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

Thus we can say that bonus is a statutory cash payment made to employees in addition to wages. APPLICABILITY OF THE ACT

Every factory wherein 10 or more persons are employed with the aid of power ; 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. AVAILABLE SURPLUS Sec 2 (6) Means available surplus computed under Sec 5 of the Act Available Surplus = (Gross Profits for the year) ( depreciation, income tax, 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. 10,000 per month doing

any skilled / unskilled /manual / supervisory /technical/ administrative job. 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, HRA, LTA, Bonus, employers contribution to PF, retrenchment compensation, gratuity, ex-gratia, any commission.

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.

However if any departments/undertakings/branch as the case may be prepares and maintains a separate profit & loss account, then it shall be treated as a separate establishment under the Act.

ELIGIBILITY FOR BONUS Sec 8

All employees drawing salary / wages up to Rs. 10,000 p.m. provided they work for 30 working days in that accounting year.

Please note that for computation purposes only Rs. 3,500 p.m. maximum will be taken even if the employee is withdrawing Rs. 10,000 p.m.

DISQUALIFICATION FOR BONUS Sec 9 An employee will be disqualified for bonus if he is dismissed from service for committing a. Fraud b. Riotous behavior in the establishment premises c. Theft, Misappropriation, property Sabotage of companys

PAYMENT OF MINIMUM BONUS Sec 10 8.33 % of the salary / wages or Rs. 100 which ever is higher on completion of 5 years from first accounting year even if there is no profit.

PAYMENT OF MAXIMUM BONUS Sec 11 20% of the salary / wages if the allocable surplus in any accounting year exceeds the amount of min. bonus payable

SET-ON AND SET-OFF OF ALLOCABLE SURPLUS Sec15 Set-on: In any accounting year where the allocable surplus exceeds, the amount of maximum bonus (20%), then the excess amount up to a further limit of 20% is to be carried forward. This is known as set on and this can be done up to a maximum of 4 succeeding years.

Set-off :- In any accounting year, if there is no available surplus or the allocable surplus in that year falls short of the payable minimum bonus, then the amount so short of or minimum bonus payable amount will be carried forward. This is known as set-off. This can be done for a maximum of 4 succeeding years. SPECIAL PROVISIONS WITH RESPECT TO CERTAIN ESTABLISHMENTSSec 16 a. In the case of newly set up establishments bonus is payable only from the accounting year in which employer makes profit ; or
b.

From the sixth accounting year , minimum bonus or as per set-on/set-off principle

TIME LIMIT FOR THE PAYMENT OF BONUSSec-19

Bonus has to be paid within 8 months of the closure of accounting year.

It means that bonus should be disbursed before the November end if financial closure is done in the month of March. MAINTENANCE OF REGISTERS & RECORDSSec 26
a.

Registers showing computation surplus in Form A (Rule 4 (a))

of

the

allocable

b.

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 COMPANIESSec-28 & 29 a. For contravention or failure to comply with act/rules b. Imprisonment for 6 months or fine of Rs. 1000/- or both
c.

Officer -in-charge for the conduct of the business of the company to be held responsible and prosecuted.