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 Payment of Bonus

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| Brief | FAQs |           THE PAYMENT OF BONUS ACT, 1965


  

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

 

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).

 

It is to be noted that employees drawing salary or wage exceeding Rs. 10000.00 per month are not entitled to get any bonus under the Act. (w.e.f. 1 April 2006)

  

CHECKLIST

Applicability of Act

 

Every factory where in 10 or more persons are employed with the aid of power or an establishment in which 20 or more persons are employed without the aid of power on any day during an accounting year

 

Establishment

 

Establishment includes Departments, undertakings and branches, etc.

 

 

 

 

 

 

 

 

Computation of available surplus

 

a. Income taxes and direct taxes as payable.

b. Depreciation as per section 32 of Income Tax Act.

c. Development rebate, investment or development allowance. {Section 5}

 

Components of Bonus

 

Salary or wages includes dearness allowance but no other allowances e.g. overtime, house rent, incentive or commission. {Section 2(21)}

 

Separate establishment

 

If profit and loss accounts are prepared and maintained in respect of any such department or undertaking or branch, then such department or undertaking or branch is treated as a separate establishment. {Section 3}

 

 

 

 

 

 

 

 

Disqualification & Deduction of Bonus

 

On dismissal of an employee for;

  • Fraud; or

  • riotous or violent behavior while in the premises of the establishment; or

  • theft, misappropriation or sabotage of any property of the establishment or

  • Misconduct of causing financial loss to the Employer to the extend that bonus can be deducted for that year {Section 9 & 18}

 

Computation of gross profit

 

For banking company, as per First Schedule.

 

Others, as per Second Schedule {Section 4}

 

 

 

 

 

 

 

 

Eligibility of Bonus

 

An employee will be entitled only when he has worked for 30 working days in that year. {Section 8}

 

Payment of Minimum Bonus

 

8.33% of the salary or Rs.100 (on completion of 5 years after 1st Accounting year even if there is no profit) {Section 10}

 

Eligible Employees

 

Employees drawing wages upto Rs.10000.00 per month or less.

 

For calculation purposes Rs.3500.00 per month maximum will be taken even if an employee is drawing upto Rs.10000 per month. {Section 12}

 

 

 

  

  

 

  

Time Limit for Payment of Bonus

 

Within 8 months from the close of accounting year {Section 19}

 

Set-off and Set-on

 

As per Schedule IV

{Section 15}

 

 

 

 

 

  

 

  

 

Maintenance of Registers and Records etc. 
  • A register showing the computation of the allocable surplus referred to in clause (4) of section 2, in form A.

  • A register showing the set-on and set-off of the allocable surplus, under section 15, in form B.

  • A register showing the details of the amount of bonus due to each of the employees, the deductions under section 17 and 18 and the amount actually disbursed, in form C. {Section 26 Rule 4}

 

 

 

 

 

 

 

 

Act not applicable to certain employees of Life Insurance Corporation, General Insurance, Dockyards, Red Cross, Universities & Educational Institutions, Chambers of Commerce, Social Welfare Institutions, Building Contractors, etc. {Section 32}

 

 

 

 

 

 

 

 

PENALTY

 

For contravention of any provision of the Act or the Rule, imprisonment upto 6 months or with fine upto Rs.1000 {Section 28}

 


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