P ayment of Bonus Act

1965
OBJ E CT of the Act
1 E nsuring 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 prosperity

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

relations between employers and employees.
 APPLICABILIT Y

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
year.
While the minimum bonus is 2
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 Prioritize earlier payments

If a company has multiple establishments, it should prioritize

paying bonus to employees in establishments with lower
profits first.
 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.
 Mode of P ayment

E lectronic 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.
E xemptions
1 Inadequate profits

If an establishment incurs losses or has inadequate profits, it may

be exempt from paying bonus under certain conditions.

2 E xcluded employees

Employees who are already covered by other bonus schemes or

those whose salaries exceed the specified limit may also be
exempt.

3 Important E xceptions
S ome establishments like hospitals, educational institutions,
and charitable organizations are exempt from the Act.
 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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