The Payment of Bonus

Act, 1965

Introduction
The dictionary meaning of bonus is something
to the good, especially :
i) Extra dividend to the shareholders of the
company,
ii) Distribution of profits
iii) Gratuity to workmen beyond their wages.
The act came into force on 5th September, 1965.
It was amended twice in1985.

Object of the Act

The scheme of the Act, broadly stated is four- dimensional:
1. To impose statutory liability upon an employer of every
establishment covered by the act to pay bonus to the
employees in the establishment.
2. To define the principle of payment of bonus according to
prescribed formula.
3. To provide for payment of minimum and maximum bonus
and linking the payment of bonus with the scheme of setoff and set-on.
4. To provide machinery for enforcement of the liability for
payment of bonus.

Minimum Bonus
i) A minimum bonus of 8.33 percent of the wage or salary
( up to Rs 1,600) of an employee
ii) Rs. 60 in the case of employees below the age of 15
years) is payable irrespective of the fact whether the
establishment has made a profit or loss.
iii) Liability of bonus is statutory liability and not a
contingent liability.

Application of the Act

a) Every factory as define in Factories Act & Every other
establishment in which 20 or more persons
b) Less than 20 but 10 or more if appropriate Govt. notifies)
are employed on any day during any accounting year.
c) Bonus to be paid within eight months from the expiry of
the accounting year.
d) The employment of 20 or more persons even for 1 day is
sufficient the provision of the Act.
e) In deciding the number of employees in an establishment
even those drawing up to Rs. 3500 must be taken into
consideration.

Definition of Establishment

An establishment consists of different departments or

undertaken or has branches, whether situated in the same
place or in different places, all such departments or
undertakings or branches shall be treated as parts of the
same establishment for the purpose of computation of
bonus under the Act.

Act not to apply certain category of employees

It excluded the following persons from the operation of the

Act:
1. Employees employed by the Life Insurance Corporation
of India.
2. Seaman as defined in [sec. 3 (42)] of the Merchant
shipping act.
3. Employees registered or listed under scheme made
under the dock workers Act, 1948 and employed by the
registered or listed employers.
4. Employees employed by an establishment engaged in
any industry under the authority of central govt or state
govt.

5.
a)
b)
c)

Employees employed byThe Indian Red Cross Society or any other institution.
Universities and other educational institutions.
Institutions including hospitals, chambers of commerce
and social welfare institution established not for the
purpose of profit.
6. Employees employed through contractors on building
operations.
7. Employees employed in Reserve Bank of India.

8. Employees employed ina) The industrial finance corporation,

b) Any financial corporation under (sec. 3) or any joint
financial corporation established under (sec. 3-A)
c) The Deposit Insurance Corporation,
d) National Bank of Agriculture and Rural Development.
e) The Unit Trust of India.
f) The Industrial Development Bank of India.
g) The Small Industries Development bank of India,
h) The National Housing Bank.

Definitions
1. Accounting year [sec. 2 (1)]:- It means
i. In relation to corporation, the year ending on the day
on which the books and accounts of the corporation are
to be closed and balanced,
ii. In relation to a company, the period in respect of which
any profit and loss account of company laid before it in
annual general meeting is made up whether that period
is year or not.
iii. In any other case year commencing on the first day of
April or if the accounts of an establishment maintained
by an employer there of are closed and balanced on any
day other than the 31st March.

2. Allocable Surplus [sec. 2 (4)]. It meansa) In relation to an employer, being a company which has
not made the arrangements prescribed under the Income
Tax Act and payment of dividends within India
according to the provision of income tax act, 67 percent
of the available surplus.
b) In any other case 60 percent of the available surplus.

4. Available Surplus [sec. 2 (6)]. The available surplus in

respect of any accounting year is the gross profit for that
year after deducting the sums from gross profit as
priority charges are any amount of depreciation or any
amount of investment allowance or development
allowance.
5. Award [sec. 2 (7)]. It means the final determination of
industrial disputes or any question related by the labor
court, industrial tribunal or national tribunal constituted
under the Industrial Dispute Act, 1947. it also include
arbitration award made under sec 10-A of that act.

6. Banking Company [sec. 2 (8)]. It means. A Banking company under sec. 5 of banking regulation
Act, 1949 and includes State Bank of India, any
subsidiary bank as defined in State Bank of India Act,
1970.
. Any corresponding new bank constituted under sec. 3 of
the banking companies act 1980.
. Any co-operative bank defined in sec 2 (b) (ii) of the
Reserve Bank of India Act 1934.
7. Company [sec 2 (9)]. It means any company defined in
sec. 3 of the companies Act, 1956 and includes foreign
company.
8. Co-operative society [sec. 2 (10)]. It means the society
registered under the co-operative societies act, 1912.

9. Direct tax [sec. 2 (12)]. A Tax chargeable under the

Income Tax Act 1961, the Super Profits Act, 1963 and
the Agriculture income Tax Laws and any other tax
which having regard to its nature or incidence may be
declared by the central govt.
10. Employee [sec. 2 (13)]. Employee means any person
(other than apprentice) employed on a salary or wage not
exceeding Rs. 3500 per mensem in any industry to do
any skilled or unskilled, manual, supervisory,
managerial, administrative, technical or clerical work for
hire or reward. It make no difference whether the terms
of employment are express or implied.

12. Employer [sec. 2 (14)]. Employer includesi. The owner or occupier of the factory, including the agent of
such owner or occupier, the legal representative of a deceased
owner or occupier.
ii. in relation to other establishment the person or the authority
which has the ultimate control over the affairs of the
establishment.
13. Salary or wage [sec. 2 (21)]. It means all remuneration (other
than remuneration in respect of overtime work) capable of
being expressed in terms of money. It includes dearness
allowance but does not include any other allowance, house
accommodation, supply of light, water medical attendance or
other amenity, any travelling concession, any commission and
retrenchment compensation or any gratuity or other
retirement benefit payable to the employees.

Eligibility for Bonus

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 30 working days in that year.

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.

Amount of Bonus
The Bonus formula in this act provides for the
payment of Minimum and Maximum bonus to the
employees in the accounting year so that they are
not deprived of any bonus in the accounting year.
a) Minimum Bonus (sec. 10). A minimum bonus
which shall be 8.33 per cent of the salary or wage
earned by the employee during the accounting year
or Rs. 100 (Rs. 60 in case of employees below 15
years of age), whichever is higher.

b) Maximum Bonus (sec. 11). Bonus at a rate higher

than the minimum rate is payable only when the
allocable surplus exceeds the amount of minimum bonus
referred to in sec. 10 payable to the employees.
c) Employer shall be bound to pay to every employee in
respect of that accounting year bonus which shall be an
amount in proportion to the salary or wage earned by the
employee during the accounting year subject to a
maximum of 20 per cent, of such salary or wage.

Calculation of Bonus sec. 12

Where the salary or wage of an employee exceeds Rs. 1600
per mensem, the bonus payable to such employee under
the sec. 10 will be calculated if his salary or wage were
Rs. 1,600 per month .

Set on & Set off of allocable surplus

i. Set on. Where the allocable surplus for any

accounting year the amount of maximum bonus
payable to the employees in the establishment under
the sec. 11 then the excess of allocable surplus, subject
to a limit of 20 percent of the total salary or wage of
the employees.
ii. Set off. Where for any accounting year, there is no
allocable surplus in respect of that year falls short of
the amount of minimum bonus payable to the
employees in the establishment under sec. 10 and there
is no amount or sufficient amount carried forward and
set on which could be utilized for the purpose of
payment of minimum bonus.

Time-limit for payment of bonus (sec. 19)

Where there is a dispute regarding payment of bonus
pending before any authority under section 22, within a
month from the date on which the award becomes
enforceable or the settlement comes into operation, in
respect of such dispute;
In any other case, within a period of 8 months from the
close of the accounting year.

Recovery of bonus due from an employer

Where any money is due to an employee from his employer
under a settlement or agreement, he may make an application
to the appropriate government for the recovery of the money
due to him.
The Application Under sec. 21 for recovery of any amount of
bonus due from the employer to an employee may be made byi. The employee himself, or
ii. Any other person authorized by the employer in writing to act
on his behalf or
iii. In the case of the death employee, his assignees or heirs.
The application for the recovery of bonus shall be made within 1
year from the date on which the money became due to the
employee from the employer.

Penalties (sec. 28)

If any person contravenes any of the provisions of the
Act, he shall be punishable with imprisonment for a
term which may extend to 6 month or with fine which
may extend to Rs. 1,000 or with both.

Offences (sec. 29)

1. In case of offences by companies, If a person
committing an offence under the act, every person who
at the time the offence was committed and was
responsible to the company 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 to prevent the commission of such
offence.
2. If the offence has been committed with the consent of
any director, manager, secretary or other officer of the
company, such persons shall also be liable to be
proceeded against and punished accordingly.