Payment of Bonus Act, 1965 Rules

What is Bonus

Bonus is the extra amount of payment given to employees in addition to their salary. The purpose of the Bonus is to motivate employees by sharing the profit earned by the organization.

Payment of Bonus Act, 1965

The Payment of Bonus Act, 1965 was enacted to provide for the payment of bonus to persons employed in certain establishments on the basis of profits or productivity and for the matters connected therewith.

Definitions Under Payment of Bonus Act, 1965

Accounting Year

1. For a corporation, the year ending on the day on which the books and accounts of the corporation are to be closed.
2. For a company, the period in which any profit and loss account of the company is maintained.
3. Year commencing from 1^st April, for all other cases.

Appropriate Government

1. Appropriate Government is “Central Government” for all establishments in which the appropriate Government under the Industrial Dispute Act, 1947, is the Central Government.
2. For all others, it is “State Government”.

Award

Award means an interim or a final determination of dispute under the Industrial Dispute Act, 1947.

Employee

Employee means any person (other than an apprentice) employed on a salary or wage not exceeding Rs. 21000 per month in any industry.

Salary or Wage

Salary or Wage means all remuneration (other than remuneration in respect of overtime work) capable of being expressed in terms of money and includes Dearness Allowance (DA), but DOES NOT include-

1. Any other allowance which the employee is for the time being entitled to.
2. Value of any house accommodation, supply of light, water, medical attendance etc.
3. Any travelling concession.
4. Any bonus (including incentive, production and attendance bonus).
5. Any contribution to any pension fund or provident fund.
6. Any retrenchment compensation or any gratuity or other retirement benefit.
7. Any commission payable to the employee.

However, if an employee is given in lieu of the whole or part of the salary, free food allowance or free food by his employer, such food allowance shall be deemed to form part of the salary or wage.

Applicability of Act

The Payment of Bonus Act applies to:

1. Every factory as defined under the Factories Act, 1948.
2. Every other establishment in which 20 or more persons are employed.

The Appropriate Government may, after giving 2 months’ notice make the Act applicable to any factory or establishment employing less than 20 but not less than 10 persons. The Act will remain applicable even if the number falls below 20, at a later point in time.

Eligibility For Bonus

1. Employee shall be entitled to Bonus if he is getting salary or wages less than or equal to Rs. 21000.
2. Employee shall be entitled to Bonus, provided he has worked for at least 30 working days in that year.

Here Salary or Wages means – Basic Salary + Dearness Allowance (DA)

Disqualification For Bonus

An employee shall be disqualified from receiving Bonus if he is dismissed from the service for:

1. Fraud.
2. Riotous or Violent Behaviour.
3. Theft, Misappropriation or Sabotage of any property of the establishment.

Payment of Minimum Bonus

Bonus earned by the employee in an accounting year will be:

1. Minimum 8.33% of the salary during the accounting year. OR
2. Rs. 100, whichever is higher.

If the employee is below 15 years of age, then the minimum Bonus is Rs. 60 in place of Rs. 100.

If an employee has not worked for all the working days in an accounting year, the minimum bonus shall be proportionately reduced.

The employees may enter into any special agreement with their employer for an annual bonus linked with productivity, but under no such agreement, the bonus can be less than the minimum bonus as per the Act.

Payment of Maximum Bonus

If in any accounting year, the allocable surplus exceeds the amount of minimum bonus payable to the employees, then the employer shall be bound to pay an amount in proportion to the salary subject to a maximum of 20% of salary/wage.

Component of Bonus

1. Salary or wages include only Basic and Dearness Allowance (DA) for the calculation of Bonus payment.
2. The rest of the allowances like HRA, Transport, Technical, Overtime, etc. are excluded from the calculation of Bonus payment.

Calculation of Bonus

1. The maximum ceiling limit for the calculation of the bonus is Rs. 7000.
2. For the calculation of Bonus, Fixed Minimum Wages or Maximum Ceiling Limit Rs. 7000 whichever is higher is considered.

Formula for Calculation Bonus: Salary X 8.33/100

Let us understand through an example:

Computation of Number of Working Days

Employee will be considered “Worked and Present” for days, during which he has been:

1. Laid Off.
2. On leave with salary or wage.
3. Absent due to temporary disablement caused by an accident in the course of his employment.
4. On maternity leave.

Set On and Set Off of Allocable Surplus

Set On: Where the allocable surplus exceeds the maximum bonus payable, be carried forward for being set on in the succeeding accounting year and so on up to and inclusive of the fourth accounting year to be utilised for the purpose of payment of bonus in the manner illustrated in the 4^th Schedule.

Set Off: Where there is no available surplus in respect of that, falls short of the amount of minimum bonus payable to the employees, and there is no amount of sufficient amount carried forward then, such minimum amount or the deficiency, shall be carried forward for being set off in the succeeding accounting year and so on up to and inclusive of the 4^th accounting year in the manner illustrated in the 4^th Schedule.

Set On and Set Off of Allocable Surplus for New Establishments

Where an establishment is newly set up, during the first 5 years, the bonus shall be payable only for the accounting year in which the employer derives profit. Principles of Set On and Set Off will not apply.

For the 6^th Accounting Year, principles of Set On and Set Off will apply on allocable surplus for 5^th and 6^th years.

For the 7^th Accounting Year, principles of Set On and Set Off will apply on allocable surplus for 5^th, 6^th and 7^th years.

From the 8^th Year, there are no relaxations.

An establishment shall not be deemed to be newly set up merely by reason of a change in its location, management, name or ownership.

Deduction of Certain Amounts from Bonus

If an employee is found guilty of causing financial loss to the employer, then the employer may deduct the amount of loss from the amount of bonus but in respect of that accounting year only.

Time Limit for Payment of Bonus

1. If there is a dispute regarding Payment of Bonus, within 1 month from the date of award.
2. In any other case, within a period of 8 months from the close of the accounting year.

Recovery of Bonus Due from An Employer

Where any bonus is due from his employer, the employee may make an application to the Appropriate Government for the recovery of the bonus. The Appropriate Government shall issue a certificate for that amount to the Collector who shall proceed to recover the same. The application shall be made within 1 year.

Reference of Disputes

Where any dispute arises between an Employer and his Employee with respect to the Bonus, such dispute shall be deemed to be an industrial dispute within the meaning of the Industrial Disputes Act, 1947.

Maintenance of Registers and Records

Every employer shall prepare and maintain such registers, records and other documents.

1. Form A : Allocation surplus in the format prescribed in Form A.
2. Form B : Set-on and set-off of the allowable surplus in the format prescribed in Form B.
3. Form C : Amount of bonus due to each employee in the format prescribed in Form C.
4. Form D : Every employer is required to file Annual Return of Bonus in the format prescribed in Form D to the concerned Inspector so as to reach him within 30 (thirty) days from payment of bonus to the employees for an applicable accounting year.

Annual Return of Bonus

1. Every employer needs to file the Annual Return of Bonus in the format prescribed in Form D on or before the due date.
2. Annual Return of Bonus has to be submitted within 30 days after the expiry of the time limit specified for payment of bonus, which is 8 months from the close of the financial year. (Mean the due bonus should be paid to the eligible employees by 30th November and the Annual Return of Bonus should be filed before 31st December.)
3. Form D should be submitted along with Form C with a Cover Letter to the Inspector in concern Labour Office.
4. The last date for filing the Annual Return of Bonus is 31st December.

Note: Concern Labour Office means the jurisdiction your company falls under. For example, if your Company is located in Noida then your concerned Labour Office will be Labour Office Noida Sector-3. Your Company bonus return will be filed here only.

Inspector

The appropriate Government may appoint “Inspector” for the purpose of this Act.

Penalties

Failure to comply with the provision of Act – Imprisonment of 6 months of Fine of Rs. 1000, or with both.

Amendments in The Act in 2015

The wage threshold for determining the eligibility of employees has been revised from Rs. 10000 to Rs. 21000 per month.

The calculation ceiling of Rs. 3500 has now been doubled to Rs 7000 per month or the “minimum wage for the scheduled employment”.

Exempted Certain Class of Employees

The payment of bonus act is not apply to the following class of employees:

1. Employees employed by the Life Insurance Corporation of India.
2. Seamen as defined in clause (42) of Section 3 of the Merchant Shipping Act, 1958.
3. Employees registered or listed under any scheme made under the Dock Workers (Regulation of Employment) Act, 1948 and employed by registered or listed employers.
4. Employees employed by an establishment engaged in any industry carried on by or under the authority of any department of the Central Government or a State Government or local authority.
5. Employees employed by the Indian Red Cross Society, universities, and institutions (including hospitals, chambers of commerce and social welfare institutions) established not for purposes of profit.
6. Employees employed by the Reserve Bank of India.
7. Employees employed by Industrial Finance Corporation of India, Deposit Insurance Corporation, National Bank for Agriculture and Rural, Development, Unit Trust of India, Industrial Development Bank of India, and National Housing Bank.

Forms Under Payment of Bonus Act, 1965

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