Payment of Bonus Act 1965: Presented By: Ankit Gupta

PAYMENT OF BONUS ACT 1965
Presented by: Ankit Gupta
INDEX
1.) Introduction and Definition of Payment of bonus act 1965
2.) Aims of The payment of Bonus Act, 1965
3.) Applicability of the Act
4.) Eligibility of the Act
5.) Minimum Bonus of the Act
6.) Maximum Bonus of the Act
7.) Mode and Time for Payment of Bonus Act
8.) Employers Obligations of the Act
9.) Time limit for payment
10.) Offences and penalties
11.) Set on & Set off
INDEX
12.) Methods of Calculation of bonus
1.) Calculate the statutory bonus
2.) Calculate the Available Surplus
13.) Who is entitled to bonus under the Payment of
Bonus Act, 1965 ?
14.) Some Important Questions-Answers related
with the Payment of Bonus Act 1965
Introduction:
The practice of paying bonus in India appears to
have originated during first world war when certain
textile mills granted 10% of wages as war bonus to
their workers in 1917. In certain cases of industrial
disputes demand for payment of bonus was also
included. In 1950, the full bench of the labor
appellate tribunal evolved a formula for
determining of bonus, A plea was made to raise
that formula in 1959.
4
At the second and third meetings of the 18th

session of standing labor committee (G.O.I.)
held in new Delhi in march/ April 1960, it was
agreed that a commission be appointed to go
into the que. Of bonus and evolve suitable
norms. A tripartite commission was set up by
the govt. of India to consider in a
comprehensive manner, the que. of payment
of bonus based on profits to employees
employed in establishments and to make
recommendation to the govt.
5
The govt. of India accepted the

recommendation of the commission subject
to certain modifications. To implement these
recommendation the payment of bonus
ordinance, 1965, was promulgated on 29th
may, 1965. To replace the said ordinance the
payment of bonus bill was introduced in the
parliament.
PAYMENT OF BONUS ACT, 1965
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.
AIMS OF THE PAYMENT OF BONUS

ACT, 1965:
The payment of Bonus Act, 1965 aims at
providing for the payment of bonus to the
employees of certain establishments, on the basis
of profits or production or productivity and for
matters connected therewith.
APPLICABILITY: (SEC. 1)
The Act applies to every factory and every other

establishment employing not less than 20 persons
on any day during an accounting year.
The Central/State Government can, however,
extend its provisions to any establishment
employing less than 20 but more than 10persons.
The establishments covered under the Act shall
continue to pay bonus even if the number of
employees falls below 10, at a later date.
9
ELIGIBILITY (SEC.8):
Every employee (other than an apprentice)

receiving salary or wages up to Rs.3,500 per
month and engaged in any kind of work whether
skilled,
unskilled,
manual,
managerial,
supervisory, technical, clerical , etc. is entitled to
bonus for every accounting year, if he has worked
for at least 30 working days in that year.
10
Employees of the general insurance companies,

LIC, Central/State Government establishments,
Indian Red Cross Society, Universities and
Educational Institutions, Hospitals, Chambers of
Commerce, Reserve Bank of India, Industrial
Finance Corporation of India, Unit Trust of India
,Social Welfare Institutions, Local Bodies, etc. are
not entitled to bonus under the Act.
What they are paid as bonus,
is ex-gratia payment. (sec. 32)
11
EMPLOYEE IS DISQUALIFIED FROM RECEIVING BONUS:
If an employee is dismissed from services for:

(a) fraud;
(b) riotous or violent behavior while on the
premises of the establishment;
(c) theft,
misappropriation, or sabotage of any property of
the establishment; he is disqualified from
receiving bonus. {Section 9}
12
MINIMUM BONUS:
The minimum bonus which an employer is

required to pay even if he suffers losses during
the accounting year or there is no allocable
surplus (except in case of new establishments), is
8.33% of the salary or wages of the employee
during the accounting year. {Section 10}
Rs. 100 in case of employees above 15 years and Rs 60
in case of employees below 15 years, whichever is
higher
13
MAXIMUM BONUS:
If in any accounting year, the allocable surplus
exceeds the amount of minimum bonus, the
employer shall pay bonus in proportion to the
salary or wages earned by the employee during
that accounting year, subject to a maximum of
20% of such salary or wages. {Section 11}
14
MODE AND TIME FOR PAYMENT OF BONUS:
Bonus should be paid in cash and within 8

months from the close of the accounting year .
Bonus is payable only annually. ( section 22 )
15
EMPLOYERS OBLIGATIONS:
To calculate and pay the annual bonus as

required under the Act.
To maintain the prescribed registers; and
file annual returns of bonus paid. Form D
to the inspector within 30 days.
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16
TIME LIMIT FOR PAYMENT (SEC. 19):

The bonus should be paid in cash within 8 months from
the close of the accounting year or within one month
from the date of enforcement of the award or coming
into operation of a settlement following an industrial
dispute regarding payment of bonus.
However if there is sufficient cause extension may be
applied for.
17
OFFENCES AND PENALTIES (SEC. 28):

For contravention of the provisions of the Act or
rules the penalty is imprisonment up to 6
months, or fine up to Rs.1000, or both.
For failure to comply with the directions or
requisitions made the penalty is imprisonment
up to 6 months, or fine up to Rs.1000, or both.
18
In case of offences by companies, firms, body

corporate or association of individuals, its
director, partner or a principal officer responsible
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.
19
CALCULATION OF BONUS:
1.) Calculate the Statutory bonus
2.) Calculate the Available Surplus.
20
MEANING OF STATUTORY BONUS:
Statutory Bonus means bonus payable as per

statute, i.e., the Payment of Bonus Act. As per the
Act, an amount equal to 8.33% of the
Basic + Dearness allowance
paid to an employee who is eligible for bonus is to
be paid irrespective of availability of surplus or
profit. Therefore, 8.33% is the statutory minimum
bonus payable. However, depending upon
availability of profit, the employer shall pay bonus
subject to a maximum of 20%.
21
The Payment of Bonus Act, 1965, gives to the

employees a statutory right to a share in the profits
of his employer. Prior of the Act some employees
used to get bonus but that was so if their employers
were pleased to pay the same.
Payment of bonus act 1965 all the confirmed

employees whose basis is less than or equal to
10000/- per month is eligible for statutory bonus @
rate of 8.33% of Basic pay.
22
HOW STATUTORY BONUS CALCULATE:
The Act enables the employees to get a minimum

bonus equivalent to one month's salary or wages
(8.33% of annual earnings) whether the employer
makes any profit or not. But the Act also puts a
ceiling on the bonus and the maximum bonus
payable under the Act is equivalent to about 2 1/2
months' salary or wage (20% of annual earnings).
23
MEANING OF AVAILABLE SURPLUS:
1.
2.
Available Surplus = Gross Profit [as per section 4]

- Depreciation admissible u/s 32 of the Income
tax Act - Development allowance
Calculate the gross profit in the manner specified
in:First Schedule, in case of a banking company, or
Second Schedule, in any other case.
24
CALCULATE THE AVAILABLE SURPLUS:

Available Surplus = Gross Profit
1.) - Depreciation admissible u/s 32 of the Income
tax Act
2.) - Development allowance
3.) - Direct taxes payable for the accounting year
4.) - Sums specified in the Third Schedule
5.) - Direct Taxes in respect of such gross profits as
reduced by the amount of bonus, for the
immediately preceding accounting year.
6.) + Direct Taxes in respect of gross profits for the
immediately preceding accounting year
25
POINTS REGARDING AVAILABLE SURPLUS:
1. Direct taxes payable for the accounting year

(calculated as per sec-7)- sums specified in the
third schedule.
2. Direct taxes (calculated as per sec-7) in respect of
gross profit for the immediately preceding
accounting year.
3. Allocable surplus = 60% of available surplus,
67% in case of foreign companies.
4. Make adjustment for set on and set off for
calculating the amount of bonus in respect of an
accounting year.
26
ALLOCABLE SURPLUS:
(Allocable Surplus = 60% of Available Surplus,

67% in case of foreign companies). The bonus is
to be paid out of the allocable surplus. The
allocable surplus so computed is distributed
amongst the employees in proportion to salary or
wages received by them during the relevant
accounting year. In case of a foreign company, the
allocable surplus is 67 percent of the available
surplus and in other cases it is 60 percent
(section 4,5 and 7)
27
SET ON & SET OFF (SEC. 15, SCHEDULE IV):
Where in any accounting year any amount has been carried

forward and set on or set off under this section, then, in
calculating bonus for the succeeding accounting year, the
amount of set on or set off carried forward from the earliest
accounting year shall first be taken into account.
The allocable surplus so computed is distributed amongst
the employees in proportion to salary or wages received by
them during the relevant accounting year.
28
WHO IS ENTITLED TO BONUS

UNDER THE PAYMENT OF BONUS
ACT, 1965
Every employee of an establishment covered

under the Payment of Bonus Act, 1965 is entitled
to bonus from his employer in an accounting year,
provided he has worked in that establishment for
not less than 30 working days in the year on a
salary less than Rs.3,500 per month
- (Section 2
(13))
29
AN EMPLOYEE IN THE FOLLOWING CASES IS ENTITLED TO

BONUS:
(1) A temporary workman on the basis of total

number of days worked by him.
(2) An employee of a seasonal factory is entitled
to proportionate bonus and not minimum bonus,
as prescribed by the Act.
(3) A part-time employee, as a sweeper engaged
on a regular basis.
Ex. :- (Automobile Karmachari Sangh vs.
Industrial Tribunal (1970)
30

(4) A retrenched employee, provided he has
worked for minimum qualifying period
Exa: (East Asiatic C. (P) Ltd. Vs. Industrial
Tribunal (1961).
(5) A probationer is an employee and as such is

entitled to bonus.
Exa: (Bank of Mudra Ltd. Vs. Employees Union,
1970 US.
31

(6) A dismissed employee re-instated with back
wages is entitled to bonus
Exa: (Gammon India Ltd Vs. Nirnjan Das (1984)
(7) A piece rated worker is entitled to bonus

Exa: (Mathuradas Kani Vs. L.A. Tribunal AIR
(1958)
32
Q-1 IS A SEASONAL WORKER ENTITLED TO GET BONUS?
Section 8 relates to the eligibility for bonus. The

only requirement of that section is that the
employee should have worked in an
establishment for not less than thirty working
days in an accounting year. Therefore, if a
seasonal worker has worked in an establishment
for more that thirty working days, he shall be
entitled to get bonus.
33
Q-2 WHAT IS THE MEANING OF

CUSTOMARY BONUS?
Customary bonus is bonus which is being paid by
way of tradition or custom at a uniform rate over a
number of years and which has no link with profit.
34
Q-3 IS OPEN TO THE EMPLOYER TO PAY BONUS

BASED ON PRODUCTION OR PRODUCTIVITY?
It is open to any employer to pay bonus linked

with production or productivity instead of bonus
based on profits, if there is an agreement to that
effect between him and his employees, but subject
to the provisions of the Act in respect of payment
of minimum and maximum basis. {Section 31A}
35
Q-4 ARE THE NEWLY SET UP ESTABLISHMENTS

EXEMPTED FROM PAYING BONUS TO THEIR
EMPLOYEES?
The newly set up establishment is exempted from

paying bonus to its employees in the first five
years following the year in which the employer
sells the goods produced or manufactured by him.
If, however, the employer derives profit in any of
the first five year, he has to pay bonus for that
year. The provisions of set on and set off are not
applicable in such cases. {Section 16}
36
Q-5 IF A MANAGEMENT HAS A NUMBER OF

DEPARTMENTS, UNDERTAKINGS OR BRANCHES,
SHOULD THEY BE TREATED AS SEPARATE
ESTABLISHMENTS OR AS ONE COMPOSITE
ESTABLISHMENT?
If an establishment consists of different

departments or undertakings or has branches,
whether situated in the same place or in different
places, unless a separate balance-sheet and
profit and loss account are prepared and
maintained in respect of them, all such
departments of undertakings or branches should
be treated as parts of the same establishment for
the purpose of computation of bonus, and once
they are treated as parts of the same
establishment, they should be continued to be
treated as such. {Section 3}
37
Q-6 WHAT IS THE REMEDY PROVIDED UNDER

THE ACT FOR RECOVERING BONUS DUE BUT
NOT PAID?
If any bonus is due to an employee under a

settlement, award or agreement, he can make an
application for its recovery to the Government
and the Government may issue a certificate to
the Collector to recover the same as an arrear of
land revenue. Such application should be made
within one year from the date on which bonus
became due to the employee from the employer.
{Section 21}
38
Q-7 CAN AN ESTABLISHMENT WHOSE APPLICATION

UNDER SEC. 36 OF THE ACT FOR EXEMPTION FOR A
PARTICULAR PERIOD IS REJECTED BY THE
GOVERNMENT, MAKES A SECOND APPLICATION FOR
THE SAME PERIOD?
The Government has no power to entertain the

second application for the same period.
39
Q-8 CAN AN ESTABLISHMENT BE DEEMED TO

BE NEWLY SET UP BY REASON OF A CHANGE IN
THE OWNERSHIP OF THE ESTABLISHMENT?
When the ownership of an establishment is

transferred from one person to another, the
establishment remains the same and it cannot be
said to be a new establishment in the hands of
the transferee.
40
Q-9 IS AN EMPLOYEE, WHO IS DISMISSED FROM SERVICE ON

THE GROUND THAT HE HAD COMMITTED THEFT, FRAUD AND
DISHONESTY IN CONNECTION WITH THE BUSINESS OF THE
ESTABLISHMENT IN THE ACCOUNTING YEAR 1984-85,
DISQUALIFIED FROM CLAIMING BONUS FOR THE
ACCOUNTING YEAR 1981-82?
If the employee is entitled to bonus for the

accounting year 1981-82, the employer cannot say
that the payment will not be made because the
employee is dismissed on some future date.
41
Q-10 IS THE EMPLOYER REQUIRED TO

MAINTAIN ANY REGISTERS UNDER THE ACT?
Every employer is required to maintain, in the

prescribed form, the following three registers:
1.) A register showing the computation of the
allocable surplus;
2.) A register showing the set-on and set-off of the
allocable surplus;
3.) A register showing the details of the amount of
bonus payable to each of employees, the amount of
deductions if any, and the amount actually paid.
42
The employer is also required to send, in the prescribed

form, an annual return to the Inspector appointed under
the Act. The time limit for sending the annual return is
thirty days from the expiry of the time limit specified in
section 19 for payment of bonus.
- {Section 26 & Rule 4 and 5}
43
ANY QUERIES
44
45

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