Payment of Bonus Act, 1965

Introduction
The term “bonus” is not defined in the Payment of Bonus Act, 1965. Webster International
Dictionary defines bonus as “something given in addition to what is ordinarily received by
or strictly due to the recipient. The purpose of payment of bonus is to bridge the gap
between wages paid and ideal of a living wage. The Payment of Bonus Act, 1965 applies
to every factory as defined under the Factories Act, 1948; and every other establishment in
which twenty or more persons are employed on any day during an accounting year.
However, the Government may, after giving two months’ notification in the Official
Gazette, make the Act applicable to any factory or establishment employing less than
twenty but not less than ten persons. An employee is entitled to be paid by his employer a
bonus in an accounting year subjected to the condition that he/she has worked for not less
than 30 working days of that year. An employer shall pay minimum bonus at the rate of
8.33% of the salary or wages earned by an employee in an year or one hundred rupees,
whichever is higher.
Object and scope of the act
The object of the Act is to provide for the payment of bonus to persons employed in certain
establishments and for matters connected therewith. In the prominent case of Jalan
Trading Co. (Pvt.) Ltd. v. Mill Mazdor Sabha, AIR 1967
, that the “object of the Act
being to maintain peace and harmony between labour and capital by allowing the
employees to share the prosperity of the establishment and prescribing the maximum and
minimum rates of bonus together with the scheme of “set-off” and “set on” not only
secures the right of labour to share in the profits but also ensures a reasonable degree of
uniformity”.
Applicability of the act
According to Section 1(2), the Act extends to the whole of India, and as per Section 1(3)
the Act 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. Provided that the appropriate Government may, after giving not
less than two months notice of its intention so to do, by notification in the Official Gazette
apply the provisions of this Act with effect from such accounting year as may be specified
in the notification to any establishment including an establishment being a factory within
the meaning of sub-clause (i) of clause (m) of Section 2 of the Factories Act, 1948
employing such number of persons less than twenty as may be specified in the notification;
so, however, that the number of persons so specified shall in no case be less than ten.
The Act does not apply to the following classes of employees:
• Employees employed in:
• Life Insurance Corporation of India
• Industry carried on or under the authority of any department of Central Government
or a State Government or a Local Authority.
• Indian Red Cross Society or any other institution of like nature including its
branches;
• Universities and other educational institutions;
• Hospital, Chambers of Commerce and Social Welfare Institutions established not
for purposes of profits;
• Employed through contractors on building operations;
• Reserve Bank of India;
• Industrial Finance Corporation of India, Deposit Insurance Corporation and other
financial corporations being set up financially assisted by the Government, and
Unit Trust of India.
Eligibility for bonus payment
Every employee shall be entitled to be paid by his employer in an accounting year, bonus,
in accordance wit the provisions of the Act, provided he has worked in the establishment
for not less than thirty working days in that year. (Section 8)
Disqualification for bonus
An employee shall be disqualified from receiving bonus under this Act, if he is dismissed
from service for:
(a) fraud; or
(b) riotous or violent behaviour while on the premises or the establishment; or
(c) theft, misappropriation or sabotage of any property of the establishment. (Section 9)
Payment of Minimum bonus
Section 10 states that subject to the other provisions of this Act, every employer shall be
bound to pay to every employee in respect of any accounting year a minimum bonus which
shall be 8.33 per cent of the salary or wage earned by the employee during the accounting
year or one hundred rupees whichever is higher, whether or not the employer has any
allocable surplus in the accounting year
Provided that where an employee has not completed fifteen years of age at the beginning
of the accounting year, the provisions of this Section stall have effect in relation to such
employee as if for the words one hundred rupees the words sixty rupees were substituted.
Section 10 of the Act is not violative of Articles 19 and 301 of the Constitution. Even if the
employer suffers losses during the accounting year, he is bound to pay minimum bonus as
prescribed by Section 10 (State v. Sardar Singh Majithia (1979)
Maximum Bonus
(1) Where in respect of any accounting year referred to in Section 10, the allocable surplus
exceeds the amount of minimum bonus payable to the employees under that section, 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 wages.
(2) In computing the allocable surplus under this Section, the amount set on or the amount
set off under the provisions of Section 15 shall be taken into account in accordance with
the provisions of that Section. (Section 11)

Proportionate reduction in bonus in certain cases
Where an employee has not worked for all the working days in an accounting year, the
minimum bonus of one hundred rupees or, as the case may be, of sixty rupees, if such
bonus is higher than 8.33 per cent of his salary age for the days he had worked in that
accounting year, shall be proportionately reduced. (Section 13)
Computation of number of working days
For the purposes of Section 13, an employee shall be deemed to have worked in an
establishment in any accounting year also on the days on which:
(a) he has been laid off under an agreement or as permitted by standing orders under the
Industrial Employment (Standing Orders) Act, 1946 or under the Industrial Disputes Act,
1947 or under any other law applicable to the establishment;
(b) he has been on leave with salary or wage;
(c) he has been absent due to temporary disablement caused by accident arising out of and
in the course of his employment; and
(d) the employee has been on maternity leave with salary or wage, during the accounting
year, (Section 14)
Time limit for payment of bonus
(a) In case of dispute regarding payment of bonus pending before any authority under
Section 22, all amounts payable to an employee by way of bonus under this Act shall be
paid in cash by his employer, within a month from the date from which the award becomes
enforceable or the settlement comes into operation, in respect of such dispute;
(b) In any other case, the bonus should be paid within a period of eight months from-the
close of the accounting year.
Conclusion
The Payment of Bonus Act of 1965 aims to legalise the practice of various establishments
paying bonuses. It provides a mechanism for calculating bonus based on profit and
performance. It allows workers to make more money than the minimum wage or salary.
This Act establishes various procedures for different types of businesses, such as banks and
government agencies, as well as businesses that are not corporations or firms. This Act also
establishes a rigorous redress process in addition to the procedure.

References

1- Industrial Labour and General Laws by The Institute of Company Secretaries of India.

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