Discuss the salient features of Payment of Bonus Act,

1965
The Payment of Bonus Act, 1965 is an important piece of legislation in India that aims to provide
for the payment of bonus to employees in certain establishments.

The act covers both the private and public sectors and is applicable to organizations that meet
specific criteria.

Introduction

The payment of bonus is dealt by “Payment of Bonus Act, 1965”, read with “payment of
Bonus Rules, 1975”, (central rules)B, the main purpose of the enactment is to impose a legal
obligation on the employer to provide for payment of bonus.

The Payment of Bonus Act applies to every factory and establishment employing not less than 20
persons on any day during the accounting year.

Bonus is one of the most important employee benefits in the form of an added remuneration that
employees receive in addition to their monthly wages. It is the employer's profit that is shared among
the employees as compensation for their services and loyalty to the company.

Bonus is a great way to help businesses meet their objectives and helps enhance the confidence, zeal
and effort to work, and morale. It also motivates employees to work effectively, thus helping the
business reach new heights.

Raj Singh is a merchant who started his small business in Chandigarh. He was confused about whether
he should pay a bonus to his workers out of the profit he earned from his business or not. If he should,
then how much.

These questions led him to search and know everything about the Payment of Bonus Act. This stipulated
law educates business owners on how they should distribute bonuses among their employees. The
Payment of Bonus Act describes the eligibility, calculation of Bonus, and the limit.

This article is specifically targeted to educate small business owners like Mr. Raj Singh about the
Payment of Bonus Act.

What is Bonus?

Bonus is considered as “reward” or any additional payment made to their monthly remuneration,
given by the employer to the employee in any establishment. The basic objective to give the
bonus is to share the profit earned by the organisation amongst the employees.

Any payment made in kind is perquisite, not a bonus.

The Minimum bonus will be provided 8.33% of the salary during the year, or one hundred rupees
will be given in case of employees above 15 years and sixty rupees in case of employees below 15
years, whichever is higher. The maximum bonus is 20% of salary during the accounting year.
Objective and Scope of the Payment of Bonus Act

The primary purpose of the Payment of Bonus Act is to boost the workers' morale by allowing them to
share the wealth of the establishment. This law guarantees their right to be eligible for a surplus from the
profits earned by the business and applies to all of India.

The Payment of Bonus Act applies to:

 People who work in specified establishments and employ 20 or more people, based on profit earned in a
given financial year
 Any employee with a salary of Rs. 21,000/- p.m. doing any work in any industry for a salary
 The government can apply the Payment of Bonus Act to businesses that employ more than 10 but less
than 20 people by issuing a notice in the Official Journal (JO); they also need to send a 2 months notice to
the employer along with a notification of the same
 In an establishment with several employees less than 20/10, the Payment of Bonus Act will still apply for
the financial year if it was applied since the start of the financial year

THE SALIENT FEATURES OF THE PAYMENT OF BONUS ACT, 1965:

1. Applicability: The act is applicable to establishments that employ 20 or more employees

during the accounting year. It covers all employees, including contract workers, who have
worked for at least 30 days in the accounting year.

The act is extent to the whole of India, and the act is applicable to :

 Every Factory
 Other Establishments where 20 or more persons are employed on any day during the year
 Any Establishment or Class of establishment notified in the Gazette by the Appropriate
Government
 Part-time Employees also included.

The Establishments covered under the Act Shall continue to pay the bonus even if the number of
employees falls below subsequently.

2.

2. Eligibility Criteria: To be eligible for bonus payment, an employee should have worked for at
least 30 working days during the accounting year.

Any person is eligible to receive a bonus under the act, on fulfilment of the following criteria:

 The employee must receive salary/wage up to Rs. 21,000/- per month (By the Amendment
of 2015)
 The employee must have worked in the factory or establishment for not less than 30 days
in a year

However, on the commission of certain acts, the employee gets disqualified from getting a bonus,
such as any frauds, violent behaviour, riots, theft, misappropriation or sabotage of any property.
(Section 9 of the Act)
3. Computation of Bonus: The bonus payable to eligible employees is calculated based on the
salary or wage earned during the accounting year. The formula for calculating bonus is specified
in the act.

The act prescribes for the minimum bonus, that is 8.33% of the employee’s Salary/wages, which
is the least percent mandatorily to be paid by every establishment or organisation covered by the
act, (Section 10 of the Act); on the other hand, the maximum amount of bonus shall not exceed,
20% of the salary/wages of the employees (Section 11 of the Act).

exceed, 20% of the salary/wages of the employees (Section 11 of the Act). The ceiling amount on
which the bonus payable is calculated is Rs. 7,000 per month (amendment of 2015), earlier this
amount was Rs. 3500. Therefore, if the employee receives Gross Salary up to of Rs 21,000 per
month, the employee is eligible to receive bonus.

For bonus calculation only employee’s Salary/Wages and Dearness allowance is considered.

Therefore, if the Basic Salary and Dearness Allowance is less than Rs. 7,000 (calculation ceiling),
the Bonus will be calculated on the actual amount, and in case the Basic Salary and Dearness
Allowance, exceeds Rs. 7,000; bonus will be calculated on Rs 7000 only.

Bonus Calculation:

1. Basic Salary + DA < 7,000, then in such cases, Bonus Payable = (Basic Salary + DA) *
Amount %, either 8.33% (establishment is supposed to give even in case of deficit) or
could go up to 20%
2. Basic Salary + DA > 7000, then in such cases, Bonus Payable= Rs. 7000, % either 8.33%
(establishment is supposed to give even in case of deficit) or could go up to 20%.

4. Maximum Bonus: The maximum bonus payable to an employee is 20% of the salary or wage
earned during the accounting year.

5. Minimum Bonus: Even if the establishment incurs a loss during the accounting year, it must
pay a minimum bonus of 8.33% of the salary or wage earned by the employee during the year.

6. Time Limit for Payment: The employer is required to pay the bonus within eight months
from the close of the accounting year. If the employer fails to do so, the employer is liable to pay
interest on the bonus amount.

7. Settlement of Disputes: The act provides for the settlement of disputes related to bonus
payments through the Labor Commissioner or the Industrial Tribunal.

8. Exemptions: Certain establishments and employees, such as those in the banking

and insurance sectors, are exempted from the provisions of the Payment of Bonus Act.
the categories of Establishments to which the Act is not applicable
  Employees of General Insurance Business or LIC
 Seamen defined under the Merchant Shipping Act
 Employees of RBI
 Employees of Unit Trust of India, IDBI, Deposit Insurance Corporation etc

9. Maintenance of Records: Employers are required to maintain records related to the

computation and payment of bonus for inspection by the authorities.

10. Annual Returns: Employers need to submit an annual return to the appropriate authority,
providing details of the bonus paid to employees during the accounting year.

Statutory compliance on the part of Employer

Considering the Act, there are certain obligations or the compliances on the part of the Employer
which they are supposed to comply to, if not, they could be subjected to certain offences or
penalties provided in the act.

Several compliances that the employer needs to follow are:

 The employer shall pay the amount of Bonus within 8 months, from the end
of the accounting year, in cash
 The employer shall prepare Registers such as:
o Register having the entire computation of allocable surplus, in FORM A
o Register showing set-on and set-off, in FORM B
o Register containing details such as amount of bonus payable, deductions to be
made, the amount disbursed, in FROM C
 Employer shall upload details of Annual Returns in FORM D, on the Portal of Ministry of
Labour and Employment, on or before 1st day of Feb, every year
 Every employer is supposed to file Annual Return in FROM D, to the inspector on or
before 1st Feb every year
 In case of any disputes relating to the payment of bonus, and the case is before any
authority, then in such cases, amount shall be paid within 1 month from the date the award
passed becomes enforceable.

What are the Offences and Penalties provided by the Act?

 If any person contravenes any provision of the act or rules, then such person shall be
punished with “imprisonment” which may extend up to 6 months; or “fine” which may
extend up to Rs 1,000; or both
 If any person receives any direction under the Act, and fails to comply with it, such person
shall be punished with “imprisonment” which may extend up to 6 months; or “Fine” up to
Rs 1000 or both
 In case the offence under the act is committed by the company, then every person
responsible for the business of the company (Managing Director, CEO, CFO, Managerial
Head), will be punished accordingly
Conclusion

The Payment of Bonus Act specifies the bonus amount established to reward employees for their loyalty,
dedication, and hard work for the company. It is a step forward in sharing the profits earned with the
employees and a way to thank the employees for their contributions towards earning the profits –
through their management and labor.