Payment of Bonus Act

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

The Payment of Bonus Act The Act encourages

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

3 Industrial peace and harmony

By 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 Profit and
Available Surplus
Bonus is calculated based on
the gross profit of the
establishment and the
available surplus.
2 Allocating Bonus Pool
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.
Steps towards Calculating the amount of
bonus

Select financial year Determine gross Calculate available

profit surplus

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

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

Exemptions Constructive dismissal

Some employees, such as apprentices and those In certain cases of constructive dismissal, employees
dismissed for misconduct, may be exempt from 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 the
Maximum Bonus
employee during the accounting year.

While the minimum bonus is guaranteed, 2

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.
Grievance redressal
Employer's obligation
If an employee's claim is rejected
or delayed, they can file a
Employers are legally obliged complaint with the appropriate
to respond and pay the due authority for resolution.
bonus or provide reasons for
rejection within a specified
time.
 Mode of Payment

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

Some establishments like hospitals, educational institutions, and

charitable organizations are exempt from the Act.

Govt.
RBI institutions

NGOs IDBI
 Conclusion

Employee motivation Legal compliance Fair distribution of profits

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