Payment of Bonus Act, 1965

Onkar Satam Kantilal Kamble Anit Nair

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Objective
An Act to provide for the payment of bonus to persons employed in certain establishments on the basis of profits or on the basis of production or productivity and for matters connected therewith.

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Applicability
o Every factory or an establishment employing not less than 20 employees during an accounting year.

o Establishments once covered under this act will continue to be covered even if the number of employees fall below 20 subsequently.

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Employee?
o Any person other than Apprentice , engaged for hire or reward. o Includes Supervisors, Managers & Administrative staff o Person who has worked for minimum of 30 days in an accounting year o Person with a maximum salary of 10,000 per month

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Trivia
Can a person drawing wages more than 10000 per month make a claim for Bonus under any special circumstance?

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Answer
No. It is nor maintainable under the Act

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Important Calculations
o Employees drawing salary up to Rs 10000 per month are eligible for bonus but their salary will be limited to Rs. 3500 for the purpose of calculation for bonus.

o Maximum of 20% and minimum of 8.33% of salary can be paid as bonus.

o Maximum amount of payable bonus is limited to Rs. 84000. (3500 x 12 x 20/100)

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Payment of Bonus Source of Money?

o Gross Profit Allowable Deductions = Available Surplus o 60% of Available Surplus = Allocable Surplus

o Bonus to be paid irrespective of the availability of Allocable Surplus

o Bonus to be paid within maximum of 8 months after the end of the accounting period.
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Set On
o Case when allocable surplus exceeds total Bonus payments calculated at maximum of 20% of salary
o The excess amount is carried forward as Set On to the next accounting year o Amount carried forward to maximum of and including the fourth accounting year
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Set Off
o Case when there is no available surplus or the available surplus in not enough to meet minimum Bonus payments o The balance amount is carried forward to the next accounting year to be Set Off in the next bonus payments. o Set Off amount carried forward for maximum of and including 4th accounting year. o The Set Off amount of earliest year is taken into account first.
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Trivia
Can Bonus be denied to an employee on the condition that he was not in employment on the day of declaration of Bonus?

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Answer

No. It violates the provisions of Section 8 of the Payment of Bonus Act.

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Special provisions New Establishment

o No compulsion on payment of Bonus in the first 5 years of establishment. o Bonus to be paid necessarily only in profit making accounting years o 6th Year- Set On & Set Off to be considered for the 5th and 6th years o 7th Year- Set On & Set Off to be considered for 5th, 6th & 7th years o Establishment not deemed to be newly set up merely by reason of a change in its location, management, name or ownership.
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Contracting Out
A contract signed between an employer and an employee provisioning for non payment of bonus as per the Bonus Act stand void.
Every employee eligible under the act has to be paid Bonus.

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Trivia
Is a person employed on probationary basis eligible for payment of Bonus?

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Answer

Yes a person on probation is eligible for Bonus, as a probationer has not been excluded from the provisions of the Act pertaining to definition of Employee.

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Recovery of Bonus Due from Employer

o In case of unpaid due bonus of employee no longer in employment o Employee or person authorized by him can apply for the recovery of bonus o In case of death of employee the legal heir may apply for collection o Application to be maid to appropriate Govt. o If accepted by the government, the money is recovered from employer o Application to be made within one year of the due date of bonus payment o Late applications accepted by government if reason for delay acceptable
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Forfeiture of Bonus
Bonus of an employee can be forfeited if he has been dismissed on the grounds of : o Fraud o Theft o Misappropriation o Sabotage of property of the establishment Section 9 of the Bonus Act gives this provision
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Thank You
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