What is Payment of Bonus Act 1965?

What is ‘The Payment of Bonus Act?

The object of the Payment of Bonus Act, 1965 is to provide for the payment of bonus to the persons employed in certain establishments on the basis of profits or on the basis of production.

History of Payment of Bonus Act

The practice of paying bonus in India appears to have originated during the First World War when certain textile mills granted 10% of wages as war bonus to their workers in 1917. In certain cases of industrial disputes demand for payment of bonus was also included. In 1950, the Full Bench of the Labour Appellate Tribunal evolved a formula for determination of bonus. A plea was made to raise that formula in 1959. At the second and third meetings of the eighteenth Session of Standing Labour Committee (G.O.I) held in New Delhi in March/ April 1960, it was agreed that a Commission be appointed to go into the question of bonus and evolve suitable norms. A Tripartite Commission was set up by the Government of India to consider in a comprehensive manner, the question of payment of bonus based on profits to employees employed in establishments and to make recommendations to the Government. The Government of India accepted the recommendations of the Commission subject to certain modifications. To implement these recommendations the Payment of Bonus Act, 1965 was enacted, which came into force on 25-9-1965.

Let’s understand some of important sections covered under ‘The Payment of Bonus Act’

When is Bonus Act applicability (Section 1)

This act applies to;
•      Every Factory
•      Every Establishment in which 20 or more persons are employed on any day during an accounting year
•      If less than 20, then this act can be applied by ‘Appropriate Government’ by way of notification in the official gazette

Once the The Payment of Bonus Act 1956 is applicable, then its ‘Forever Applicable’ even the number of persons falls below 20.

Definition of Act (Section 2)
Accounting Year, means (section 2(1))
•      Corporation : The Year ending day on which the books of accounts are closed and balanced
•      Company : The period in respect of which the Profit and Loss A/c is prepared
•      Others : Financial year 1st April to 31s March

Employee, means (section 2(2))

•      Any person (other than apprentice)
•      Person who receive Salary or Wage or any remuneration
•      Not exceeding Bonus wage Rs.21,000/- per month
•      In any Industry
•      To do any work
•      For hired on reward
•      Whether the terms of employment are expressed or implied

Employer, means (section 2(14))

•      Salary Includes : Basic and Dearness Allowance
•      Salary Excludes: All Other Allowances, Variable Allowance, Commission, Bonus, Travelling concession, Ex-gratia Payments, etc.

When is Employee Eligible under Bonus Act (section 8)

Every employee shall be entitled to be paid by his employer in an accounting year, bonus, in accordance with the provisions of this Act, provided he has worked in the establishment for not less than thirty (30) working days in that year.

When will Employee Disqualification under this Act (section 9)

An employee is disqualified for bonus, if

•      If he has been dismissed from Services
•      If the reason for dismiss are :
1) Fraud,
2) Riotous or violent behaviour while on the premises of the establishment,
3) Theft, misappropriation or sabotage of any property of the establishment.

What should be the minimum Bonus payable (section 10)

If Employee is 15 years old or more;

•      8.33% of salary or wage, or
•      Rs.100
•      Whichever is Higher

If Employee is below 15 years old;

•      8.33% of salary or wage, or
•      Rs.60
•      Whichever is Higher

What will be Ceiling on Salary or on Wage (section 12)

If the salary or wage exceed Rs.7,000/- per month or Minimum Wages whichever is higher, it shall be taken as Rs.7,000/- or M.W. (higher amount) per month for computing Bonus.

How is the working days computed for Bonus (Section 14)

While calculating the number of working days, the following shall be treated as ‘Deemed working Days’
•      Laid off under Industrial Dispute Act
•      Paid Leave Salary
•      Maternity Leave
•      Absent due to temporary disablement

What is Special Provision with respect to NEW Establishment (section 16)

For first 5 years, the Payment of Bonus is NOT compulsory for such establishment, only in respect of the accounting year in which the employer had not derived any profit.

How is the Bonus Adjusted (Section 17)

If in account year the employer had already paid

•      Puja Bonus
•      Interim Bonus
•      Any Other Bonus

then, the employer shall be entitled to deduct the amount of bonus so paid from the amount of bonus payable by him to the employee under this Act in respect of that accounting year and the employee shall be entitled to receive only the balance.

When can Employer deduct certain amount from Bonus Payable (Section 18)

Where in any accounting year, an employee is found guilty of misconduct causing financial loss to the employer, then, it shall be lawful for the employer to deduct the amount of loss from the amount of bonus payable by him to the employee under this Act in respect of that accounting year only and the employee shall be entitled to receive the balance, if any.

What is the Time-Limit of Payment of Bonus (Section 19)

Within a period of eight months from the close of the accounting year.