The Payment of Bonus Act, 1965

Editor’s
note: According to the Payment of Bonus
Act, eligible employees are to be paid bonus within a period of 8 months from
the close of the financial year i.e. on or before 30th November. The purpose of
this article is to make readers aware of the basic provisions of this welfare
legislation.

Introduction

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 payment was voluntary, with no vested right in the employee.
With the passing of the act, employees covered by the act had a right to Bonus.

Object

The
object of the act is to maintain peace and harmony between labour and capital
(i.e. employees & employers), by allowing the employees to share the
prosperity of the establishment reflected by the profits earned by the
contributions made by capital, management and labour.

Applicability

The
act applies to

a)  Every factory

b)  Every other establishment employing 20
(twenty) or more persons.

A
state government can, however, apply the act to any establishment employing
less than 20 but not less than 10 persons.

c)  The Government of Maharashtra by notification
dt:- 11th  April 1984 has expanded the
scope by making the same applicable, where 10 or more persons are employed in
any establishment or factory.

Once
the act applies, it shall continuously remain in force, irrespective of number
of employees falling in number i.e. once covered always covered.

 Applicability to Public Sector

A
Public sector establishment which sells any goods produced or manufactured by
it or renders any services in competition with the private sector and earns
income from such sale or services shall be covered by the act.

Eligibility

Every
employee who is drawing a salary or wages up to Rs.21,000/- per month and has
worked for a minimum period of 30 days in a particular year is entitled to get
Bonus. as per the above ceiling, all employees drawing wages  up 
to  Rs.21,000/- per  month 
shall  be  eligible for Bonus irrespective of their
grade/designation i.e. manager/part-time/casual/seasonal employee etc.(w.e.f.
01/04/2014 by Gazette Notification Dated : 1st jan, 2016)

Sum with Reference to Which Bonus is Payable

For
the purpose of calculation of Bonus Salary or Wages includes Basic Salary,
dearness allowance / Special allowance only, but does not include other
allowances such as overtime, house rent allowance, Conveyance, travelling
allowance, monthly Bonus, Contribution to Provident fund,  retrenchment compensation, Gratuity or
commission.

Amount of Bonus

An
employee who is drawing salary or wages not exceeding Rs.7,000/- per month, is
entitled to get bonus on entire salary/wages or minimum Wages, whichever is
higher.

An
employee who is drawing salary or wages between Rs.7,000/- per month and
Rs.21,000/- per month, the Bonus payable to him is to be calculated as, if his
salary or wages were Rs.7,000/- per month. An employee drawing a salary or wage
exceeding Rs.21, 000/- per month is not entitled to get Bonus as per payment of
Bonus act.

Minimum & Maximum Bonus (Limits)

The
quantum of bonus depends on allocable surplus, which is explained in the
following paragraph. An employer is bound to pay his employees every year a
minimum Bonus of @ 8.33% of the yearly salary or wage or Rs.100/- whichever is
higher, whether he has allocable surplus or not. if in any year the allocable
surplus exceeds the amount of minimum Bonus payable to the employees, the
maximum Bonus payable by the employer to his employee in that particular year
is @ 20% of the yearly salary or wages. Hence, 
Bonus  is  payable 
to  the  employee 
between 8.33% & 20% as per availability of allocable surplus. An
employer is not required to pay bonus in excess of 20% even if bonus is linked
with production or productivity.

Available
surplus & allocable surplus

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

Where
allocable surplus exceeds the amount of minimum Bonus  payable 
to  the  employee, 
the  employer  must pay to every employee in respect of that
year Bonus in proportion to the salary or wages earned by the employee during
the year subject to a maximum of 20% of such salary or wage.

What is set on & Set Off Of Allocable Surplus

Set on :-

Where
for any year the allocable surplus exceeds the amount of maximum Bonus payable
to the employees, then the excess shall (subject to limit of 20% Bonus of total
salary/wages) be carried forward for being set on in the succeeding year and so
on to be utilised for the purpose of payment of Bonus.

Set off:-

Where
for any year there is no surplus or the surplus in respect of that year falls
short of the amount of minimum Bonus payable i.e. 8.33% to employees and there
is no amount or sufficient amount carried forward and Set On which can be
utilised for the purpose of minimum Bonus, then 
such  minimum  amount 
or  the  deficiency 
as  the case may be shall be
carried forward for being Set off in succeeding year and so on.

Deductions from bonus:-

Where
in any year the employer has paid any amount to an employee as customary/pooja
bonus, then he can deduct such amount from Bonus payable to the employee for
that year.

If
any employee is found guilty of misconduct causing financial loss to the
employer, the employer can deduct the amount of loss from the amount of Bonus
payable to the employee for the year in which he was found guilty of misconduct.

Time limit for payment of bonus:-

Bonus
must be paid within a period of 8 months from the close of accounting year as
per income-tax act i.e. April to March.

If
any dispute about the payment of Bonus is pending before any authority, then
Bonus must be paid within one month from the date of award by any such
authority.

Remedy for recovery of bonus:-

If
any employer fails to pay Bonus to the employee, he can make an application for
recovery of Bonus to the competent Authority. The authority may issue a
certificate to the collector to recover the same as arrears of land revenue
i.e. by way of attachment of Property and assets. However,  the time limit for application to the
authority is one year from the date on which Bonus amount became due.

Productivity bonus :-

Bonus
paid on production or productivity or under a formula different from that under
the act can be allowed, but subject to the Provisions of the act in respect of
the payment of minimum or maximum Bonus. However, attendance bonus or any other
allowances are outside the purview of payment of Bonus act.

If an entity has a number of departments, under takings or
branches, should they be treated as separate establishments or as one composite
establishment?

If
an establishment consists of different departments or undertakings or has
branches, whether situated in the same place or in different places, unless a
separate balance-sheet and profit and loss account are prepared and   maintained  
by   such or  branches, 
they  should  be same 
establishment  for  the departments/undertakings treated  as 
parts  of  the purpose 
of  computation formula  different 
from  that  under 
the  act,  i.e. 
bonus linked with production or productivity; but subject to the
provisions of the act in respect of payment of minimum of  bonus, 
and  once  they 
are treated  as  part 
of  the and maximum bonus. Same
establishment, they should continue to be treated as such.

Is bonus payable to contractors employees

Section
32 provides that the act shall not apply to certain classes of employees.
Clause (vi) of the said section refers to “employees employed through
contractors on building operation”. This clause has been deleted by the Payment
of Bonus amendment ordinance, 2007 with retrospective effect from 1st April 2006.
The said class of employees is therefore, entitled to get april 2006. bonus
with effect from 1st April 2006.

Excluded
categories :-

Following
establishments / entities are excluded from application of the Bonus Act:

L.I.C. of India

Reserve Bank of India

Unit Trust of India

Universities & other Educational
Institutions

Any other establishments permitted by
Government for a specified period and subject to specified conditions.

Newly
set-up establishment :-

A newly set-up establishment is
exempted from paying Bonus to its employees in the first 5 (Five) years, if it
does not make any profit. If however, employer derives profit in any of the
first five years, it loses the exemption under the Act and he has to pay Bonus
for that year. The provisions of Set-On & Set-Off are not applicable in
such cases.

Employee
disqualified from receiving Bonus :-

Employee is disqualified from receiving
Bonus if he is dismissed from the service for       (A) Fraud (B) Riotous or Violent
behavior while on the premises of the establishment     (C) Theft, misappropriation or sabotage of
any property of Establishment.

Agreement
or Settlement of Bonus:-

Employees can enter into an agreement
or a settlement with their employer for granting them bonus under a formula
different from that under the Act, i.e. bonus linked with production or
productivity; but subject to the provisions of the Act in respect of payment of
minimum and maximum bonus.

Attendance
Bonus:-

As attendance bonus which was being
paid by the establishment was outside the purview of the Payment of Bonus Act,
1965. Workmen / employees of the establishment can claim the bonus payable
under the act over and above the attendance bonus

Is
a Seasonal Worker entitled to get 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 than thirty working days, he shall be entitled to get bonus.

Manner of payment of
Bonus in State of Maharashtra.

If
Bonus amount is more than Rs.3,000/- then it has to be paid by Account Payee
Cheque or by Bank transfer.

Records
to be Maintained:-

A register in “Form No. A” showing
Computation of Allocable Surplus.

A register in “Form No. B” showing
Set-On & Set-Off of the allocable surplus.

A register in “Form
No. C” showing details of the Bonus due to each of the    employee & deductions under Section 17
& 18 and the amount actually disbursed.

Submission of annual Return:-

Offences
/ Punishments:-

If any persons contravenes the
provision of the Act or any rule made there under or fails to comply with any
directions given to him he would be punished with imprisonment up to six (6)
months or with fine up to Rs.1,000/- or both.

 THE PAYMENT OF BONUS (AMENDMENT)
ACT, 2015 w.e.f  1st APRIL, 2014

(Gazette Notification Dated 1st Jan., 2016)

Theamendment
in The Payment of Bonus Act received the assent of the President on the 31st
December, 2015, and isdeemed to have come into force on 1st April 2014.

Key provisions of Amendment Act
– Eligibility of employees:

The Act
provides for enhancing Bonus calculation ceiling from the existing Rs 3,500 to
Rs7,000 per month or the Minimum wages for the Scheduled Employment whichever
is higher .

It also
enhances the eligibility limit for payment of bonus from Rs 10,000 per month to
Rs 21,000 per month.

Calculation of bonus: In regard to employees drawing
salary more than Rs. 3,500/-p.m. as per Section 12 of the Act, the bonus was
computed on a maximum salary of Rs. 3,500/=p.m.
only. Now the Amendment Act  has raised
this calculation ceiling of bonus to Rs.
7,000 per month from present from 
Rs  3,500/-  per 
month  ceiling.  Accordingly, 
the  Maximum  Bonus 
payable  to  an employee 
under  the  Payment 
of  Bonus  Act  (20% 
of  Rs.  3,500X12) 
worked  out  to  Rs.8,400/=pa. Because of the salary
ceiling being raise to Rs 7,000/= p.m. the Bonus of 20%would now become Rs. 16,800/= for the year or more if
minimum wages are more than Rs.7000/- pm.

The Act has been amended
retrospectively from 1st April 2014. In respect of the Financial Year, April 1, 2014
to 31st March 2015 Bonus was due to be paid with the close of 8 months of the
Accounting Year i.e. November 30, 2015.

Retrospective applicability
stayed

Courts in at least 8 States have already stayed the retrospective
applicability of the Amendment act referred to above.

Conclusion

The aim of this article is to make readers aware of The Payment of Bonus
Act, a welfare legislation. The same should be followed in letter and
spirit.