Guidance on Payment of Bonus Act, 1965 R/w Payment of Bonus Rules, 1975
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.
1. Application of the Act:
It shall apply to;
a) Every factory; and
b) Every other establishment in which twenty or more persons are employed on any day during an accounting year.
2. Important terms:
a) ”accounting year” means –
i. In relation to a company, the period in respect of which any profit and loss account of the company laid before it in annual general meeting is made up, whether that period is a year or not.
ii. In any other case, the year commencing on the 1st day of April.
b) Employee –
“employee” means any person (other than an apprentice) employed on a salary or wage not exceeding twenty-one thousand rupees per mensem in any industry to do any skilled or unskilled, manual, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of employment be express or implied;
c) Employer includes –
in relation to any other establishment, the person who, or the authority which, has the ultimate control over the affairs of the establishment and where the said affairs are entrusted to a manager, managing director or managing agent, such manager, managing director or managing agent.
An employee under the Act means any person other than apprentice engaged for hire/reward whether the terms of employment be express or implied and includes exceeding Rs. 21,000 per month who has worked for not less than 30 days in an accounting year, shall be eligible for bonus for a 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 supervisor/managerial and administrative employees drawing salary/wages not salary/wages is payable as bonus in an accounting year.
d) Salary or Wage –
all remuneration (other than remuneration in respect of over-time work) capable of being expressed in terms of money, which would, if the terms of employment, express or implied, were fulfilled, be payable to an employee in respect of his employment or of work done in such employment and includes dearness allowance (that is to say, all cash payments, by whatever name called, paid to an employee on account of a rise in the cost of living), but does not include —
i. any other allowance which the employee is for the time being entitled to;
ii. the value of any house accommodation or of supply of light, water, medical attendance or other amenity or of any service or of any concessional supply of food grains or other article;
iii. any travelling concessions;
iv. any bonus (including incentive, production and attendance bonus);
v. any contribution paid of payable by the employer to any pension fund or provident fund or for the benefit of the employee under any law for the time being in force;
vi. any retrenchment compensation or any gratuity or other retirement benefit payable to the employee or any ex gratia payment made to him;
vii. any commission payable to the employees.
a. Salary or wage means all remuneration capable of being expressed in terms of money, which would, if the terms of employment, express or implied, were fulfilled. The said remuneration is payable to an employee in respect of his employment. It also includes dearness allowance that is to say, all cash payments by whatever name called, paid to an employee on account of a rise in the cost of living. Dearness allowance is a part and parcel of wages but many other allowances like family allowance, house rent allowance, ad-hoc and tiffin allowances have been specifically held to be not in the nature of dearness allowance, hence no bonus will be payable on such allowances; Scindia Steam Navigation Co. Ltd. v. Scindia Employees Union, 1983 (2) LLN 63.
b. With respect to commission payable to an employee: Section 2(21) of the Payment of Bonus Act clearly defines ‘salary’ or ‘wages’. Its opening provision includes within it all remunerations (other than the remuneration in case of overtime work) capable of being expressed in terms of money, which would, if the terms of employment, express or implied, were fulfilled, be payable to an employee in respect of his employment and includes dearness allowance, yet in express terms, the definition does not include any commission payable to the employee vide clause (vii) of section 2(21); All India Voltas and Volkart Employees Federation, Bombay v. Voltas Ltd., 41 FJR 409: 1973 Lab IC 645: 1972 I LLJ 326.
3. In case establishment has departments, undertaking and branches:
Cases where a separate balance sheet and profit and loss account are prepared and maintained in respect of any such department or branch or undertaking, then, such department or undertaking or branch shall be treated as a separate establishment for the purpose of the computation of bonus unless such department or undertaking or branch was, immediately before the commencement of that accounting year treated as part of the establishment for the purpose of computation of bonus.
a. Salary All departments/branches are to be the part of same establishment for Bonus Act when no record was produced; Workmen of Punjab State Cooperative Milk Producers Federation Ltd through Union v. Managing Director, Punjab State Co-operative Milk Producers Federation Ltd., Chandigarh, 2016 LLR 1171 (P&H HC).
b. For calculation of bonus, the departments and branches, having separate balance sheets, are to be treated independently; India Tourism Development Corporation, Madras v. General Secretary, All India ITDC Employees’ Union, 2011 LLR 272 (Mad. HC).
4. Eligibility and disqualification of bonus:
|Every employee shall be entitled to receive bonus, in accordance with the provisions of the act, if he has worked for not less than 30 working days in that year.||Employee shall be disqualified from receiving bonus, if he’s dismissed from service for;
a. Fraud; or
b. Riotous or violent behavior while on the premises.
c. Theft, misappropriation or sabotage of any property.
5. Payment of bonus:
|8.33 % of the salary or wage earned by the employee during the accounting year, or
One hundred rupees only, whichever is higher.
(whether or not the employer has any allocable surplus in the accounting year)
|Where in respect of an accounting year, allocable surplus > amount of minimum bonus payable
the employer shall, in lieu of such minimum bonus, 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 twenty per cent. of such salary or wage.
The High Court held that where an establishment may not be making profits, Section 10 of the Act mandates payment of minimum bonus @ 8.33 per cent of the earned wages during the whole of the financial year. Where the allocable surplus exceeds the amount of minimum bonus payable to the employees under Section 10 of the Act, the employer shall be bound to pay bonus in that accounting year in proportion to salary during that accounting year subject to maximum of 20% of the earned wages in that year; J & K State Road Transport Corporation v. Tarlochan Singh and Others, 2019 LLR 622 (J&K HC).
6. Calculation of bonus:
|Scheduled employment||Non-schedule employment|
|Rs. 7000, or
(whichever is higher per mensem)
|To calculate bonus, wages has to be presumed Rs. 7,000 per month.
(irrespective of the fact that he may be drawing wages more than seven thousand rupees or less than seven thousand rupees per month)
a. An ‘employee’ under the Act means any person other than apprentice, engaged for hire/reward whether the terms of employment be express or implied and includes supervisors/managerial and administrative employees drawing salary/wages not exceeding Rs. 21,000 per month.
b. Every employee not drawing salary/wages beyond Rs. 21,000 per month who has worked for not less than 30 days in an accounting year, shall be eligible for bonus for a 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.
c. However, in case of the employees’ salary/wage range of Rs. 7,000 to Rs. 21,000 per month for the purpose of payment of bonus, their salaries/wages would be deemed to be Rs. 7,000 per month.
7. Computation of working days:
The employee shall be deemed to have worked in an establishment in an accounting year also on the days on which;
a. He has been laid off under an agreement.
b. He has been on leave with salary or wages.
c. Absent due to temporary disablement.
d. The employee has been on maternity leave.
8. Interim bonus:
Where in any accounting year;
a. Employer has paid customary bonus or puja bonus; or
b. Paid part of the bonus payable under the act before the due date
then, the employer shall be entitled to deduct the amount of bonus so paid from the amount of bonus payable by him to the employee under this Act in respect of that accounting year and the employee shall be entitled to receive only the balance.
9. Time limit for payment of bonus:
|In case of dispute||Other case|
Within a month from the date on which award becomes enforceable or settlement comes into operation.
|Within a period of eight months from the close of the accounting year.|
10. Compliance requirement:
Maintenance of register
|Name of the register||Particulars|
|Form A||Register showing the computation of the allocable surplus, as referred in clause (4) of section 2.|
|Form B||Register showing the set-on and set off of the allocable surplus, as referred in section 15.|
|Form C||Register showing the details of the amount of bonus due to each of the employees, the deductions under sections 17 and 18 and the amount actually disbursed|
11. Annual return:
|Name of the form||Periodicity||Timeline|
|Form D||Annual||Within 30 days after the expiry of the time limit specified in section 19 (within eight months from the close of the accounting year) for payment of bonus.|
Frequently Asked Question (FAQs)
Q.1 Bonus by principal employer to employees engaged through contractor:
Q.2 Uniformity in Head office and Branch office:
Q.3 Ex- gratia cannot be adjusted against bonus (as per the act):
As per several court rulings, payment of ex-gratia cannot be adjusted against the statutory bonus as required under the Act.
Q.4 Bonus as a part of CTC (if paid on monthly basis):
Q.5 Bonus in case of maternity leaves;
Sub-clause (d) of section 14 of the Payment of Bonus Act provides that for the purpose of section 13 pertaining to proportionate reduction in bonus in certain cases, the employee who has been on maternity leave with salary, will be treated as if she is in the employment hence bonus will be payable.