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    Payment of Bonus Act Quick Revision

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    shanky631
    The Payment of Bonus Act, 1965 applies to factories and establishments with over 20 employees and requires them to pay annual bonuses. It mandates a minimum bonus amount based on salary and days worked in the accounting year. Eligible employees include permanent, temporary and contract workers. Employers must calculate an allocable surplus based on profits to determine the maximum bonus amount payable, which cannot exceed 20% of salary. New establishments have special provisions for bonus payments in the first 5-8 years. The Act is enforced through government-appointed inspectors and exemptions can be granted to companies in financial distress.

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    Payment of Bonus Act Quick Revision

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    shanky631
    295 views9 pages
    The Payment of Bonus Act, 1965 applies to factories and establishments with over 20 employees and requires them to pay annual bonuses. It mandates a minimum bonus amount based on salary and days worked in the accounting year. Eligible employees include permanent, temporary and contract workers. Employers must calculate an allocable surplus based on profits to determine the maximum bonus amount payable, which cannot exceed 20% of salary. New establishments have special provisions for bonus payments in the first 5-8 years. The Act is enforced through government-appointed inspectors and exemptions can be granted to companies in financial distress.

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    The Payment of Bonus Act, 1965 applies to factories and establishments with over 20 employees and requires them to pay annual bonuses. It mandates a minimum bonus amount based on salary and days worked in the accounting year. Eligible employees include permanent, temporary and contract workers. Employers must calculate an allocable surplus based on profits to determine the maximum bonus amount payable, which cannot exceed 20% of salary. New establishments have special provisions for bonus payments in the first 5-8 years. The Act is enforced through government-appointed inspectors and exemptions can be granted to companies in financial distress.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    295 views9 pages

    Payment of Bonus Act Quick Revision

    Uploaded by

    shanky631
    The Payment of Bonus Act, 1965 applies to factories and establishments with over 20 employees and requires them to pay annual bonuses. It mandates a minimum bonus amount based on salary and days worked in the accounting year. Eligible employees include permanent, temporary and contract workers. Employers must calculate an allocable surplus based on profits to determine the maximum bonus amount payable, which cannot exceed 20% of salary. New establishments have special provisions for bonus payments in the first 5-8 years. The Act is enforced through government-appointed inspectors and exemptions can be granted to companies in financial distress.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 9

    The Payment of Bonus Act, 1965

    Applicability of the Act:


    The Act applies to every Factory.
    The Act applies to every establishment in which 20 or more persons are
    employed on any day of the AY.
    Appropriate Government may, by notification in the official gazette, make the Act
    applicable to establishments with more than 10 employees but less than 20
    Once the act becomes applicable, it shall continue to be applicable to the
    establishment, even if the number of persons employed falls below the number
    specified in the act.

    Establishments to include Departments and Branches:


    The Act shall apply to the departments and Branches of the Establishment. However,
    the branch or dept shall not be treated as part of establishment, if the following two
    conditions are satisfiedi.
    ii.

    A separate P&L and BS is prepared for such branch or dept.


    Such branch or dept has never been treated as part of establishment for the
    purpose of computation of bonus.

    Accounting Year:

    Corporation

    1st april 31st March

    Company

    Other cases

    Period for which P&L a/c is prepared


    1st April to 31st March
    (Employer has option to close BS
    on any date other than 31st March)
    1|P a ge

    Employee:
    Employee means any person (other than an apprentice), employed on a salary or wage not
    exceeding Rs.10,000 per month, in any industry, to do any skilled or unskilled work.
    Following list of employees are also entitled to bonus:

    Probationer
    Dismissed or Suspended employee
    Temporary/Part-time employee
    Piece rated employee

    Who is an Employer

    In case of a Factory

    Owner
    Manager
    Legal representative
    Agent of the owner

    other establishment

    MD or person having ultimate control

    Salary or Wage:
    Salary shall mean the remuneration and will include Dearness allowance, Food allowance
    given in lieu of salary.
    What does not include salary: Other Allowances, Commission, Bonus, Travelling Concession,
    Overtime remuneration or any other addition, what so ever.

    2|P a ge

    Eligibility for bonus:


    In case of normal establishments and also seasonal establishments: If the employee has
    worked for at least 30 working days in an Accounting Year.

    Disqualification for Bonus [Sec.9]:


    An employee shall be disqualified from bonus, if employee has been dismissed from the
    service for the following reason Fraud; or
    Riotous or violent behavior while on the premises of the establishment; or
    Theft, misappropriation or sabotage of any property of the establishment.

    Once disqualified, an employee shall not be eligible for any bonus relating to any previous
    year or current year, that is remaining unpaid. [Sriram Bearings Vs Labour Court]

    Question: Mr.Suresh was suspended on the charge of violent behavior in the premises
    of the company, for 60 days pending enquiry. Later nothing was proved against him
    and he was reinstated in the service. Later he worked for 10 months and company
    refused to pay the bonus. Advice whether company is required to pay the bonus and if
    yes, suggest whether the bonus is to be paid for 10 months or 12 months?
    Section 9, which deals with disqualification for bonus shall not apply to ram
    because, he was suspended only for enquiry and no wrong was proven on his
    part.
    He shall be paid bonus for 12 months, as employee is entitled for bonus even
    during a suspended period.

    3|P a ge

    Payment of Minimum Bonus:

    Employee aged 15

    Higher of, 8.33% of salary or Rs.100

    Employee aged < 15

    higher of 8.33% of salary or Rs.60

    The minimum bonus shall be proportionately reduced, if the employee has not
    worked on all the working days in the AY.

    Working days in case of seasonal establishment: In such case, working days in an


    accounting year means those days of the year during which the employee concerned is
    actually allowed to work.
    The period for which a female employee has been on maternity leave with salary or
    wages shall be deemed to be the working days

    Deductions from Bonus:


    The employer is entitled to deduct from bonus payable to an employeea) The amount paid as customary bonus (Eid bonus, Durga puja bonus etc)
    b) The amount paid as interim bonus
    The employer is entitled to make deduction from the bonus, if an employee is found
    guilty of misconduct and some financial loss is cause to the employer.
    If the employee has caused the loss in 2013-14, then the deduction from bonus can be
    made only from the bonus relating to 2013-14, but not any other year.
    4|P a ge

    Mode of payment of bonus: The bonus shall be paid only in Cash

    Time limit for payment of bonus [Section.19]:


    Bonus shall be paid within 8 months from the end of AY
    AG shall grant an extension, not exceeding 2 years, provided the employer has
    made an application and there is appropriate ground.
    If there is any dispute with the bonus, the bonus shall be settled within 1 month
    from the end of settlement.

    Payment of Production linked bonus:


    Bonus shall be paid linked with production, only if there is an agreement or settlement,
    which shall state that

    The bonus shall be paid annually to the employees


    Such bonus shall be linked with production
    Such bonus shall be paid in lieu of bonus based on profits
    The bonus shall not exceed 20% of salary/wages earned in the relevant AY.

    The agreement shall be null and void If it deprives the employee from minimum bonus.
    This is because, minimum bonus is an employee right and the employee shall be paid
    the minimum bonus, even though the bonus calculated as per the agreement is less
    than the minimum bonus.

    Recovery of Bonus dues:


    Application can be made by the employee, person authorized by the employee or
    legal heir. Application can be made even if employee is not in employment.
    Application shall be made within 1 year of bonus becoming due for payment.
    The application shall be made to AG.
    If AG is satisfied, it shall issue a recovery certificate to a collector.
    The bonus shall be recovered by the collector in the same manner as if it were
    arrears of land revenue.
    5|P a ge

    Allocable Surplus and Available Surplus:


    Step 1: Computation of Gross Profit:
    Net Profit as shown in P&L Account
    Add: 1. Provision for bonus, depreciation, reserves
    2. Bonus paid to employees in respect of previous accounting years
    3. Gratuity paid in excess of reserve
    4. Donations in excess of the amount admissible for income-tax
    5. Capital Expenditure
    6. Income directly credited to reserves
    7. Losses and expenditure of any business situated outside India
    Less: 1. Capital receipts and capital profits
    2. Profits of any business situated outside India
    3. IT Refund
    4. cash subsidy received from government
    Gross Profit

    Less: 1. Development Rebate


    2. Development allowance
    3. Investment allowance
    4. Depreciation admissible under IT Act
    5. Income Tax payable for current year
    6. Sums referred to in third schedule Dividend payable to pref. share holders
    6% of reserves at the beginning of the year
    8.5% of equity capital at the beginning of the year
    Adjusted Gross Profit

    xxxx

    xxxx

    Availabe Surplus = Adjusted Gross profit + Tax saved on bonus paid


    Allocable Surplus = 67% of Available Surplus (If company has declared dividend)
    In any other case, 60% of available surplus
    6|P a ge

    Maximum Bonus:
    If in an AY, allocable surplus exceeds the amount of minimum bonus, the employer shall
    pay to every employee, in lieu of minimum bonus, such amount not exceeding 20% of
    such salary or wage.

    Set On and Set Off


    If in an AY, allocable surplus exceeds maximum bonus, such excess shall be
    carried forward to 4 succeeding years.
    If in an AY, allocable surplus is less than the minimum bonus, then such deficiency
    shall be carried forward to 4 succeeding years.
    Such amounts carried forward to next year will be adjusted to allocable surplus of
    respective year.

    New Establishments:
    First 5 Years: Bonus shall be payable only in respect of an AY in which the employer
    derives profit. No Set on or Set off provisions will apply.
    6th Year: Set on/Set off shall be made taking into account the deficiency/excess of 5th
    year and 6th year.
    7th Year: Set on/Set off shall be made taking into account the deficiency/excess of 5th,
    6th and 7th year.
    8th year: From 8th year, normal set on and set off procedure shall apply.

    7|P a ge

    Non-Applicability of the Act [Sec 32]:


    Employees employed by LIC and General Insurance companies.
    Seamen
    Employees registered under any scheme made under the Dock Workers Act,
    1948
    Employees employed by Inland Water Transport Establishments operating on
    routes passing through any other country.
    Employees employed by RBI, CG, SG or a local authority.
    Employees employed by Non-profit organizations.
    Employees employed by SFC, NABARD, IDBI, UTI
    Whether Authorized Controller appointed by Government is treated as employer to
    whom the Act does not apply?

    Exemption from provisions of the Act [Power by CG]:


    Before granting exemption, CG shall consider the financial position and other
    relevant circumstances.
    Exemption shall be granted only if it does not affect the public interest.
    The Order of exemption shall be published by way of a notification in the Official
    Gazette.
    The Order shall contain the conditions and period of exemption.

    A company has its office in Andhra Pradesh. Due to bad financial


    Establishm
    position, the AP government granted exemption. Is the exemption valid?
    Will your answer be different if the company has one of its Branch office
    in Kerala also?

    8|P a ge

    Establishment in Public Sector:


    Establishment in public sector means A Government company,; or
    A corporation in which 40% or more capital is held by Govt or a corporation
    owned by Govt.

    Inspectors:
    Inspectors are the public servants appointed by AG.
    Inspectors have powers To call such necessary information form employer.
    To examine employer, his agent or servants.
    To make copies and extracts of books

    9|P a ge

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