The Payment of Bonus Act, 1965.

 

APPLICABILITY

The Act is applicable to:

  Every factory
•  Every other establishment employing 20 or more persons.

The Government can, however, apply the Act to any establishment employing less than 20 but not less than 10 persons. In Maharashtra , act is applicable to establishments employing 10 or more employees.

An establishment to which the Act applies shall continue to be governed by the Act irrespective of any fall in the number of persons employed therein.

ENTITLEMENT FOR PAYMENT OF BONUS

Every employee who is drawing a salary or wage up to Rs.10, 000 per, month and who has worked for minimum period of 30 days in a year entitled to be paid bonus.

Following to be included in and excluded from a salary or wage for the purpose of calculating bonus  

For the purpose of calculation of bonus a salary or wage includes a basic salary or wage and dearness allowance but does not include other allowances, overtime salary or wage, house rent allowance, traveling concessions, bonus, employer's contribution to provident fund, retrenchment compensation, gratuity or commission.

Is an employee entitled to get bonus on the basis of his entire salary or wage?

If an employee is drawing a salary or wages not exceeding Rs.3, 500 per month, he is entitled to get bonus on his entire salary or wage. If an employee is getting a salary or wage exceeding Rs. 3,500 per month, but not exceeding 10,000 per month, the bonus payable to him is to be calculated as if his salary or wage were Rs. 3,500 per month. An employee getting a salary or wage exceeding Rs. 10,000 per month is not entitled to get bonus.

Minimum and Maximum bonus

Minimum bonus payable by the employer to his employees every year The employer is bound to pay to his employees every year a minimum bonus of 8.33% of the salary or wage or Rs. 100, whichever is higher, whether he has any allocable surplus or not.

Maximum bonus payable by the employer to his employees in any year

When in any year the allocable surplus exceeds the amount or minimum bonus payable to the employees, the maximum bonus payable by the employer to his employees in that year is 20% of the salary or wage.

Meaning of “available surplus” and “allocable surplus”. What is the connection between allocable surplus and bonus?

Bonus payable under the Act is linked with profits. The employer has to calculate “gross profits” of his establishment in the manner specified in section 4. Then, from “gross profits” so calculated he has to deduct the sums referred to in section 6 as prior charges. The balance is called “available surplus”. A percentage of the available surplus calculated in accordance with the provisions of sub-section (4) of section 2 is called “allocable surplus.”

Where, in respect of any year the allocable surplus exceeds the amount of minimum bonus payable to the employees' the employer must pay to every employee in respect of that year bonus in proportion to the salary or wage earned by the employee during the year subject to a maximum of twenty per cent of such salary or wage.

Principle of set on and set off of allocable surplus

The principle of set on and set off of allocable surplus is as follows:

Where for any year the allocated surplus exceeds the amount of maximum bonus payable to the employees, then, the excess shall, subject to a limit of twenty per cent of the total salary or wages of the employees, be carried forward for being set on in the succeeding year and so on to be utilised for the purpose of payment of bonus.

Where for any 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, and there is no amount or sufficient amount carried forward and set on which could be utilised 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 year and so on.

Time limit for making payment of bonus to the employees

If there is no dispute about payment of bonus, bonus must be paid within a period of 8 months from the close of the accounting year.

Offence under the Act and punishment

If any person contravenes any provision of the Act or any rule made thereunder; or fails to comply with any direction given to him; he would be punished with imprisonment upto 6 months, or with fine upto Rs. 1,000, or with both.

Provision for newly set up establishments exempted from paying bonus

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 years, he has to pay bonus for that year. The provisions of set on and set off are not applicable in such cases.

Maintenance of registers under the Act

Every employer is required to maintain, in the prescribed form, the following three registers:

  A register showing the computation of the allocable surplus;
•  A register showing the set-on and set-off of the allocable surplus;
•  A register showing the details of the amount of bonus payable to each of the employees, the amount of deductions if any, and the amount actually paid.