written by Khatabook | August 13, 2021

Learn About Applicability of Payment of Bonus in India

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Table of Content


It is based on profits or based on production. The Payment of Bonus Act came into force on September 25, 1965. Since then, it has undergone numerous amendments. This Act applies to the whole of India. 

The Act was created to lay down a statutory obligation on an employer of every establishment covered by the Act to pay a bonus to employees in the establishment, provide for payment of minimum and maximum bonuses and lay down principles and formulas for the calculation of bonuses.

Did you know? This Act of bonus is intended to provide for the payment of bonuses to individuals employed in particular establishments.

Bonus Act Applicability

The Payment of Bonus Act, 1965 provides for a minimum bonus of 8.33 % of wages. Unless provided otherwise, the payment of bonus act shall apply to every: 

(a) factory worker and 

(b) a worker from other establishments in which 20 or more individuals are employed. 

(c) the appropriate Government may also apply the provisions of this Act with effect from such accounting year as notified to any establishment or categories of establishments that employ persons more than 10 in number but not more than 20

(d) The provision of this Act shall also apply to certain public sector establishments. 

A part-time employee is also considered as an employee to calculate the number of employees, i.e., 20 or more.

Also Read: Salary Revision in Jobs and Recovery of Arrears

Who Does Not Come Under The Bonus Act?

The following are the categories of employees who are not included in the operation of the Act: 

  1. Those employees employed by LIC of India
  2. Employees under Merchant Shipping Act, of 1958
  3. Employees registered under the Dock Workers Act, 1948 and employed by registered employers
  4. Employees that an organisation employs under the department of the Central Government or a State Government, or a local authority
  5. Employees that are employed by- 
  • The Indian Red Cross Society or any other organisations of similar nature (including its branches) 
  • Educational institutions 
  • Institutions established not for purposes of profit
  • Employees employed by the Reserve Bank of India 
  1. Employees employed by financial and other institutions, such as             
  •  The Industrial Finance Corporation of India
  • The National Bank for Agriculture and Rural Development 
  • The Unit Trust of India
  • The Industrial Development Bank of India
  • The National Housing Bank
  • Employees of inland water transport organisations.

Eligibility of Bonus Act

Every employee shall be entitled to be paid by his employer an accounting year bonus, by the provisions of this Act, provided he has worked in the establishment for not less than 30 working days in that year.

Payment of Bonus by the Employer to the Employee

The bonus paid by the employer to the employee can be classified as the following:

Minimum Bonus

Every employer must pay to every employee in respect of the accounting year ever since the year 1979 and every consecutive accounting year, a minimum bonus which shall be

(i) Set at a percentage of 8.33 of the total salary or wage that the employee earns during the said  accounting year or 

(ii) One hundred rupees, either is higher, irrespective of whether the employer has any allocable surplus in the accounting year.

It is also to be noted that where an employee has not completed 15 years of age during the initial accounting year, the provisions of this section shall have an effecting relation to such employee. As for the words “one hundred rupees”, the words “sixty rupees” will be replaced. 

Maximum Bonus

Where in any accounting year, the allocable surplus crosses the amount of minimum bonus that is payable to the employees under that particular section. An amount in proportion to the salary or wage earned by the employee during the accounting year. 

Also Read: List of Top Highest Paid Jobs in India Salary

Time Limit of Payment of Bonus

All payments to an eligible employee by way of a bonus under this Act will be paid in cash by the employer. 

(a) when there is a dispute in regards to the payment of a bonus that is pending before any authority, if the issue is not resolved within a month from the date, then it will be enforceable, or the settlement comes into operation in respect of the such dispute

(b) in any other case, within eight months from the close of the accounting year. Provided that the Government or such authority as the appropriate may specify, upon an application made to it by the employer and for satisfactory reasons, by order, extend the said period of eight months to such further period as it thinks fit. However, the total period so extended shall not exceed two years.

Duties of an Employer

  1. Every employee must get either a minimum or maximum bonus from their employer.
  2. In Maharashtra, the bonus payments must be prepared in the form of an account payee check or by transferring the bonus amount to the employee's bank account.
  3. The employer must pay the employees  bonus within 8 months of the ending of an accounting year unless the appropriate government or authority extends the period 
  4. Every employer must also keep the following records/registers: 
  • A register of allocable surplus, 
  • A register denoting the allocable surplus that can be set on and set off under Section 15 and 
  • A register detailing the bonus paid and the deductions made under Sections 17 and 18.

Disqualification for Bonus

An employee will not be qualified to get a bonus under this Act if he is involved in any of the following:

(a) fraudulent activity or 

(b) aggressive behavior while on the workplace premises or 

(c) burglary and misappropriation of assets from workplace settings. 

Also Read: Arrears - Meaning, Calculation, Tax on Arrear Salary & More

Penalty

If any person-

(a) breaches any of the provisions of this Act or any rule or 

(b) a person to whom a direction is given under this Act fails to comply with such direction, 

shall be punishable with either prison time for a period of up to half a year or with a penalty amounting to one thousand rupees, or with both. 

Conclusion

In workplace backgrounds, a bonus comes under the compensation an employer gives to an employee in addition to their base pay or salary. The Payment of Bonus Act 1965 makes the bonus payments made by employers to employees in factories and establishments. Bonus payments are made from available surplus or allocable surplus in that particular accounting year. 
Follow Khatabook for the latest updates, news and blogs, and articles related to bonuses, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.

FAQs

Q: What is the statutory bonus as per the payment of the bonus act?

Ans:

The Payment of Bonus Act, 1965 provides a minimum bonus that is set at 8.33% of wages.

Q: Can a part-time employee be included while calculating the number of employees?

Ans:

A part-time employee is also an employee to calculate the number of employees i.e., 20 or more.

Q: What is the mode of paying a bonus to the employees?

Ans:

It is mentioned in the Act that all amounts payable to an employee by way of a bonus are to be paid in cash.

Q: What is the allocable surplus in payment of bonus in case of an employer which is not a company?

Ans:

The allocable surplus means 60% of such available surplus in the case of an employer which is not a company.

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The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.