THE PAYMENT OF BONUS ACT, 1965

Establishments to include departments, undertakings and branches

•Where an establishment consists ofdifferent departments or undertakings or hasbranches, whether situated in the same placeor in different places, all such departments orundertakings or branches shall be treated asparts of the same establishment for thepurpose of computation of bonus.

APPLICABILITY

The Act applies to-(a) every factory; and(b) every other establishment in which twenty

or more persons are employed on any dayduring an accounting year.

• Provided that where for any accounting yeara separate balance-sheet and profit and lossaccount are prepared and maintained inrespect of any such department or undertakingor branch, then, such department orundertaking or branch shall be treated as aseparate establishment for the purpose ofcomputation of bonus, for that year.

• However employees of L.I.C.,Universities and Educational institutions,Hospitals, Chamber of Commerce,R.B.I., IFCI, U.T.I., Social Welfareinstitutions are not entitled to bonusunder this Act.

• The payment of Bonus Act provides forpayment of bonus to persons employed incertain establishments on the basis of profitsor on the basis of production or productivityand for matters connected therewith.

ELIGIBIITY FOR BONUS

Every employee receiving salary or wages up toRS.10,000 p.m. and engaged in any kind ofwork whether skilled, unskilled, managerial,supervisory etc. is entitled to bonus for everyaccounting year if he has worked for at least 30working days in that year.

Salary Limit (Ceiling of Bonus)

Where the salary or wages of an employeeexceeds Rs.10,000 per month, the bonuspayable to such employee shall be calculated asif his salary or wages were Rs.10,000 permonth.

Salary or Wages " means all remuneration (otherthan remuneration in respect of over-time work),which would, be payable to an employee inrespect of his employment or of work done insuch employment and includes dearnessallowance, but does not include,-

(i) any other allowance which the employee is for the time being entitled to;

(ii) the value of any house accommodation or ofsupply of light, water, medical attendance orother amenity or of any service or of anyconcessional supply of food grains or other

articles;

(iii) any travelling concession.

(iv) any bonus (including incentive, productionand attendance bonus).

(v) any contribution paid or payable by theemployer to any pension fund or provident fundor for the benefit of the employee.

(vi) any retrenchment compensation or anygratuity or other retirement benefit payable to theemployee or any ex gratia payment made to him.

(vii) any commission payable to the employee.

Computation of number of working days

• An employee shall be deemed to have worked in anestablishment in any accounting year also on thedays on which :

(a) he has been laid off under an agreement or aspermitted by standing orders under the IndustrialEmployment (Standing Orders) Act, 1946, or underthe Industrial Disputes Act, 1947, or under any otherlaw applicable to the establishment;

(b) he has been on leave with salary or wages;

(c) he has been absent due to temporarydisablement caused by accident arising out ofand in the course of his employment, and

(d) the employee has been on maternity leavewith salary or wages, during the accountingyear.

DISQUALIFICATION FOR BONUS

• An employee shall be disqualified fromreceiving bonus under this Act, if he isdismissed from service for,-

• fraud; or• riotous or violent behavior while on the

premises of the establishment; or• theft, misappropriation or sabotage of any

property of the establishment.

Deduction of certain amounts from bonus payable under the Act

Where in any accounting year, an employee isfound guilty of misconduct causing financialloss to the employer, then, it shall be lawful forthe employer to deduct the amount of loss fromthe amount of bonus payable by him to theemployee under this Act in respect of thataccounting year only and the employee shall beentitled to receive the balance, if any.

MINIMUM AND MAXIMUM BONUS PAYABLE

MINIMUM BONUS

• The minimum bonus which an employer isrequired to pay even if he suffers losses during theaccounting year or there is no allocable surplus is8.33 % of the salary during the accounting year, or

• Rs. 100 in case of employees ( age) above 15years and Rs 60 in case of employees (age)below15 years, whichever is higher

MAXIMUM BONUS

• If in an accounting year, the allocable surplus,calculated after taking into account the amount‘set on’ or the amount ‘set of’ exceeds theminimum bonus, the employer should paybonus in proportion to the salary or wagesearned by the employee in that accounting yearsubject to a maximum of 20% of such salary orwages.

TIME LIMIT FOR PAYMENT

The bonus should be paid in cash within 8months from the close of the accounting year orwithin one month from the date of enforcementof the award or coming into operation of asettlement following an industrial disputeregarding payment of bonus.

However if there is sufficient cause extensionmay be applied for.

CALCULATION OF BONUS

The method for calculation of annual bonus is as follows:

1) Calculate the Available Surplus.

Available Surplus

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

• Depreciation admissible u/s 32 of the Income tax Act

• Development allowance

Available Surplus(Deductions)

• Direct taxes payable for the accounting year (calculated as per Sec.7) – Sums specified in the Third Schedule.

• Direct Taxes (calculated as per Sec. 7) in respect of gross profits for the immediately preceding accounting year.

Calculate Allocable Surplus

• Allocable Surplus = 60% of Available Surplus, 67% in case of foreign companies.

• Make adjustment for ‘Set-on’ and ‘Set-off’.For calculating the amount of bonus inrespect of an accounting year, allocablesurplus is computed after considering theamount of set on and set off from the previousyears, as illustrated in Fourth Schedule.

SET ON Where for any accounting year, the allocablesurplus exceeds the amount of maximum bonuspayable to the employees, then, the excessshall, subject to a limit of twenty per cent of thetotal salary or wages of the employeesemployed in the establishment in thataccounting year, be carried forward for beingset on in the succeeding accounting year and soon up to and inclusive of the fourth accountingyear to be utilized for the purpose of paymentof bonus.

SET OFFWhere for any accounting year, there is noavailable surplus or the allocable surplus in respectof that year falls short of the amount of minimumbonus payable to the employees, and there is noamount or sufficient amount carried forward andset on which could be utilized for the purpose ofpayment of the minimum bonus, then suchminimum amount or the deficiency, as the casemay be, shall be carried forward for being set offin the succeeding accounting year and so on up toand inclusive of the fourth accounting year.

Set & Set Off

• Where in any accounting year any amount hasbeen carried forward and set on or set off underthis section, then, in calculating bonus for thesucceeding accounting year, the amount of set onor set off carried forward from the earliestaccounting year shall first be taken into account.

• The allocable surplus so computed isdistributed amongst the employees inproportion to salary or wages received bythem during the relevant accounting year.

DUTIES OF EMPLOYER

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

• To submit an annul return of bonus paid toemployees during the year, in Form D, to theInspector, within 30 days of the expiry of thetime limit specified for payment of bonus.

• To co-operate with the Inspector, producebefore him the registers/records maintained,and such other information as may be requiredby them.

RIGHTS OF EMPLOYER• Right to forfeit bonus of an employee, who has

been dismissed from service for fraud, riotous orviolent behavior, or theft, misappropriation orsabotage of any property of the establishment.

• Right to make permissible deductions from thebonus payable to an employee, such as,festival/interim bonus paid and financial losscaused by misconduct of the employee.

• Right to refer any disputes relating to applicationor interpretation of any provision of the Act, to theLabour Court or Labour Tribunal.

RIGHTS OF EMPLOYEES• Right to claim bonus payable under the Act and to

make an application to the Government, for the recovery of bonus due and unpaid, within one year of its becoming due.

• Right to refer any dispute to the Labour Court/Tribunal.

• Employees, to whom the Payment of Bonus Act does not apply, cannot raise a dispute regarding 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

• For contravention of the provisions of the Act orrules the penalty is imprisonment upto 6 months,or fine up to Rs.1000, or both.

• For failure to comply with the directions orrequisitions made the penalty is imprisonmentupto 6 months, or fine up to Rs.1000, or both.

• In case of offences by companies, firms, bodycorporate or association of individuals, itsdirector, partner or a principal officer responsiblefor the conduct of its business, shall be deemed tobe guilty of that offence, unless the personconcerned proves that the offence was committedwithout his knowledge or that he exercised all duediligence