PAYMENT OF BONUS ACT.

1965

(1) This Act applies to -

(a) Every factory ;

(b) Every establishment in which 20 or more persons are employed on any

day during the accounting.

Any factory or establishment to which this Act applied will continue to be

governed by it regardless of the number of the persons employed.

(a) Employees of the Life Insurance Corporation (LIC) of India.

(b) Seamen as defined in the Merchant Shipping Act, 1958 ;

(c) Empoyees registered or listed under any scheme made under the Dock
workers (Regulation and Employment) Act, 1948;

(d) Employees of the Central or State Government, or local authority.

(e) Employees employed by the Indian Red Cross Society, and any other
institution of a like nature, universities and educational institutions,
hospitals, chamber of commerce and social welfare institutions.

(f) Employees employed thorugh contractors on building operation ;

(g) Employees of the Reserve Bank of India, Industrial Finance Corporation,

or any other Financial Corporation, Deposit Insurance Corporation,
Agricultural Refinance Corporation, the Unit Trust of India, the Industrial
Development Bank of India, etc.

(3) Eligibility

An employee shall be entitled to be paid by his employer, bonus for an

accounting year, provided -

(a) His wages do not exceed Rs. 1600/- per month and

(b) He has worked for at least 30 days in that year:

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(4) Disqualification

(a) An employee shall be disqualified from receiving bonus if he is dismissed

from service for -
s'

(i) fraud ; or

(ii) Riotous or violent behaviour while on the premises of the

establishment; or

(iii) threat, misapproprition or sabotage of any property of the

establishment.

(b) If an employee is found guilty of misconduct causing financial loss to the

employer, the deduction of the amount of losses from the bonus payable
to the employee is permitted.

(5) Available Surplus

Available surplus in respect to an accounting year is the gross profit after

deducting the provisions for depriciation, development rebate (both in accoudance with
the Income Tax Act), direct taxes on income, profits and gains, and other sums
prescribed in the Third Schedule of this Act.

(6) Allocable Surplus

(a) Allocable surplus consists of 67% of the available surplus in an

accounting year in case of companies, other than a banking company,
which have not made arranginent prescribed under Income Tax Act for
the declaration and payment of dividends within India.

(b) The allocable surplus is 60% in all other cases.

(7) Set on and Set off

(a) Where for any accounting year, the allocable surplus exceeds the amount
of maximum bonus payable to the employees in the establishment, excess
shall (subject to a maximum of 20% of the total wages of the employees
in that accounting year) be carried forward for being set-on in the
succeeding accounting year. This set-on fund can be utilised for four
succeeding accounting years for payment of bonus.

(b) 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 and there is no amount carried forward from the
previous year which could be utilised for the purpose of payment of
bonus, then the deficient amount will be carried forward to the

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 succeeding years for being set off. This set off fund is to be adjusted in
the succeeding four years.

(8) Amount of Bonus

(a) A minimum bonus consisting of 8.33% of the wages earned by the

employee during that accounting year or Rs.100/- whichever is higher is
to be paid to an employee irrespective or whether the employer has any
allocable surplus in that accounting year.

However, if an employee has not completed 15 years of age at the beginning of

the accounting year, the minimum amount payable to him shall be Rs.60/- instead of
Rs.100/-.

(b) When in an accounting year the allocable surplus exceeds the amount of
minimum bonus payable to employees, the employer has to pay bonus
which shall be an amount in proportion to the wages earned by the
employee during the accounting year subject to a maximum of 20% of
such wages.

(c) Where an employee's monthly wages exceed Rs.750/- p.m. bonus will be
calculated as his wages were Rs.750/- p.m.

(9) Bonus should be paid :

(a) Within 8 months from the closing of the accounting year.

(b) Where there is a dispute regarding payment of bonus pending before any
authority, within one month from the date on which the award becomes
enforcable or the settlement comes into operation.

(10) New Establishments :

(a) In case of a new establishment in the first five years following the year in
which the employer begins to sell his product, bonus will be paid only for
the year in which the employer derives profit.

(b) The rules of set on and set off do not apply for the first five years
following the year in which the establishment has begun the sale of
products.

(c) An establishment shall bot be deemed to be newly set up merely by

reason of any change in its location, management, name or ownership.

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(11) Productivity Bonus :

Where an agreement or a settlement has been entered into by the employees with
their employers whether before or after the commencement of this Act for payment of
bonus linked with production and productivity in lieu of bonus as per this Act, then,
such employees shall be entitled to receive bonus due to them under such agreeement
provided

(a) Employees do not relinquish their right to receive minimum bonus as

specified in this Act; and

(b) The employees are not entitled to be paid bonus in excess of 20% of the
wages earned by them during the relevant accounting year.

(12) Penalty.

If any person

(a) contravenes any of the provisions of this Act or any rules made there
under; or

(b) to whom a direction is given or a requisition is made under the Act fails
to comply with the direction or requisition, he shall be punishable with
imprisonment for a term which may extend to six months or with fine
which may extend to Rs.1000/- or with both.

As reported in the Press recently (The Telegraph, - 7th July, 1995), the
Government will soon bring n Ordinance to raise the eligibility ceiling on bonus for both
public and private sector employees.

Currently awaiting the President's approval, the Ordinance will greatly benefit
workers in the small scale and unorganised sectors. However, workers in sectors like
steel and automobilies, who already draw salaries above Rs.3000/- per month, will not
gain from this change.

The amendment to the Bonus Act will raise the eligibility ceiling from Rs.2500/-
to Rs.3500/- and the entitlement ceiling from Rs.1600/- to Rs.2500/-. The hike was long
due as salaries have substantially gone up to keep pace with the rising inflation rate.

At present there are 3 categories of bonus ceilings. According to the eligibility

ceiling, a worker drawing a salary of more than Rs.2500 is not entitled to bonus. In the
second category of entitlement ceiling, a worker getting more than Rs.1600 per month,
has his bonus computed only on this sum and not on his real salary. In the third category
of ceilings, a worker is entitled to bonus only on a maximum of 20% of his earnings.

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