Payment of Bonus act

Bonus is a reward that is paid to an employee for his good work towards the organisation.
The basic objective to give bonus is to share the profit earned by the organisation amongst
the employees and staff members. In India there is a principle law relating to this procedure
of payment of bonus to the employees and that principle law is named as Payment of Bonus
Act, 1965.

The Payment of Bonus Act applies to every factory and establishment employing not less
than 20 persons on any day during the accounting year. The establishments covered under
the Act shall continue to pay bonus even if the number of employees fall below 20
subsequently.

Eligibility: Every employee not drawing salary/wages beyond Rs. 10,000 per month who
has worked for not less than 30 days in an accounting year, shall be eligible for bonus for
minimum of 8.33% of the salary/wages even if there is loss in the establishment whereas a
maximum of 20% of the employee’s salary/wages is payable as bonus in an accounting
year. However, in case of the employees whose salary/wages range between Rs. 3500 to
Rs. 10,000 per month for the purpose of payment of bonus, their salaries/wages would be
deemed to be Rs. 3500.

There are provisions and benefits for newly formed establishments as well. As per these
provisions/benefits, the first five accounting years following the accounting year in which
the employer sells goods/renders services, bonus is payable only in respect of the
accounting year, in which profits are made but the provisions of set on and set off would not
apply.

Applicability: The Act is applicable in whole of India where 10 or more workers are
working, or were working on any day of the preceding 12 months with the aid of power. Or
whereon 20 or more workers are working or were working on any day of preceding 12
months without the aid of power.

Calculation of bonus: Salary/wages and dearness allowance (DA) are included while
calculating bonus. However, other allowances such as over-time, house rent, incentive or
commission are not included.

Forfeiture of Bonus: An employee who is dismissed from service on the grounds of fraud,
riotous or violent behaviour at the premises of the establishment or for the theft,
misappropriation or sabotage of any of the property of the establishment as mentioned in
the Act. This shall not only disqualify him from receiving the bonus for the accounting year
in which he was dismissed but also for the past years which were remained unpaid to him.

Time limit for payment of bonus: It is mentioned in the Act that all amounts payable to
an employee by the way of bonus are to be paid in cash. It is also mentioned that within 8
months from the close of the accounting year the bonus should be paid to the employees.
In exception to where there is dispute regarding payment of bonus pending before an
authority (Under Industrial Disputes Act) within 1 month from the date on which the award
becomes enforceable or settlement comes into operation, in respect of such dispute.

There is a proposed amendment in the Payment of Bonus Act in the year 2010, but which is
still under proposal and has not come into force. The amendment bill is known as “The
Payment of Bonus (Amendment) Bill, 2010” and will come into force on a date when Central
Government may notify it by official gazette.