Chapter 24payment of bonus act 19656 act

Labour law

1. “The Payment of Bonus Act, 1965’

Learning Objectives

Understand
e Applicability of the Act to all factories
and establishments.
. The eligibility for bonus E how it is to be

calculated.

. The claim for bonus & its mode of
payment

e The exemption of establishments under

the Act

2. “The Payment of Bonus Act, 1965’

Introduction

Object of the Act
Applicability
Definitions
Calculation of Bonus

Eligibility for Bonus

Amount of Bonus

3. “The Payment of Bonus Act, 1965’

Structure

24.8 Time Limit for Payment of Bonus
24.9 Claim for Bonus

24.10 Mode of Payment

24.11 Exemption

24.12 Obligations of Employers

24.13 Summary

4. “The Payment of Bonus Act, 1965’

Introduction

Central government constituted the Bonus
Commission in 1961. lts recommendations were
published tn 1964 which were accepted with slight
modifications.

The Government promulgated an ordinance
in 1965 and the Act came into force from October
1965.

Subsequently there were a number of
amendments to the Act which has forty sections and
four schedules.

5. “The Payment of Bonus Act, 1965’

Object of the Act

The object of the Act is to maintain peace and
harmony between labour capital by allowing the
employees to share in the prosperity of the
establishment reflected by the profits earned by the
contributions together from capital, management
and Labour.

6. “The Payment of Bonus Act, 1965’
Applicability

The Act applies to all factories and

establishments employing 20 or more persons on any

day during an accounting year .

Such establishment continues to be governed
by the Act notwithstanding that the number of
persons employed therein falls below 20.

Establishments also include departments,
undertaking and branches.

7. “The Payment of Bonus Act, 1965’
Definitions

Employee: includes any person Lother than
apprentice] employed on a salary or wage not
exceeding Rs. 10,000/- per month in any industry
doing any skilled or unskilled , manual,

supervisory, managerial, administrative, technical or
clerical work for hive or reward.

The term of employment may be expressed or
implied.

There must , however, be a contract of service
between the person employed and the employer.

8. “The Payment of Bonus Act, 1965’

Definitions

Accounting year:- tw relation to corporation,
the year ending on the day ow which the books §
accounts of the corporation are closed § balanced.

in relation to a company the period in respect of

which profit 8 loss account is Laid before the annual
general meeting { April 1% or March 31%)

salary or wages :- includes basic pay § DA but
not any other allowance. It excludes the value of
accommodation supplied, supply of light, water,
medical attendance , contribution to PF, Gratuity eos.

9. “The Payment of Bonus Act, 1965’

Calculation of Bonus

Unless separate profit § loss account and
balance sheet is prepared for them, all branches,
departments undertakings whether in same place or
not, be considered as parts of the main establishment

for the purpose of computation of bonus. They should
be continued to be treated as such.

Determination of gross profit is the first step
towards calculating the amount of bonus. First
schedule provides manner for calculation of gross
profits for Banks and second schedule for other cases.

10. “The Payment of Bonus Act, 1965’

Calculation of Bonus
The next step is to calculate available surplus
by arranging following deductions from gross

profit-
remuneration to partners / proprietors

a return of 8.5% on equity capital and 6% on
In reserves

depreciation under IT Act

development rebate or investment allowance
direct taxes

dividends paid or payable

11. “The Payment of Bonus Act, 1965”

Calculation of Bonus

The bonus ts to be paid from allocable surplus
which is 67% of available surplus in case of a
company and 60% tw other cases.

Eligibility for Bonus

Each employee who has worked for not less than
30 days in an accounting year is eligible for bonus .
Employee is disqualified from receipt of bonus if he is
dismissed as a result of fraud. Violent behaviour or
theft, misappropriation ete.

12. “The Payment of Bonus Act, 1965’

Amount of Bonus

Irrespective of profit or Loss or allocable surplus
each eligible employee shall be paid higher of Rs.
100/- or 8.33% of the salary earned. The maximum is
fixed at 20%.

If the salary of an employee exceeds Rs.
3,500/- per month, bonus payable to such employee
shall be calculated on Rs. 3,500/-

Proportion reduction is also to be arranged for
where the employee has not worked for all the working
days In the accounting year.

13. “The Payment of Bonus Act, 1965’

Amount of Bonus

After distribution of bonus at the maximum
rate , if any balance is Left of allocable surplus, it is
set on for and be taken into account up to fourth
accounting year.

In case of any shortage or want of allocable
surplus, the amount distributed as bonus shall be
carried forward for set off and adjusted out of the
allocable surplus. This method is described in the
fourth schedule.

14. “The Payment of Bonus Act, 1965’

Amount of Bonus

Newly set up establishments enjoy exemption
from the Act up to first six years or up to the year in
which it shows profit, whichever ts earlier.

In case any pooja bonus is paid it can be
adjusted against the statutory bonus.

tf an employee ts found guilty of misconduct
causing financial Loss to the company, employer can
deduct the loss amount from the statutory bonus.

15. “The Payment of Bonus Act, 1965’

Time Limit for payment of Bonus

The bonus shall be paid within a period of eight
months from the close of the accounting year.

tf there is a dispute, it should be paid within one
month from the date ow which the award becomes
enforceable.

The appropriate government may extend the
said period up to a maximum of two years.

16. “The Payment of Bonus Act, 1965’

Claim for Bonus

If bonus is due to an employee, employee
himself, someone ow his behalf or in case of death of
an employee his heir or assignee may make an
application for its recovery to the appropriate

government within a period of one year. tf the bonus
is payable as a result of a settlement, award or an
agreement , the government caw recover it as Land
revenue.

The disputes connected with bonus need to be raised
under IDA.

17. “The Payment of Bonus Act, 1965’

Claim for Bonus

tf the accounts of the employer have been
audited by qualified auditors L or Comptroller 8
Auditor General in case of public undertakings] the
profit § loss account and balance sheet are assumed

to be correct and employer is not required to prove
accuracy.

Employer contravening provisions of this Act
would be punished with imprisonment up to six
months or fine up to RS. 1,000/- or both.

18. “The Payment of Bonus Act, 1965’

Mode of Payment

tt is open to an employer to pay bonus linked
with production or productivity instead of bonus
based on profits. There has to be a agreement to that
effect between employer and his employees.

Employees can enter into agreement on bonus
with their employers using a formula other than the
one specified in the Act.

Provisions of the Act in respect of payment of
minimum and maximum bonus are applicable to
such agreements.

19. “The Payment of Bonus Act, 1965’

Exemption

newly set up establishments are exempted for a
period of six years or until they make profit
government institutions

RBI, Deposit Insurance Corporation, (PBL UT,

IFC, SFCS, ESIC, LIC

seamen, stevedore Labour

hospitals, educational institutions, universties
inland water transport

employees employed through contractors on
butlding operations

Ave exempted from application of this Act

20. “The Payment of Bonus Act, 1965’

obligations of Employers

1. Work out § pay annual bonus under the Act.

2. Maintain
e Register showing the computation of
allocable surplus in Form A
e Register showing set on and set off of the
allocable surplus tn Form B
e Register showing the details of the amount of
bonus due to each employee deductions there
from § amounts disbursed. Form C

3. Submit annual returns of bonus paid in Form D

21. “The Payment of Bonus Act, 1965’

Summary

The payment of bonus Act applies to all
factories § establishments employing twenty or more
persons on any day during the accounting year.

The term “employee” includes any person [other
than an apprentice] employed on a salary or wage
not exceeding Rs. 10,000/- p.m. In any industry
doing skilled, unskilled, manual, supervisory,
managerial, administrative, technical or clerical
work for hive or reward.

22. “The Payment of Bonus Act, 1965’
Summary
The bonus ís to be paíd out of the allocable

surplus. The Act imposes a statutory obligation ow
the employer to pay bonus at the minimum rate of

2.33% of the salary earned by an employee and the
maximum of 20%.

The bonus shall be paid within eight months from
closing of the accounting year.

23. “The Payment of Bonus Act, 1965’

The End!

In the next ocacion me cover chapter trenty fire on

“The Payment of Gratuity Act, 1972

Good Luck!