.) Employers’ Obligations of the Act
9.) Time limit for payment 10.) Offences and
penalties
11.) Set on & Set off
38
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
15.)Conclusions

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