The Payment of Bonus Act, 1965

THE PAYMENT
OF BONUS
ACT,1965
.
Introduction
• The practice of paying bonus in India appears to have originated during First
World War when certain textile mills granted 10% of wages as war bonus to
their workers in 1917.
• In 1950, the full bench of Labour Appellate Tribunal evolved a formula for
determination of bonus.
• A plea was made to raise that formula in 1959.
• The Government of India accepted the recommendations of the Commission
subject to certain modifications.
• To implement these recommendations the Payment of Bonus Ordinance, 1965,
was promulgated on 29th May, 1965. To replace the said Ordinance the
Payment of Bonus Bill was introduced in the Parliament.
Objective
• The objective of the Payment of Bonus Act is to reward the employee of
the organization by sharing the profits earned and is linked to
productivity.
• To impose statutory liability upon an employer of many establishments
covered by the act to pay bonus to employees to the establishments.
• To provide machinery for enforcement of the liability for the payment of
bonus.
Jalan Trading co.(pvt)Ltd vs Mill Mazdor Sabha
The Object of the Act is

• To maintain peace and harmony between labour and capital
• By allowing the employees to share the prosperity of the establishment.
• And presecribing the max and min rates of bonus
• Together with the scheme of “set off” and “set on”
• Not only secure the right of labour to share in the profits
• But also ensure a reasonable degree of uniformity.
Applicability
• The act applies to whole of India.
• The Act applies to every factory
• and every other establishment employing not less than 20 persons on any day
during an accounting year.
• The Central/State Government can, however, extend its provisions to any
establishment employing less than 20 but more than 10 persons.
• The establishments covered under the Act shall continue to pay bonus even if the
number of employees falls below 10, at a later date.
• Eligible only to person getting salary less than/equal to Rs.21,000/- per month
• It wont apply to Army, Navy, Airforce, life insurance, shipping company etc
Salary or Wages
It means
• All remuneration
• Capable of being expressed in terms of money
• And includes dearness allowance
But doesnot include:
• overtime wages
• Value of any house accomidation or
• Supply of light,water,medical attendance or other amenity or of any
service or
• Any concessional supply of food grains or other articles
• Any travelling concession
• Any other bonus like production bonus,attendance bonus,etc.,
• Any contribution to the provident fund or pension fund by the employer
• Any retrenchment compensation or
• Any gratuity or other retirement benefit payable to the employee
• Any commission payable to the employee
Bonus Calculation
• If the salary is less/equal to 7000 ;
Actual salary * rate/100
• If the salary is above 7000;
7000*rate/100
EXAMPLE OF CALCULATION
EMPLOYER SALARY BONUS BONUS AS PER LAW
CALCULATION
A 2000 200 200
B 7000 700 700
C 10,000 1000 700
D 22,000 2200 NIL

Sec 8 - ELIGIBLITY FOR BONUS
Employees
• Drawing salary or wages up to Rs.21,000 &
• Worked for at least 30 working days in an accounting year
Note:
Even a worker working in seasonal factory is eligible for bonus if he has
worked for at least 30 working days.
However, Apprentices are not eligible for any bonus
Sec 9 - Disqualification for Bonus
• an employee shall be disqualified from receiving bonus under this Act, if
he is dismissed from service for—
(a) fraud; or
(b) riotous or violent behavior while on the premises of the
establishment; or
(c) theft, misappropriation or sabotage of any property of the
establishment.
Sec 10 – payment of Minimum Bonus
Every employer shall be bound
• To pay annually
• To every employee in respect of an Accounting Year
• Within 8 months from the closing of an accounting year
• Minimum bonus ,which shall be
 8.33% of salary /wages earned by the employee during an accounting year (or)
 Rs. 100/-,(Rs.60/- for employee not completed 15 years at the beginning of
Accounting year)
Whichever is Higher.
Sec 11 - Maximium Bonus

20% of the salary or wages earned by the employee in the accounting year
Sec 16: Bonus in the case of New Establishment
In first 5 Accounting year following the year in which the employer begins to sell his goods
or render services, bonus is payable only in respect of that accounting year in which the
employer derives the profit.
Computation of Bonus
For the computation of amount available for bonus

• Gross profit (as per schedule 1&2)
• Avaliable Surplus and
• Allocable Surplus
For an Accounting year have to be calculated

Sec 4 GROSS PROFIT
It is required to be calculated as per
First schedule to the Act in Case of a Banking Company and
Second schedule to the Act in Case of other establishments
Sec 5 AVALIABLE SURPLUS

It is calculated by
Deducting certain sums as specified in section 6 from the gross profit
And the
Adding income tax saved on the bonus paid in the preceding year
Available Surplus = Gross Profit – Deduction u/s 6 + Tax saved

ALLOCABLE SURPLUS
It is calculated as
• 60% of the available Surplus in case of Banking Companies.

• 67% of the available surplus in case other than banking companies.
Note:
Allocable Surplus calculated above has be distributed as bonus among employees in proportion to
the salary/wages actually earned by each employee during the accounting year
Note:
This is subject to Minimum 8.33% and Maximum 20% Bonus
Deduction from bonus
• If partial payment of bonus is already done.
• If payment of bonus is already given during festivals
• If there is an intentional loss by employee to employer , then that
amount will be adjusted.
SEC 19 - Time Limit for Payment
• Payment of bonus pending before any authority under section22 within
a month from the date on which the award becomes enforceable or the
settlement comes into operation.
• The bonus should be paid in cash within 8 months from the close of the
accounting year or within one month from the date of enforcement of
the award or coming into operation of a settlement following an
industrial dispute regarding payment of bonus.
• Bonus is payable only annually.
SEC 15 - SET ON
If in a particular year
• Where for any accounting year the allocable surplus is more than the
maximum 20% bonus
• Such excess allocable surplus is carried forward to next year and
This is called carry forward of Bonus for being set on in Succeeding year.
The amount of bonus set on remains available only upto and inclusive of
fourth accounting year after that it lapses.
SET OFF
If in a particular year
• The allocable surplus is lower than the minimum 8.33% bonus
• Such shortfall is carried forward to next year and
This is called carry forward of Bonus for being set Off in succeeding years.
The Amount of bonus set off remains available only to and inclusive of
fourth accounting year after that it lapses
Section 31A: Employee enters into an agreement with the employer for payment of an
annual bonus linked with production or productivity, then such employment shall be
entitled to receive bonus due under such agreement.
Note: it should complied with min and max provisions
Case laws :
Project Manager ONGC vs Sham Kumar Sahgal
An employee suspended but subsequently reinstated with complete remaining wages is

eligible for bonus for the period of suspension.
Pandian Road ways Corpn Ltd vs Presiding officer, principle Labour Court
If an employee is dismissed from service of any act of misconduct, then he stand

disqualified from receiving any bonus under the act, and not the bonus only for the
accounting year in which the dismissal take place.
Motor Industries co Ltd vs popat Muralidhar patil & Ors
Bonus is not payable on subsistence allowance,because

• The employee does not actually work during that period and
• The subsistence allowance cannot be considered as salary or wages
Offences And Penalties
• For contravention of the provisions of the Act or rules the penalty is
imprisonment up to 6 months, or fine up to Rs.1000, or both.
• For failure to comply with the directions or requisitions made the
penalty is imprisonment up to 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 officer responsible 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 his knowledge or that he exercised all due diligence.
THANK YOU

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THE PAYMENT

The Object of the Act is

Actual salary * rate/100

• If the salary is above 7000;

B 7000 700 700

C 10,000 1000 700

D 22,000 2200 NIL

Sec 11 - Maximium Bonus

For the computation of amount available for bonus

For an Accounting year have to be calculated

Sec 5 AVALIABLE SURPLUS

Available Surplus = Gross Profit – Deduction u/s 6 + Tax saved

• 60% of the available Surplus in case of Banking Companies.

Project Manager ONGC vs Sham Kumar Sahgal

An employee suspended but subsequently reinstated with complete remaining wages is

If an employee is dismissed from service of any act of misconduct, then he stand

Motor Industries co Ltd vs popat Muralidhar patil & Ors

Bonus is not payable on subsistence allowance,because

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