PAYMENT OF BONUS ACT

• Finds justification on the ground that the

workers should have a share in prosperity
of the concern for which they have made
the contribution.

Definitions
Accounting year
• In case of corporations - The year ending
on the day on which books of accounts are
to be closed
• In case of companies – the period in
respect of which any P & L account of the
company laid before it in AGM, whether
that period is a year or not.

1
 Allocable Surplus
• In relation to an employer, being a
company (other than banking company)
which has not made any arrangement for
the payment of dividend, 67% of the
available surplus
• In any other case,60% of the available
surplus

Gross Profit
• GP derived by an employer in respect of
an accounting year shall
• In case of banking company – be
calculated in the manner specified in first
schedule
• In case of others – be calculated in the
manner specified in second schedule

2
 Eligibility for bonus
• Every employee shall be entitled to be
paid in an accounting year, bonus in
accordance with the provisions of the Act,
provided the employee has worked for not
less than 30 working days in that year

Disqualification for bonus

• Not eligible to receive bonus, provided
dismissal from service was due to
– Fraud
– Riotous or violent behavior while on the
premises
– Theft, misappropriation of any property of the
establishment

3
 Payment of minimum bonus
• Every employer shall be bound to pay to
every employee in respect of the
accounting year, a minimum bonus which
shall be 8.33% of salary or wage earned
by the employee during the accounting
year or Rs.100 whichever is higher,
whether the employer has any allocable
surplus or not.

Special provisions
• Where an establishment is newly set up,
whether before or after the commencement of
this Act, employees of such establishment shall
be entitled to be paid bonus as per this Act.
• In the first 5 accounting years following the
accounting year in which the employer sells the
goods produced or manufactured by him or
renders services, bonus shall be payable only in
respect of the accounting year in which the
employer derives profit from such establishment.

4
Time limit for payment of bonus
• Within a month from the date on which the
award becomes enforceable in case of
any disputes;
• In any other case, within eight months
from the close of accounting year.

For Whom?
• Every employee receiving salary or wages
up to Rs.3500 p.m is entitled for bonus
every accounting year.

5
 Calculation of Bonus
• Available surplus = A + B
• A = GP – admissible depreciation –
development rebate – direct taxes payable
– sums specified in third schedule.
• B = Direct taxes in respect of GP for the
immediately preceding accounting year –
direct taxes in respect of GP as reduced
by bonus for the immediately preceding
accounting year.

Calculate allocable surplus:

• 60 % of available surplus

• Make adjustment for ‘set on’ and ‘set off’.

• Allocable surplus, so computed is

distributed amongst the employees in
proportion to salary or wages received
during that relevant accounting year.

6
SET ON and SET OFF (sec 15)
• If in an accounting year, allocable surplus
exceeds the amount of maximum bonus
payable, then such excess shall be carried
forward for being SET ON in the
succeeding four accounting years.

SET ON and SET OFF (sec 15)

• If there is no allocable surplus or if the
allocable surplus falls short of the
minimum bonus payable, then such
deficiency be met out of the amount
brought forward for being SET ON from
the previous accounting year, if any.

7
• If there is still any deficiency, then such
amount be carried forward for being SET
OFF in the succeeding four accounting
years.

Permissible deductions from Bonus

• Any customary/festival interim bonus paid
• Any financial loss caused by the
misconduct of the employee.

8
 REGISTERS
• Mandatory for the employer to maintain
the following registers;
• Register showing the computation of
allocable surplus in Form A
• Register showing set on and set off of the
allocable surplus in Form B
• Register showing the amount of bonus
due to each employee, deductions
therefrom and the amount disbursed, in
Form C.

Bonus linked with production

• If bonus is payable on productivity basis
than profits, employees are eligible to
receive a bonus subject to a minimum of
8.33% and a maximum of 20% of the
salary or wages earned in that accounting
year.

9
 Contracting out is void
• Any contract depriving the rights of the
employees to receive minimum bonus
shall be void and not enforceable.

Offence and Penalty (sec 28)

• For contravention of the provisions of the
Act and Failure to comply:

– Imprisonment up to 6 months or fine up to Rs.

1000 or both.

10