Payment of Bonus

Act, 1965
Submitted To: Submitted By:
Mr. Sandeep Singh Milani- GU-2017-0164
Maninder- GU-2017-0161
Rajvir Kaur- GU-2017-0170
MBA (3rd Sem.)
 Table of Contents
1. Definition of Bonus
2.Introduction to Payment of Bonus Act 1965
3. Objective of the Act
4. Four dimensions of Act
5. Extent of the Act
6. Applicability of the Act
7. Exemption of the Act
8. Establishment to include departments, undertaking and branches (Sec. 3)
9. Payment of Bonus
10. Consequences of misconduct
11. Time limit for payment of Bonus (Sec. 19)
12. Recovery of bonus due from an employer (Sec. 21) CONTD…
13. Computation of number of working days Sec. 14
14. Calculation of Bonus
15. Payment of minimum bonus (Sec. 10)
16. Payment of maximum bonus (Sec. 11 & 12)
17. Set-on & Set-off of allocable surplus (Sec.15)
18. Special provisions with respect to certain establishments
19. Inspectors
20. Offences & Penalties (Sec. 28)
21. Act not to apply to certain classes of employees (Sec.32)
22. Power of exemption (Sec. 36)
23. Obligations of Employers
24. Rights of Employers
25. Rights of Employees
 Definition of Bonus

According to the definition given in the New English Dictionary is, "A boon or
gift over and above what is normally due as remuneration to the receiver and
which is, holy to the good.”
 Object of the Act

• Its object is to provide for the payment of bonus to persons employed in

certain establishments and for matters connected herewith.

• Bonus is no longer linked with production or profitability.

• It is a socio-economic legislation intended to achieve the object of meeting

the challenge which necessarily flows from unsatisfied human desires &
ambitions.
 Imposes a Statutory
liability upon an
employer of every
establishment covered
by the act to pay
bonus to employees in
establishment

Provides Defines the

machinery for Four principle of
enforcement of the payment of bonus
liability for Dimensional according to the
payment of bonus. Act prescribed formula

Provides for
payment of
minimum &
maximum bonus
with the scheme of
‘set off’ & ‘set on’
 Extent of the Act

The Payment of Bonus Act, 1965, extends to the

whole of India including the state of Jammu &
Kashmir.
 Applicability of the Act

• Every factory

• Every other establishment in which 20 or more persons are employed on any

day during an accounting year.

• The appropriate government may, however, extend the provisions of this Act
to any establishment employing less than 20 but not less than 10 persons. It
can do so by giving not less than 2 months notice of its intention by
notification in the official gazette.
 Exemption of the Act
• Small factories and establishments having less than 20 or 10 employees, as
the case may be.
• Establishments excluded by Sec. 32
-L.I.C
-Hospitals
-Chambers of Commerce etc.
• New establishments covered by Sec. 16
• Establishments where employees have entered into the contract with the
employer Sec. 31-A
• Establishments specially exempted by the appropriate govt. u/s 36 (Sick Units
etc.)
 Establishment to include
departments, undertaking and
branches (Sec. 3)
 Payment of Bonus

• Eligibility for Bonus (Sec. 8)

• Disqualification for Bonus (Sec. 9)
 Consequences of two types of
misconduct
• In the case of misconduct of an employee causing any financial loss to the
employer, it is lawful for the employer u/s 18 of the act to deduct the amount of
loss, from the amount of bonus payable to the employee. Thus, sec. 18 deals with
the case of minor misconduct.

• Sec. 9 takes note of more serious acts of misconduct and completely disqualified a
workman from receiving bonus.
Time limit for payment of
bonus (Sec. 19)
Recovery of bonus due from an
employer (Sec. 21)
Computation of number of working days
Sec. 14
The number of working days of an establishment is the number of days on which it
worked.
To get the number of days on which an employee worked, one has to consider the
actual number of days of attendance according to the attendance register and add
thereto the days on which he has been absent on any of the following causes:
• Layoff;
• Leave with salary or wage;
• Temporary disablement caused by accident arising out of & in the course of
employment; and
• Maternity leave with salary or wage.
 Calculation of Bonus
Computation of available surplus (Sec. 5)

Available surplus = Gross Profit – Deductions

• Depreciation admissible u/s 32 of the Income Tax Act.

• Any development rebate or investment allowance or development allowance
• All direct taxes payable for the accounting year (calculated as per provisions
of Sec. 7 )

• The sums specified in the Third schedule

Payment of minimum bonus
(Sec. 10)
Payment of maximum bonus
(Sec. 11 & 12)
 Set-on of allocable surplus
(Sec. 15)
Where for any accounting year, the allocable surplus exceeds the
amount of maximum bonus payable to the employees in the
establishment under section 11, then, the excess shall, subject to a
limit of twenty per cent of the total salary or wages of the employees
employed in the establishment in that accounting year, be carried
forward for being set on in the succeeding accounting year and so on
up to and inclusive of the fourth accounting year to be utilized for
the purpose of payment of bonus in the manner illustrated in the
Fourth Schedule.
 Set-off of allocable surplus
(Sec. 15)
Where for any accounting year, there is no available surplus or the
allocable surplus in respect of that year falls short of the amount of
minimum bonus payable to the employees in the establishment under
section 10, and there is no amount or sufficient amount carried
forward and set on under sub-section (1) which could be utilized for
the purpose of payment of the minimum bonus, then such minimum
amount or the deficiency, as the case may be, shall be carried
forward for being set off in the succeeding accounting year and so
on up to and inclusive of the fourth accounting year in the manner
illustrated in the Fourth Schedule.
 INSPECTORS
• Sec. 27 empowers the appropriate Government may, by notification in the Official
Gazette, appoint such persons as it thinks fit to be Inspectors for the purposes of
this Act and may define the limits within which they shall exercise jurisdiction.
• The inspector appointed under this section have been given the following powers
for the purpose of ascertaining whether the provisions of the act have been
compiled with:
(a) require an employer to furnish such information as he may consider necessary;
(b) at any reasonable time and with such assistance, if any, as he thinks fit, enter any
establishment or any premises connected therewith and require any one found in
charge thereof to produce before him for examination any accounts, books, registers
and other documents relating to the employment of persons or the payment of salary
or wage or bonus in the establishment; CONTD…
(c) examine with respect to any matter relevant to any of the purposes aforesaid, the
employer, his agent or servant or any other person found in charge of the establishment or
any premises connected therewith or any person whom the Inspector has reasonable cause to
believe to be or to have been an employee in the establishment;
(d) make copies of, or take extracts from, any book, register or other document maintained
in relation to the establishment;
(e) exercise such other powers as may be prescribed.
• Every Inspector shall be deemed to be a public servant within the meaning of the Indian
Penal Code.
• Any person required to produce any accounts, book, register or other documents or to
give information by an Inspector shall be legally bound to do so.
• Nothing contained in this section shall enable an Inspector to require a banking company
to furnish or disclose any statement or information or to produce, or give inspection of,
any of its books of account or other documents, which a banking company cannot be
compelled to furnish, disclose, produce or give inspection of, under the provisions of
section 34A of the Banking Regulation Act, 1949.
 Offences and Penalties (Sec.28)
Offence Penalty

1. Contravention of the provisions of Imprisonment upto 6 months, or fine

the Act or rules upto Rs.1000, or both.

2. Failure to comply with the Imprisonment upto 6 months, or fine

directions or requisitions made. upto Rs.1000, or both.
 Act not to apply to certain classes of
employees (Sec.32)
• Employees employed by the Life Insurance Corporation of India;
• seamen as defined in clause (42) of section 3 of the Merchant Shipping Act, 1958;
• employees registered or listed under any scheme made under the Dock Workers
(Regulation of Employment) Act, 1948 and employed by registered or listed
employers;
• employees employed by an establishment engaged in any industry carried on by or
under the authority of any department of the Central Government or a State
Government or a local authority;
• employees employed by:
(a) the Indian Red Cross Society or any other institution of a like nature (including its
branches); CONTD..
(b) universities and other educational institutions;
(c) institutions (including hospitals, chambers of commerce and social welfare institutions)
established not for purposes of profit;
• employees employed by the Reserve Bank of India;
• employees employed by—
(a) the Industrial Finance Corporation of India;
(b) any Financial Corporation established under section 3, or any Joint Financial
Corporation established under section 3A, of the State Financial Corporations Act, 1951;
(c) the Deposit Insurance Corporation;
(d) the National Bank for 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 CONTD…
(h) the National Housing Bank;
(i) employees employed by inland water transport establishments operating on
routes passing through any other country.
(j) any other financial institution other than a banking company, being an
establishment in public sector, which the Central Government may, by notification
in the Official Gazette, specify, having regard to:
-its capital structure;
-its objectives and the nature of its activities;
-the nature and extent of financial assistance or any concession given to it by the
Government; and
-any other relevant factor;
Power of Exemption
(Sec. 36)
 Obligations of Employers
1. To calculate and pay the annual bonus as required under the Act.
2. To maintain the following registers:
• Register showing the computation of allocate surplus in form A
• Register showing set on & set off of the allocate surplus in form B
• Register showing the details of the amount of bonus due to each employee,
deductions therefrom & the amount disbursed in from C
3. To submit an annual return of bonus paid to employees during the year, in
form D, to the inspector, within 30 days of the expiry of the time limit specified
for the payment of bonus.
4. To co-operate with the Inspector, produce before him the registers/records
maintained and such other information as may be required by them.
5. To get his account audited as per the directions of a Labour Court/Tribunal or
of any such other authority.
 Rights of employers
1. Right to forfeit bonus of an employee, who has been dismissed from service
for fraud, riotous or violent behaviour, of theft mis-appropriation or sabotage of
any property of the establishment.

2. Right to make permissible deductions from the bonus payable to an

employee, such as, festival bonus paid and financial loss caused by misconduct
of the employee.

3. Right to refer any dispute relating to application or interpretation of any

provision of the Act, to the Labour Court or Labour Tribunal
 Rights of Employees

1. Right to claim bonus payable under the Act and to make an application to
the Government, for the recovery of bonus due and unpaid, within one year of
its becoming due.
2. Right to refer any dispute to the Labour Court/ Labour Tribunal. Employees
to whom the Payment of Bonus Act doesn’t apply can’t raise a dispute
regarding bonus under the Industrial Dispute Act
3. Right to seek clarification and obtain information, on any item in the
accounts of the establishment.