PAYMENT OF BONUS ACT 1965

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INDEX

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
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11.) Set on & Set off
INDEX
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

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PAYMENT OF BONUS ACT 1965

Introduction:

The practice of paying bonus in India appears to have originated

during first world war when certain textile mills granted 10% of
wages as war bonus to their workers in 1917. In certain cases of
industrial disputes demand for payment of bonus was also
included. In 1950, the full bench of the labor appellate tribunal
evolved a formula for determining of bonus, A plea was made to
raise that formula in 1959.

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PAYMENT OF BONUS ACT 1965

At the second and third meetings of the 18th session of

standing labor committee (G.O.I.) held in new Delhi in
march/ April 1960, it was agreed that a commission be
appointed to go into the que. Of bonus and evolve
suitable norms. A tripartite commission was set up by the
govt. of India to consider in a comprehensive manner,
the que. of payment of bonus based on profits to
employees employed in establishments and to make
recommendation to the govt.

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PAYMENT OF BONUS ACT 1965

The govt. of India accepted the recommendation of the

commission subject to certain modifications. To
implement these recommendation the payment of bonus
ordinance, 1965, was promulgated on 29th may, 1965. To
replace the said ordinance the payment of bonus bill was
introduced in the parliament.

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PAYMENT OF BONUS ACT, 1965

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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PAYMENT OF BONUS ACT, 1965

AIMS OF THE PAYMENT OF BONUS ACT,

1965:
The payment of Bonus Act, 1965 aims at providing for
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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PAYMENT OF BONUS ACT, 1965

APPLICABILITY: (SEC. 1)

 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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PAYMENT OF BONUS ACT, 1965

ELIGIBILITY (SEC.8):
 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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PAYMENT OF BONUS ACT, 1965

 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. (sec. 32)

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PAYMENT OF BONUS ACT, 1965

EMPLOYEE IS DISQUALIFIED FROM RECEIVING BONUS:

 If an employee is dismissed from services for:
(a) fraud;
(b) riotous or violent behavior while on the premises of
the establishment; (c) theft,
misappropriation, or sabotage of  any property of the
establishment; he is disqualified from receiving bonus.
{Section 9}  

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PAYMENT OF BONUS ACT, 1965

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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PAYMENT OF BONUS ACT, 1965

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. {Section 11}

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PAYMENT OF BONUS ACT, 1965

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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PAYMENT OF BONUS ACT, 1965

EMPLOYERS’ OBLIGATIONS:

 To calculate and pay the annual bonus as required under

the Act.

 To maintain the prescribed registers; and

 file annual returns of bonus paid. Form D

to the inspector within 30 days.

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PAYMENT OF BONUS ACT, 1965

TIME LIMIT FOR PAYMENT (SEC. 19):

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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PAYMENT OF BONUS ACT, 1965

OFFENCES AND PENALTIES (SEC. 28):

 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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PAYMENT OF BONUS ACT, 1965

 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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PAYMENT OF BONUS ACT, 1965

CALCULATION OF BONUS:
1.) Calculate the Statutory bonus

2.) Calculate the Available Surplus.

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PAYMENT OF BONUS ACT, 1965

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%.
PAYMENT OF BONUS ACT, 1965

 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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PAYMENT OF BONUS ACT, 1965

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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PAYMENT OF BONUS ACT, 1965

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:-

1. First Schedule, in case of a banking company, or
2. Second Schedule, in any other case. 

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PAYMENT OF BONUS ACT, 1965

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 such gross profits as
reduced by the amount of bonus, for the immediately
preceding accounting year.
6.) + Direct Taxes in respect of gross profits for the
immediately preceding accounting year
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PAYMENT OF BONUS ACT, 1965

POINTS REGARDING 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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PAYMENT OF BONUS ACT, 1965

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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PAYMENT OF BONUS ACT, 1965

SET ON & SET OFF (SEC. 15, SCHEDULE IV):

 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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PAYMENT OF BONUS ACT, 1965

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.
Ex. :- (Automobile Karmachari Sangh vs. Industrial 30
Tribunal (1970)
PAYMENT OF BONUS ACT, 1965

(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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PAYMENT OF BONUS ACT, 1965

(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?

It 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 IF A MANAGEMENT HAS A NUMBER OF
DEPARTMENTS, UNDERTAKINGS OR BRANCHES,
SHOULD THEY BE TREATED AS SEPARATE
ESTABLISHMENTS OR AS ONE COMPOSITE
ESTABLISHMENT?

 If an establishment consists of different departments or

undertakings or has branches, whether situated in the
same place or in different places, unless a separate
balance-sheet and profit and loss account are
prepared and maintained in respect of them, all such
departments of undertakings or branches should be
treated as parts of the same establishment for the purpose
of computation of bonus, and once they are treated as
parts of the same establishment, they should be
continued to be treated as such. {Section 3}  
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Q-6 WHAT IS THE REMEDY PROVIDED UNDER THE
ACT FOR RECOVERING BONUS DUE BUT NOT PAID?

 If any bonus is due to an employee under a settlement,

award or agreement, he can make an application for its
recovery to the Government and the Government may
issue a certificate to the Collector to recover the same as
an arrear of land revenue. Such application should be
made within one year from the date on which bonus
became due to the employee from the employer.
{Section 21}  

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Q-7 CAN AN ESTABLISHMENT WHOSE APPLICATION UNDER
SEC. 36 OF THE ACT FOR EXEMPTION FOR A PARTICULAR
PERIOD IS REJECTED BY THE GOVERNMENT, MAKES A
SECOND APPLICATION FOR THE SAME PERIOD?

 The Government has no power to entertain the second

application for the same period.  

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Q-8 CAN AN ESTABLISHMENT BE DEEMED TO BE
NEWLY SET UP BY REASON OF A CHANGE IN THE
OWNERSHIP OF THE ESTABLISHMENT?

 When the ownership of an establishment is transferred

from one person to another, the establishment remains
the same and it cannot be said to be a new establishment
in the hands of the transferee.  

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Q-9 IS AN EMPLOYEE, WHO IS DISMISSED FROM SERVICE ON THE
GROUND THAT HE HAD COMMITTED THEFT, FRAUD AND DISHONESTY
IN CONNECTION WITH THE BUSINESS OF THE ESTABLISHMENT IN THE
ACCOUNTING YEAR 1984-85, DISQUALIFIED FROM CLAIMING BONUS
FOR THE ACCOUNTING YEAR 1981-82?

 If the employee is entitled to bonus for the accounting

year 1981-82, the employer cannot say that the payment
will not be made because the employee is dismissed on
some future date.  

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Q-10 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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