Introduction

The Bonus Act mandates the payment of bonuses to eligible employees in certain establishments. Its primary objective is to share profits with employees and promote industrial peace. The acts covers all the factory workers and the person employed in the railways or is in contract with railways. It also includes skilled and unskilled workers, whether under the explicit or implied terms of the contract.

Applicability

The Act is applicable to

(a) Any factory employing 10 or more persons where any processing is carried out with aid of power

(b) Other establishments (established for purpose of profit) employing 20 or more persons.

The Payment of Bonus Act is not applicable on the following:

1. Life Insurance Corporation
2. Universities and other educational Institutions
3. Financial Corporations
4. The Unit Trust of India
5. The Industrial Development Bank of India
6. Institutions (including hospitals, chambers of commerce and social welfare institutions) established not for purposes of profit
7. The Indian Red Cross Society or any other institution of a like nature
8. Employees employed through contractors on building operations
9. Employees employed by the Reserve Bank of India
10. Employees employed by inland water transport establishments operating on routes passing through any other country.
11. The National Bank for Agriculture and Rural Development
12. The industrial Finance Corporation of India

As per Section 10 under the Payment of bonus act, every employer shall be bound to pay to every employee in respect of the accounting year

a. A minimum bonus which shall be 8.33 per cent. of the salary of 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:

As per Section 11: Payment of 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 wage.
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.

(21) “salary or wage” means all remuneration (other than remuneration in respect of overtime work) capable of being expressed in terms of money, which would, if the terms of employment, express or implied, were fulfilled, be payable to an employee in respect of his employment or of work done in such employment and includes dearness allowance (that is to say, all cash payments, by whatever name called, paid to an employee on account of a rise in the cost of living), but does not include—

(i) Any other allowance which the employee is for the time being entitled to;

(ii) the value of any house accommodation or of supply of light, water, medical attendance or other amenity or of any service or of any concessional supply of foodgrains or other articles;

(iii) Any travelling concession;

(iv) Any bonus (including incentive, production and attendance bonus);

(v) Any contribution paid or payable by the employer to any pension fund or provident fund or for the benefit of the employee under any law for the time being in force;

(vi) Any retrenchment compensation or any gratuity or other retirement benefit payable to the employee or any ex gratia payment made to him;

Note: Salary means: Basic Salary + Dearness Allowance

Section 12 states Calculation of bonus.—Where the salary or wage of an employee exceeds seven thousand rupees or the minimum wage for the scheduled employment, as fixed by the appropriate Government, whichever is higher per mensem, the bonus payable to such employee under section 10 or, as the case may be, under section 11, shall be calculated as if his salary or wage were Seven thousand rupees or the minimum wage for the scheduled employment, as fixed by the appropriate Government, whichever is higher per mensem.

Example The bonus will be calculated as follows:

• If salary is equal to or less than Rs. 7,000, then the bonus will be calculated on the actual amount by using the formula: Bonus= Salary x 8.33 / 100
• If salary is more than Rs. 7,000, then the bonus will be calculated on Rs. 7,000 by using the formula: Bonus= 7,000 x 8.33 /100

Payment of Bonus

Section 19: All amounts payable to an employee by way of bonus under this Act shall be paid in cash by his employer: (b) within a period of eight months from the close of the accounting year i.e. 30th November, 2024.

Annual Return under Payment of Bonus Act

Every employer shall, on or before the 1st day of February in each year, upload unified annual return in Form D on the web portal of the Central Government in the Ministry of Labour and Employment giving information as to the particulars specified in respect of the preceding year: Provided that during inspection, the inspector may require the production of accounts, books, registers and other documents maintained in electronic form or otherwise.

Conclusion

The Payment of Bonus Act, 1965 plays a crucial role in ensuring that employees receive a fair share of their company’s profits, fostering a sense of security and goodwill within the workforce. It offers an objective way to calculate the Bonus based on Profit and Productivity. It is important for both employers and employees to understand the legal requirements and entitlements to avoid conflicts and ensure compliance. The Payment of Bonus Act contributes to creating a more equitable and motivated work environment, benefiting both the employees and the overall growth of the organization.

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