Labour Law

An overview on Payment of Bonus Act,1989

1. Payment of Bonus
Act, 1965
By Krupa Gandhi

2. INTRODUCTION
Historical Background
Objectives
Scope and Application of the
Act
Powers
Eligibility for Bonus
Payment of Bonus
Disqualificationof Bonus

3. HISTORICAL BACKGROUND
•Bonus is a cash payment made to employees in addition to wages.
•The history of practicing payment of bonus in India originated in
1917 in a Textile industry. It was known as ‘war bonus’ because an
increment in payment of wages was allowed owing to war conditions.
•After 1917, certain cases of industrial disputes also put the demand
of payment of bonus. (K. S Balan and ors. Vs State of Kerala 1988)
•In 1950, the famous case of Mill owners association Vs Rastriya Mill
Mazdoor Sangh laid down a full bench formula for the determination
of Bonus.
•The full bench formula provided that, since both labour and capital
contributes in the earnings of any industrial concern, the labour
should get some benefit if there was a surplus left deducting
necessary charges.

4. CONTD…
•It also provided which charges are to be deducted priorly.
•It is also presumed that afterthe deduction of below mentioned
charges, whatever surplus is left, it should be given to workmen on
equitable basis.
Return on paid up capital
(6% rate)
Return on working capital
(2-4 %)
Income tax
Depreciation worked on
notional basis

5. CONTD…
•However, Labour unions were not satisfied with the full bench
formula as it did not provide any easy method for computation of
bonusandotherprovisions.
•Therefore, a Tripartite commission was set up by the government in
1961. After considering the suggestions from the commission,
Payment of Bonus Act came into existence in 1965 containing all the
necessary provision with reference to issues of the workmen.
•Under this act, the payment of bonus became a statutory obligation
that was imposed upon all the employers of an establishment.

6. OBJECTIVES
To impose a statutory liability upon an employer of every establishment
To define the principle of payment of bonus
To provide for payment of maximum and minimum bonus
To provide machinery for enforcement of the liability for payment of
bonus
To link the payment of bonus with the formula of ‘set-off and set-on’

7. SCOPE & APPLICATION OF THE
ACT
•Section 1 describes applicability of the Bonus act which extends to
the whole of India.
•This act applies to every factory and establishment in which 20 or
more persons are employed during an accounting year.
•The Payment of Bonus Act does not apply to any non-profit market
organizations.
•The actisalsonotapplicable inestablishmentssuchasLICand
otherhospitals which are specifically excluded under section 32 of
the act.
•Itdoesn’tapply toestablishments where the employees have
specifically signed an agreement with the employer.
•Theactalsodoesn’tapplytoestablishments which are exempted by
the appropriate government. e.g.sickunits

8. CONTD…
•Section 32 of theactprecisely statestheclassofemployeestowhichthisact
doesn’tapply.These classes include,
Employed by Industrial finance
corporation, Deposit Insurance co.,
Unit trust of India, National
Housing bank, etc.
Employees employed by Reserve
bank of India
Employees employed by the
Industrial development bank of
India, National bank for Agriculture
and Rural development, etc.
Employees employed by Life
Insurance Corporation of India
Employees registered under any
scheme made under the Dock
Workers Act
Employees employed by the Indian
Red cross society and other
educational institutions
Employees who are employed
through contractors

9. ELIGIBILITY FOR BONUS
•Section 8 of the Payment of Bonus act talks about the criteria under
which the employees are entitled to get bonus.
•It is mentioned in thethird scheduleoftheact.
•Every employee is entitled to be paid bonus by his employer provided
that he had at least worked for 30 days in that year.
•H.PStateelectricityboardandors.VsRanjeetsingh –question of
entitlement of bonus can not be decided by the labour court.
•Everyemployeegettingwagesbelow10,000/monthiseligiblefor
bonusinthe respective accounting year.

10. PAYMENT OF BONUS
•Every employer under the Payment of Bonus Act is bound to pay all his
employee, a minimum bonus of 8.33% of the salary/ wage earned by them
during the accounting year.
•Righttominimum bonus under this act is a statutory right which lied with
the employee.However,for theenforcementofsuchright anemployeecan
fileanapplicationundertheIndustrialDisputesact.
•Section10oftheactfixestheamountofbonuspayablebyanemployerto
everyemployeefromtheallocatedsurpluswithreferenceoftheaccounting
year.
•K.M Mani Vs P.J Anthony AIR 1979
•P.kBhadra and ors. Vs State of Bihar and ors. in 2003

11. CONTD…
•Section 11 of the act states that, in any accounting year, if the
allowable surplus exceeds the amount of minimum bonus payable,
the employer is bound to pay bonus to every employee in proportion
to the salary/ wages earned by them during that accounting year.
•Employeeswhodrawssalaryupto10,000/-per month are eligible to
get bonus. But in order to calculate such bonus, an amount of 3,500/-
has to be taken into account.
•IndianCableco.VsWorkmenAIR 1972 SC 2195

12. DISQUALIFICATION OF BONUS
•Section 9 of the Payment of Bonus Act talks about the circumstances
bywhichan employee can be disqualified from getting bonus.
1.Ifanyemployeeisdismissedfrom service for fraud;
2.Or violent behavior on the establishment’s premises;
3.Ifhehas sabotaged any property of the establishment;
4.Theft,misappropriation, etc.
•Himalaya Drugco.Vs2
nd
add.labour court,Bangalore, 1986
•K.L.JPlasticsLtd.Vs labour court of Hyderabad and ors. in 2002

13. POWERS
•Under this act, if the appropriate government finds that the
provisions of establishment is not in public interest, the government
may by an official gazette pass any notification, order, etc.
•Thispowerisgivenunder section 36 of the act and iscalledasthe
power of exemption.
•SavaUdyog Vs. Jawar engineers, 2003
•The actalsoprovides certain power to the center to make rules for
the purpose of carrying it.
•Suchrulesprovidestheauthority to center tograntpermission
under clause (1) of section 2 as well as forthe preparation of
registers, records, etc.

14. CONCLUSION
Bonusisacashpaymentmadetoemployeesbytheiremployersin
additiontotheirwages/salary.The PaymentofBonusActincludesall
theprovisionswithreference madebythe tripartite commission. It
contains all the necessary sections such as, recovery of bonus,
maintenance of records, eligibility of bonus, disqualification of bonus,
payment of bonus, etc. However, a need for an effective amendments
in the act isstillthere.

15. THANK
YOU