PAYMENT OF BONUS ACT – 1965
Bonus - History
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.
An Act to provide for the payment of bonus to persons employed in certain
establishments on the basis of profits or on the basis of production or
productivity and for matters connected therewith.
Short title, extent and application
It extends to the whole of India
Every other establishment in which twenty or more persons are employed on
any day during an accounting year.
Bonus – Applicability
(a) Every factory (as def. in Factories Act), & (b) Every other establishment in
which 20 or more persons (less than 20 but 10 or more if appropriate Govt.
notifies) are employed on any day subject to certain exemptions.
(b) Bonus to be paid within eight months from the expiry of the accounting
Establishments to include departments, undertakings and branches
Where an establishment consists of different departments or undertakings or
has branches, whether situated in the same place or in different places, all
such departments or undertakings or branches shall be treated as parts of the
same establishment for the purpose of computation of bonus :
Bonus - Eligibility
Every employee shall be entitled to be paid by his employer in an accounting
year, bonus, in accordance with the provisions of this Act, provided he has
worked in the establishment for not less than thirty working days in that year.
Disqualification for bonus
An employee shall be disqualified from receiving bonus under this Act :-
(a) fraud; or
(b) riotous or violent behavior while on the premises of the establishment;
(c) theft, misappropriation or sabotage of any property of the
Computation of number of working days
An employee shall be deemed to have worked in an establishment in any
accounting year also on the days on which,-
(a) he has been laid off under an agreement or as permitted by standing
orders under the Industrial Employment (Standing Orders) Act, 1946, or under
the Industrial Disputes Act, 1947, or under any other law applicable to the
(b) he has been on leave with salary or wages;
(c) he has been absent due to temporary disablement caused by accident
arising out of and in the course of his employment, and
(d) the employee has been on maternity leave with salary or wages, during the
Payment of minimum & maximum bonus
A minimum bonus which shall be 8.33 per cent of the salary or wage earned
by the employee during the accounting year.
Where in respect of any accounting year referred to in section 10, the
allocable surplus exceeds the amount of maximum bonus payable to the
employees. be bound to pay to every employee in respect of that accounting;
year bonus which shall be an amount in proportion to the salary or wage
earned by the employee during the accounting year subject to a maximum of
20 per cent, of such salary or wage.
CALCULATION OF BONUS
The method for calculation of annual bonus is as follows:
Calculate the Available Surplus.
Available Surplus =
Gross Profit – ( deduct) the following :
Depreciation admissible u/s 32 of the Income tax Act.
Available Surplus (Deductions)
Direct taxes payable for the accounting year (calculated as per Sec.7) – Sums
specified in the Third Schedule.
Direct Taxes (calculated as per Sec. 7) in respect of gross profits for the
immediately preceding accounting year.
Allocable Surplus = 60% of Available Surplus, 67% in case of foreign
Make adjustment for ‘Set-on’ and ‘Set-off’. For calculating the amount of
bonus in respect of an accounting year, allocable surplus is computed after
considering the amount of set on and set off from the previous years
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
Time-limit for payment of bonus
where there is a dispute regarding payment of bonus pending before any
authority under section 22, within a month from the date on which the award
becomes enforceable or the settlement comes into operation, in respect of such
(b)in any other case, within a period of eight months from the close of the
Recovery of bonus due from an employer(Sec-22)
Where any money is due to an employee by way of bonus from his employer
under a settlement or an award or agreement, the employee himself or any
other person authorized by him in writing in this behalf, or in the case of the
death of the employee, his assignee or heirs may, without prejudice to any
other mode of recovery, make an application to the appropriate Government
or such authority as the appropriate Government may specify in this behalf is
satisfied that any money is so due, it shall issue a certificate for that amount to
the Collector who shall proceed to recover the same in particular employee.
RIGHTS OF EMPLOYEES
Right to claim bonus payable under the Act and to make an application to the
Government, for the recovery of bonus due and unpaid, within one year of its
Right to refer any dispute to the Labour Court/Tribunal.
Employees, to whom the Payment of Bonus Act does not apply, cannot raise
a dispute regarding bonus under the Industrial Disputes Act.
Right to seek clarification and obtain information, on any item in the accounts
of the establishment
Reference of disputes under the Bonus Act
Where any dispute arises between an employer and his employees with
respect to the bonus payable under this Act or with respect to the application
of this Act to an establishment in public sector, then, such dispute shall be
deemed to be an industries dispute within the meaning of the Industrial
Disputes Act, 1947 (14 of 1947), or of any corresponding law relating to
investigation and settlement of industrial disputes in force in a State and the
provisions of that Act.
Maintenance of register, records & Inspectors
Every employer shall prepare and maintain such registers, records and other
documents in such form and in such manner as may prescribed.
The appropriate Government may, by notification on the Official Gazette,
appoint such person as it thinks fit to be Inspectors for the purposes of this Act
and may define the limits within which they shall exercise jurisdiction.
Inspectors Duties :
An Inspector appointed under sub-section (1) may, for the purpose of
ascertaining whether any of the provisions of this Act has been complied with
(a) Require an employer to furnish such information as he may consider
at any reasonable time and with such assistance, if any, as he thinks fit enter
any establishment or any premises connected therewith and require any one
found in charge thereof to produce before him for examination any accounts,
books, registers and other documents relating to the employment of persons or
the payment of salary or wage or bonus in the establishment.
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