Payment of Bonus Act

1965
OBJECT of the Act
1 Ensuring fair 2 Incentivizing
compensation performance

The P ayment of B onus Act The Act encourages

aims to provide adequate employees to perform
bonus to employees as a better by receiving a share
form of appreciation for in the company's profits.
their hard work.

3 Industrial peace and harmony

B y ensuring a fair share of profits, the Act promotes harmonious

relations between employers and employees.
 APPLICABILITY

1 Minimum number 2 All types of

of employees establishments

The Act applies to It is applicable to both

establishments with 20 or private and public sector
more employees. establishments,
including factories,
mines, and plantations.
Calculation of Bonus
1 Gross P rofit and
Available S urplus
Bonus is calculated based
on the gross profit of the
establishment and the
available surplus.
2 Allocating B onus P ool
The bonus pool is created
by allocating a percentage
of the available surplus for
distribution.

3 Different Methods

The Act provides different methods for calculating bonus, including

the allocable surplus method and the set-off and set-on method.
S teps towards Calculating the amount of
bonus

S elect financial Determine gross Calculate available

year profit surplus

Choose the specific financial Calculate the gross profit of Compute the available
year for which the bonus the establishment for the surplus after deducting
calculation will be done. chosen financial year. certain amounts specified in
the Act.
 Eligibility criteria
Minimum qualifying period Salary limit

An employee should have worked for a Employees earning up to a certain salary limit
minimum of 30 working days in the financial are typically eligible for bonus.
year to be eligible for bonus.

Exemptions Constructive dismissal

Some employees, such as apprentices and those In certain cases of constructive dismissal,
dismissed for misconduct, may be exempt from employees may still be eligible for bonus.
receiving bonus.
Amount of Bonus

1 Minimum Bonus

The Act specifies a minimum bonus of

8.33% of the salary or wage earned by
Maximum B onus
the employee during the accounting

While the minimum bonus is 2 year.

guaranteed, the maximum bonus is

capped at 20% of the salary or wage.

3 Discretionary Bonus

In some cases, employers may also

give discretionary bonus in addition to
the statutory bonus.
Time limit for payment of
Bonus
1 No later than 8 months

Employers are required to pay bonus to eligible employees within 8

months from the close of the accounting year.

2 In case of disputes

Within one month from the date of enforcement.

The appropriate govt. may extend the period upto a maximum of
2 yrs.
 Claim of Bonus

Employee's
responsibility
Employees must submit a
written application or claim to
the employer to receive their
bonus.
Employer's obligation
Employers are legally
obliged to respond and pay
the due bonus or provide
reasons for rejection within
a specified time.
Grievance redressal
If an employee's claim is
rejected or delayed, they can
file a complaint with the
appropriate authority for
resolution.
 ‘Employee can enter into an
agreement with the employer for Mode of P ayment
grant of bonus under a formula
from that under the act.’

Electronic transfer

Electronic transfer is also a common mode of

payment, ensuring convenience and
transparency.

Cash payment

Employers can pay bonus in cash directly to the

eligible employee.
Exemptions
Important Exceptions

S ome establishments like hospitals, educational institutions,

and charitable organizations are exempt from the Act.

Maharas htra S tate E lectricity
B oard vs . M.C. Chitale and Others
(B ombay High Court, 1980)
V/S
M.C. Chitale and Others –
Maharashtra Veej Mandal Nokar
Sangh,Maharashtra Veej Mandal
Kamgar Sangh
This case looks at the Payment of Bonus Act and whether it
applies to the Maharashtra State Electricity Board.
S ummary
The case involves the Maharashtra State Electricity Board's
dispute with trade unions over bonus demands. The Board
claimed exemptions under Section 32 of the Payment of
Bonus Act, 1965
S ection 32(iv): The court rejected the claim that the Board,
despite State control, is not an agent and has independent
legal existence .
S ection 32(x): The court noted that the Board, though
receiving State aid, doesn't meet criteria as a public
sector establishment, as the government doesn't hold
any capital shares.
S ection 32(v)(c): The court narrowed the definition of
"institution," excluding the Board, and emphasized its
commercial nature with a profit motive.
Conclus ion: The petition was dismissed as none of the
clauses of Section 32 applied, emphasizing the commercial
aspect of the Board's operations and rejecting the argument
of res judicata.
REF. LINKS –
1. https://indiankanoon.org/doc/1935562/
2. https://lawyerservices.in/Maharashtra-State-Electricity-Board-
Versus-M-C-Chitale-1980-07-14
 Conclusion

Employee motivation Legal compliance Fair distribution of profits

The P ayment of B onus Act It is important for employers to The Act promotes fairness by
serves as a powerful tool for understand and adhere to the ensuring that employees
motivating employees through provisions of the Act to ensure receive a fair share of the profits
the sharing of profits. compliance and avoid penalties. generated by the establishment.
QnA
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