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Payment of Bonus Act, 1965

As amended by The Payment of Bonus (Amendment) Ordinance, 2007

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Applicability

The Act applies to- (a) every factory; and

(b) every other establishment inwhich twenty or more persons areemployed on any day during an

accounting year.

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. Establishments to include departments,

undertakings and branches

Where an establishment consists ofdifferent departments or undertakingsor has branches, whether situated inthe same place or in different places, allsuch departments or undertakings orbranches shall be treated as parts ofthe same establishment for the purpose

of computation of bonus :

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PROVIDED that where for anyaccounting year a separate balance-sheet and profit and loss accountare prepared and maintained inrespect of any such department orundertaking or branch, then, suchdepartment or undertaking orbranch shall be treated as aseparate establishment for thepurpose of computation of bonus,for that year.

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Where an establishment is newly set up, theemployees shall be entitled to be paid bonus

under this Act In the first five accounting years followingthe accounting year in which the employer sellsthe goods produced or manufactured by him or

renders services, bonus shall be payable only inrespect of the accounting year in which theemployer derives profit and such bonus shall becalculated in accordance with the provisions of

this Act in relation to that year but withoutapplying the provisions of set on & set off. For the sixth and seventh accounting years

following the accounting year in which the

employer sells the goods produced ormanufactured by him or renders services, as thecase may be, from such establishment, theprovisions of set on & set off shall apply.

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However employees of L.I.C.,

Universities and Educationalinstitutions, Hospitals, Chamber ofCommerce, R.B.I., IFCI, U.T.I. SocialWelfare institutions are not entitled tobonus under this Act.

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The payment of Bonus Act provides forpayment of bonus to persons employedin certain establishments of the basis

of profits or on the basis of productionor productivity and for mattersconnected therewith.

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ELIGIBIITY FORBONUS

Every employee receiving salary orwages upto RS. 10,000 p.m. andengaged in any kind of work whether

skilled, unskilled, managerial,supervisory etc. is entitled to bonusfor every accounting year if he has

worked for at least 30 working daysin that year.

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Salary Limit

Where the salary or wages of anemployee exceeds three thousandand five hundred rupees per month,

the bonus payable to such employeeshall be calculated as if his salary orwages were three thousand and five

hundred rupees per month.

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Salary or Wages " means all remuneration(other than remuneration in respect of over-time work, which would, be payable to anemployee in respect of his employment or of

work done in such employment and includesdearness allowance, 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 orof supply of light, water, medical attendanceor other amenity or of any service or of anyconcessional supply of foodgrains or otherarticles;

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(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 providentfund or for the benefit of the employee

(vi) any retrenchment compensation or anygratuity or other retirement benefit payableto the employee or any ex gratia paymentmade to him;

(vii) any commission payable to the employee.

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Computation of number of

working days An employee shall be deemed to have

worked in an establishment in anyaccounting year also on the days on which,-

(a) he has been laid off under an

agreement or as permitted by standingorders under the Industrial Employment(Standing Orders) Act, 1946, or under theIndustrial Disputes Act, 1947, or underany other law applicable to theestablishment;

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Computation of number ofworking days (b) he has been on leave with salary

or wages; (c) he has been absent due to

temporary disablement caused byaccident arising out of and in thecourse of his employment, and

(d) the employee has been onmaternity leave with salary or wages,during the accounting year.

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DISQUALIFICATIONFOR BONUS An employee shall be disqualified from

receiving bonus under this Act, if he isdismissed from service for,-

fraud; or

riotous or violent behaviour while on thepremises of the establishment; or

theft, misappropriation or sabotage of any

property of the establishment.

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Deduction of certain amounts frombonus payable under the Act

Where in any accounting year, an employee

is found guilty of misconduct causingfinancial loss to the employer, then, it shallbe lawful for the employer to deduct the

amount of loss from the amount of bonuspayable by him to the employee under thisAct in respect of that accounting year only

and the employee shall be entitled toreceive the balance, if any.

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A

MAXIMUM BONUSPAYABLE MINIMUM BONUS-

The minimum bonus which an employer isrequired to pay even if he suffers losses duringthe accounting year or there is no allocablesurplus is 8.33 % of the salary during theaccounting year, or

Rs. 100 in case of employees above 15 yearsand Rs 60 in case of employees below 15years,

whichever is higher

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MAXIMUM BONUS If in an accounting year, the

allocable surplus, calculated after

taking into account the amountset on or the amount set ofexceeds the minimum bonus, the

employer should pay bonus inproportion to the salary or wagesearned by the employee in that

accounting year subject to amaximum of 20% of such salary

or wages.

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TIME LIMIT FOR

PAYMENT The bonus should be paid in cashwithin 8 months from the close

of the accounting year or withinone month from the date ofenforcement of the award or

coming into operation of asettlement following an industrialdispute regarding payment of

bonus. However if there is sufficient

cause extension may be applied

for.

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CALCULATION OFBONUS

CALCULATION OF BONUS The method for calculation ofannual bonus is as follows:

Calculate the Available Surplus.

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Available Surplus Available Surplus =

Gross Profit ( deduct) the following :

Depreciation admissible u/s 32 of the

Income tax Act

Development allowance

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Available Surplus(Deductions)

Direct taxes payable for theaccounting year (calculated as perSec.7) Sums specified in the Third

Schedule. Direct Taxes (calculated as per Sec.

7) in respect of gross profits for theimmediately preceding accountingyear

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Calculate Allocable Surplus Allocable Surplus = 60% of AvailableSurplus, 67% in case of foreign

companies. Make adjustment for Set-on and Set-off. For calculating the amount of bonus

in respect of an accounting year,allocable surplus is computed afterconsidering the amount of set on and set

off from the previous years, asillustrated in Fourth Schedule.

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Set On Where for any accounting year, theallocable surplus exceeds the amount ofmaximum bonus payable to the employees,then, the excess shall, subject to a limit oftwenty per cent of the total salary orwages of the employees employed in theestablishment in that accounting year, becarried forward for being set on in thesucceeding accounting year and so on up toand inclusive of the fourth accounting year

to be utilised for the purpose of paymentof bonus.

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Set Off Where for any accounting year, thereis no available surplus or the allocable

surplus in respect of that year fallsshort of the amount of minimum bonus

payable to the employees, and there isno amount or sufficient amount carriedforward and set on which could beutilised for the purpose of payment ofthe minimum bonus, then such minimumamount or the deficiency, as the casemay be, shall be carried forward forbeing set off in the succeedingaccounting year and so on up to andinclusive of the fourth accounting year.

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Set & Set Off Where in any accounting year any

amount has been carried forward andset on or set off under this section,then, in calculating bonus for thesucceeding accounting year, theamount of set on or set off carriedforward from the earliest accountingyear shall first be taken into account.

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The allocable surplus so computed isdistributed amongst the employees inproportion to salary or wages received

by them during the relevant accountingyear.

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RIGHTS

An employer has the following rights: Right to forfeit bonus of an employee,who has been dismissed from servicefor fraud, riotous or violent behaviour,

or theft, misappropriation or sabotageof any property of the establishment. Right to make permissible deductions

from the bonus payable to anemployee, such as, festival/interimbonus paid and financial loss caused bymisconduct of the employee.

Right to refer any disputes relating toapplication or interpretation of anyprovision of the Act, to the LabourCourt or Labour Tribunal.

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RIGHTS OF EMPLOYEES

Right to claim bonus payable under the Actand 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 LabourCourt/Tribunal.

Employees, to whom the Payment of Bonus

Act does not apply, cannot raise a disputeregarding bonus under the Industrial DisputesAct.

Right to seek clarification and obtaininformation, on any item in the accounts ofthe establishment

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RECOVERY OF BONUS DUE

Where any bonus is due to anemployee by way of bonus,employee or any other person

authorised by him can make anapplication to the appropriategovernment for recovery of themoney due.

If the government is satisfiedthat money is due to an employeeby way of bonus, it shall issue a

certificate for that amount tothe collector who then recoversthe money.

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Such application shall be made within

one year from the date on which themoney became due to the employee.

However the application may beentertained after a year if the applicantshows that there was sufficient cause

for not making the application withintime.

OFFENCES AND PENALTIES

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OFFENCES AND PENALTIES For contravention of the provisions of the

Act or rules the penalty is imprisonment upto6 months, or fine up to Rs.1000, or both. For failure to comply with the directions or

requisitions made the penalty is imprisonment

upto 6 months, or fine up to Rs.1000, or both. In case of offences by companies, firms,

body corporate or association of individuals,

its director, partner or a principal officerresponsible for the conduct of its business,shall be deemed to be guilty of that offence,unless the person concerned proves that the

offence was committed without hisknowledge or that he exercised all duediligence