IndiaFilings » Learn » Payment of Bonus Act

Payment of Bonus Act


Payment of Bonus Act

The payment of Bonus Act, 1965 aims to regulate the amount of bonus to be paid to the persons employed in establishments based on its profit and productivity. The act is applicable to the whole of India for all establishments which had twenty or more persons employed on any day during the year. In this article, we examine the various aspects of Payment of Bonus Act in detail. To know more about Payments of Wages Act.

Objectives of the Act

The objectives of the Bonus Act (Payment of bonus Act) are as follows:

  • To impose a legal responsibility upon the employer of every establishment covered by the Act to pay the bonus to employees.
  • To designate the minimum and maximum percentage of bonus.
  • To prescribe the formula for calculating bonus.
  • To provide redressal mechanism.

Applicability of the Act

The Payment of Bonus Act implements to the establishments which fall under any of the below listed:

  • It applies to any factory or establishment which had twenty or more workers employed on any day during the year.
  • The act does not apply to the non-profit making organisations.
  • It is not applicable to establishments such as LIC, hospitals which are excluded under Section 32.
  • It is not applicable to establishments where employees have signed an agreement with the employer.
  • It is not applicable to establishments exempted by the appropriate government like sick units.

Departments, Undertakings and Branches

According to the Bonus Act, any different departments or undertakings or branches of an establishment of whether located in the same place or at different areas should be considered as parts of the similar establishment for computation of bonus under the Act.

A separate balance sheet regarding profit and loss of the establishment in the year had to be prepared and maintained concerning such department or undertaking, or branch should be treated as a separate establishment for computation of bonus for the year.

Eligibility for Bonus

Any employee is eligible for availing bonus if the following conditions are satisfied:

  • The employee receiving salary or wages up to Rs.21,000 per month
  • The employee engaged in any work whether skilled, unskilled, managerial, supervisory etc. 
  • The employee who have worked not less than 30 working days in the same year.

Disqualification of Bonus

The employees cannot avail the bonus if any action taken by the management in case of dishonesty, theft, sabotage of any property of establishment, violent behaviour while on the duty within premises of the establishment.

Number of Working Days

An employee will be considered “working” in a year if the following conditions are satisfied:

  • The employee who is under an agreement or as permitted by standing orders under the Industrial Employment (Standing Orders) Act, 1946,  the Industrial Disputes Act, 1947 or any other law applicable to the establishment.
  • The employee during employment has taken leave with salary.
  • The employee who has been absent due to temporary disablement caused by accident during the work.
  • The employee has been on maternity leave with salary in the accounting year.

Payment of Minimum and Maximum Bonus

  • The minimum bonus will be 8.33% of the salary during the year, or
    • 100 rupees will be given in case of employees above 15 years and sixty rupees in the case of employees below 15 years, whichever is higher.
  • The maximum bonus is 20% of the salary during the accounting year.

Timeline for Payment of Bonus

The payment of bonus should be paid in cash within eight months from the end of the accounting year or within a month from the date of enforcement of the act.

Computation of Bonus

As per the Section 4 and Section 7 together with the Schedule 1 and two deal with the calculation of gross profit and available surplus out of which 67% in case of companies and 60% in other cases would be allocable surplus.

To compute the available surplus the sums, so deductible from the gross profits are:

  • All direct taxes under Section 7
  • The sums which are particularised in the schedule
  • The allowance for investment or development in which the employer is allowed to deduct from his income under the Income Tax Act.

Available Surplus = Gross Profit – ( deduct) the following :

  • Depreciation is allowable in Section 32 of the Income-tax Act.
  • Development Allowance.

Inspectors under Section 20

Section 20 enables the relevant government to appoint Inspectors for this Act after notification in the official gazette.

Powers of inspectors:

  • Making an employer to furnish information.
  • Able to visit any establishment at any reasonable time.
  • Able to order certain production documents and examine the same.
  • Able to take extracts from the records
  • To examine the employers, his agent or servant or any other person found in charge of the establishment.
  • To execute such other powers as may be prescribed under the rules.

Duties of the Employer

The following duties to be carried out by the employer:

  • To estimate and pay the annual bonus as required under the Act.

To maintain the following registers:

  • The register should show the computation of allocating surplus in respective Form.
  • The register should be maintained with the payment of the bonus to the employees.
  • The records should be maintained before inspection and such other information should be stored.

Rights of Employers

The following rights to be claimed out by the employers:

  • Right to notice any disputes relating to application or interpretation of any provision of the Act, to the Labour Court or Labour Tribunal.
  • Right to make a valid deduction from the bonus due to an employee, such as festival bonus paid and financial loss created by the misbehaviour of the workers.
  • Right to take the bonus of an employee, who has been dismissed from service for misbehaviour, violent behaviour, fraud, misappropriation or sabotage of any property of the establishment.

Rights of Employees

The following rights to be claimed out by the employees:

  • Right to claim bonus due under the Act and to request an application to the Government for the redemption of bonus amount which is unpaid, within one year of its being due.
  • Right to notice any dispute to the Labour Court/Tribunal.
    • Employees who are not eligible for the Payment of Bonus Act, cannot raise a dispute about the bonus under the Industrial Disputes Act.
  • Right to seek clarification and obtain information, on any item in the accounts of the establishment.

Offences and Penalties

In case of violation of the provisions under the Act or rules, then the penalty is imprisonment for six months or may impose fine of Rs.1000 or both.

In case of failure to comply with the directions or requisitions made, then the penalty is imprisonment for six months or may impose fine of Rs.1000 or both.

In case of offences by companies, firms, body corporate or association of individuals, its director, partner or a principal or officer responsible for the conduct of its business, should be deemed to be guilty of that offence, unless the person concerned proves that the crime was committed out of his knowledge or that he exercised all due diligence.