Payment of Bonus Act: Applicability and Calculation

Payment of Bonus Act: Applicability and Calculation

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Hello friends today in this post, we will discuss a very important topic Payment of Bonus Act: Eligibility, Calculation. We will also discuss the objective and applicability of the Act. The main objective of the Payment of Bonus Act is to regulate the amount of bonus payable to the employee of the establishment.

Introduction about Payment of Bonus Act

Before the commencement of this act, the government seems that the employers of the establishments are exploiting the workers of the establishment. Because of that, the staff kept getting poorer and poorer.

Results of that, the Government decided to introduce a law known as The Payment of Bonus Act, 1965.

The Payment of Bonus Act, 1965 is applicable to the whole of India including Jammu and Kashmir. The Payment of Bonus Act governs the procedure of payment of Bonus to the employee of the establishment on the basis of profits or on productivity or production.

Since we are talking all around the term Bonus, therefore we have to understand what is Bonus.

What is Bonus?

We can define the term ‘Bonus’ as a reward to the employee of the establishment for his work and dedication according to terms of the employment. The Payment of Bonus Act governs the procedure of payment of Bonus to the employee of the establishment on the basis of profits or on productivity or production.

Objective of the Payment of Bonus Act

  • To prescribe the formula for the calculation of the bonus.
  • To fix a legal responsibility upon the employers of the establishments on which this Act applies.
  • Objective to fix the maximum and minimum percentage of bonus.
  • To provide redressal mechanism.

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Proposal under Indian Contract Act

Partition under Hindu Law

Basic structure of constitution

Applicability of the Act

This Act shall apply to-

This Act applies to every factory and other establishments in which twenty or more persons are employed on any day during any accounting year.

However, this act shall not be applicable to the following class of employees under Section 32 of the payment of Bonus Act, 1965

  • This Act does not apply to the employees of insurance companies, and hospital employees.
  • Does not apply on employees of Indian Red Cross Society, universities and other educational institutions, hospitals, hospitals, established not for purposes of profit
  • This Act does not apply to the employees of any establishment which is carried on by or under the authority of any department of the State Government, Central Government or a Local authority.

Eligibility for Bonus

Every worker of the establishment, who worked for 30 or more days in an accounting year, shall be entitled to receive Bonus from his employer. Whether he is a skilled or unskilled worker and.

Every employee receiving salary or wages less than or equal to Rs.21, 000 per month. And the employee who is engaged in any work whether skilled, unskilled, managerial, supervisory etc.

Disqualification of Bonus

Notwithstanding anything contained in this Act, an employee shall be disqualified from receiving bonus under this Act, if he is dismissed from service for the reason of fraud, violent or riotous behaviour, misappropriation, theft or sabotage of any property of the establishment while on the premises of the establishment.

Number of working days

An employee shall be considered as ‘worked’ in an establishment in any Accounting year also on the days if the following conditions are satisfied-

  •  If the employee has been displaced under an agreement or as permitted by standing orders under the Industrial Disputes Act, 1947 or under the Industrial Employment (Standing Orders) Act, 1946 or under any other law, which is applicable to the establishment.
  • The employee has been on maternity leave with wage or salary, in the accounting year.
  •  He has been on leave with wage or salary.
  •  If the employee has been absent due to temporary disablement caused by accident during the course of his employment.

Payment of minimum bonus

Section 10 of the Payment of Bonus Act, 1965, state that every employer of the establishment shall be bound to pay to every employee, a minimum bonus which shall be 8.33% of the wages or salary earned by the employee during the accounting year or Rs.100, whichever is higher.

Here it should be noted that employer has to pat bonus whether he has any allocable surplus in the accounting year or not.

Further provided that where an employee has not completed 15 years of age at the beginning of the accounting year than the minimum bonus shall be Rs.60 not Rs.100.

Payment of maximum bonus

Section 11 of the Payment of Bonus Act, 1965, state that, if in respect of any accounting year referred to in section 10, the allocable surplus exceeds the amount of minimum bonus payable to the employees, the employer shall, in addition to minimum bonus, be bound to pay an amount in proportion to the wages or salary earned by the employee during the accounting year subject to a maximum 20%, of such wages or salary.

Calculation of Bonus (as per 2015 Amendments)

Every employee whose salary or wages is less than or equal to Rs.21, 000 per month shall be eligible for receiving a Bonus. Calculation of Bonus shall be as follow-

If Basic+ Dearness allowance is below Rs.7000, then the Bonus will be calculated on the actual amount of the salary.

However if Basic+ Dearness allowance is above Rs.7000, then the bonus will be calculated on Rs.7000.

Here the amount of 7000 is the threshold limit on which the employer is liable to pay bonus.

Timeline for Payment of Bonus

  • If there is any dispute regarding payment of bonus pending before Court or any appropriate authority under section 22, then bonus shall be paid within a period of a month from the date on which the award becomes enforceable or the settlement comes into operation.
  • In any other case, within a period of eight months from the closing of that accounting year.

However, the appropriate Government or such other authority as appointed by appropriate Government may grant longer time than eight-month on the application made by the employer on any reasonable ground.                                          

The amounts payable by his employer to the employee by way of bonus under shall be paid in cash only.

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