Ankit Thakur

Nivedita Sharma
Supriya Jaswal

2914

2916

2918

FLOW OF PRESENTATION
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

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
15.)Conclusions
16.)Review Of The Topic
17.) Bibliography

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 Labour Appellate evolved
a formula for determination of bonus. A plea was made to raise that formula in
1959. At the second and third meetings of the Eighteenth Session of Standing
Labour Committee (G. O.I.) held in New Delhi in March/April 1960, it was agreed
that a Commission be appointed to go into the question of bonus and evolve
suitable norms. A Tripartite Commission was set up by the Government of India to
consider in a comprehensive manner, the question of payment of bonus based on
profits to employees employed in establishments and to make recommendations to
the Government. The Government of India accepted the recommendations of the
Commission subject to certain modifications. To implement these
recommendations 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.

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
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.

ELIGIBILITY

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.

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.

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

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.

MODE AND TIME FOR PAYMENT

OFBONUS

Bonus should be paid in cash and within 8

months from the close of the accounting year .
Bonus is payable only annually. ( section 22 )

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.

TIME LIMIT FOR PAYMENT

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.

OFFENCES AND PENALTIES

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.

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

CALCULATION OF BONUS
1.) Calculate the Statutory bonus
2.) Calculate the Available Surplus.

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 20 subject to a maximum of 20%.

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.

HOW STATUTORY BONUS

CALCULATE

The Act enables the employees to get a minimum

bonus equivalent to one months 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)

MEANING OF AVAILABLE SURPLUS

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

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 gross profits for the
immediately preceding accounting year
6.) Direct Taxes in respect of such gross profits as
reduced by the amount of bonus, for the
immediately preceding accounting year.

FORMULA OF AVAILABLE SURPLUS

1.

2.

3.
4.

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.

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) 26

SET ON & SET OFF

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.

WHO IS ENTITLED TO BONUS UNDER

THEPAYMENT 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)

AN EMPLOYEE IN THE FOLLOWING

CASES ISENTITLED TO BONUS
(1)
(2)

(3)

A temporary workman on the basis of total

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

(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.

(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 bonusExa:
(Mathuradas Kani Vs. L.A. Tribunal AIR (1958)

Q-1 IS A SEASONAL WORKER

ENTITLED TOGET 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.

Q-2 WHAT IS THE MEANING

OFCUSTOMARY 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.

Q-3 IS OPEN TO THE EMPLOYER TO PAY

BONUSBASED ON PRODUCTION OR
PRODUCTIVITY?

If 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}

Q-4 ARE THE NEWLY SET UP

ESTABLISHMENTSEXEMPTED FROM
PAYING BONUS TO THEIREMPLOYEES?

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}

Q-5. IS THE EMPLOYER REQUIRED TO

MAINTAINANY 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.

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}

BIBLIOGRAPHY
Industry & labor law By Sanjeev Kapoor
Labour and industry Laws by Mishra S.N.