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PAYMENT OF BONUS ACT, 1965

WHAT IS BONUS?
1.

‘Bonus’ is not defined under the Act, nor there is any definition of ‘Bonus’ under any other enactment. The Bonus Commission (1961) which was to define the concept of bonus said in its report: “It is difficult to define in rigid terms the concept of bonus but it is possible to urge that once profits exceed a certain base, labour should legitimately have a share in them”. The word ‘Bonus’ has however acquired a secondary meaning in the sphere of industrial relations. It is classified amongst the methods of wage payment. “The term ‘bonus’ is applied to a cash payment made in addition to wages. It generally represents the cash incentive given conditionally on certain standards of attendance and efficiency being attained”. Muir Mills Co. Ltd. V. Suti Mills Mazdoor Union,
Kanpur (1995) 1 SCR 991.

2.

“Both labour and capital contribute to the earnings of the industrial concern and so it is but fair that labour should derive some benefit if there is surplus available for that purpose”. Sri Minakshi Mills Ltd. V. Workmen, 1958
SCA 440: AIR 1958 SC 153

APPLICABILITY OF THE ACT  Every factory wherein 10 or more persons are employed with the aid of power .Thus we can say that bonus is a statutory cash payment made to employees in addition to wages. income tax. 10. AVAILABLE SURPLUS – Sec 2 (6) Means available surplus computed under Sec 5 of the Act Available Surplus = (Gross Profits for the year) – ( depreciation. direct tax) 60 % of the amount so derived to be allocated for bonus distribution to the workers EMPLOYEE– Sec 2 (13) Means a person (apprentice excluded) employed on salary / wages not exceeding Rs.000 per month doing . or  An establishment in which 20 or more persons are employed without the aid of power on any day during an accounting year IMPORTANT DEFINITIONS ALLOCABLE SURPLUS – Sec 2 (4) It is an amount calculated out of the available surplus. It may be 67 % or 60% of the “available surplus “in an accounting year.

employer’s contribution to PF. provided they work for 30 working days in that accounting year. then it shall be treated as a separate establishment under the Act. any commission.000 p. retrenchment compensation.any skilled / unskilled /manual / supervisory /technical/ administrative job.m. ELIGIBILITY FOR BONUS –Sec 8  All employees drawing salary / wages up to Rs. LTA.  However if any departments/undertakings/branch as the case may be prepares and maintains a separate profit & loss account. gratuity. GROSS PROFIT – Sec 2 (18) Gross profit computed under Sec 4 of the Act SALARY / WAGES –Sec 2 (21)  Means all the remuneration capable of being expressed in terms of money payable to an employee as per term s of employment including DA (ADA & VDA) Does not include overtime. . ex-gratia.  ESTABLISHMENT– Sec 3  Includes different departments/undertakings/branch whether situated at the same place or different places for the purpose of computing bonus under the Act. 10. HRA. Bonus.

Misappropriation. 10. Fraud b. Theft.m.33 % of the salary / wages or Rs.500 p.000 p. 100 which ever is higher on completion of 5 years from first accounting year even if there is no profit. DISQUALIFICATION FOR BONUS– Sec 9  An employee will be disqualified for bonus if he is dismissed from service for committing a. property Sabotage of company’s PAYMENT OF MINIMUM BONUS –Sec 10 8. PAYMENT OF MAXIMUM BONUS –Sec 11 20% of the salary / wages if the allocable surplus in any accounting year exceeds the amount of min. maximum will be taken even if the employee is withdrawing Rs.m. Please note that for computation purposes only Rs. 3. Riotous behavior in the establishment premises c. bonus payable .

From the sixth accounting year . Set-off :. This is known as set-off. then the amount so short of or minimum bonus payable amount will be carried forward.In any accounting year.SET-ON AND SET-OFF OF ALLOCABLE SURPLUS –Sec15 Set-on: In any accounting year where the allocable surplus exceeds. or b. This is known as set –on and this can be done up to a maximum of 4 succeeding years. if there is no available surplus or the allocable surplus in that year falls short of the payable minimum bonus. SPECIAL PROVISIONS WITH RESPECT TO CERTAIN ESTABLISHMENTS–Sec 16 a. In the case of newly set up establishments bonus is payable only from the accounting year in which employer makes profit . minimum bonus or as per set-on/set-off principle TIME LIMIT FOR THE PAYMENT OF BONUS–Sec-19 . This can be done for a maximum of 4 succeeding years. the amount of maximum bonus (20%). then the excess amount up to a further limit of 20% is to be carried forward.

For contravention or failure to comply with act/rules b. Bonus has to be paid within 8 months of the closure of accounting year. Officer -in-charge for the conduct of the business of the company to be held responsible and prosecuted. 1000/. Register showing set-on & set-off of allocable surplus – in Form B (Rule 4 (b)) Register of bonus paid to employees – in Form C (Rule 4 (c)) c. PENALTY & OFFENCES BY COMPANIES–Sec-28 & 29 a. . Registers showing computation surplus – in Form A (Rule 4 (a)) of the allocable b. Imprisonment for 6 months or fine of Rs.or both c. It means that bonus should be disbursed before the November end if financial closure is done in the month of March. MAINTENANCE OF REGISTERS & RECORDS–Sec 26 a.