The Payment of the Bonus Act, 1965 provides for payment of bonus to employees employed in certain establishments based on its profits or based on production or productivity. It extends to the whole of India and it imposes a legal responsibility upon the employer of every establishment covered under the Act to pay the bonus to employees and to prescribe the minimum and maximum percentage of bonus.

Applicability of the Act

The Payment of Bonus Act applies to the establishments which fall under any of the below listed:

  • It applies to any factory or establishment which had 20 or more workers employed on any day during the accounting year.
  • The act does not apply to non-profit making organizations.
  • It does not apply to establishments such as LIC, hospitals which are excluded under Section 32.
  • It does not apply to establishments where employees have signed an agreement with the employer.

It does not apply to establishments exempted by the appropriate government like sick units.

Eligibility for Bonus

Every employee shall be entitled to a bonus in an accounting year, under the provisions of this Act, provided that:

  • The employee has worked in the establishment for at least 30 working days in that year.
  • An employee receiving wages or salary up to Rs. 21,000/- per month.
  • The employee engaged in any work whether skilled, unskilled, supervisory, managerial, etc.

Disqualification for Bonus

Under this Act, an employee will be disqualified from receiving bonus, if he is terminated from service for –

(a) Fraud; or

(b) Riotous or disorderly conduct while on the premises of the establishment; or

(c) Theft, sabotage, or misappropriation of any property of the establishment.

Payment of Minimum and Maximum Bonus

 As per the provisions of Section 10 of the Act, every employer shall be bound to pay:

  • The minimum bonus at the rate of 8.33% of the salary or wages earned during the year, or
  • One hundred rupees, whichever is higher,

whether the employer has any allocable surplus or not in that accounting year.

Note:  In the case of employees below 15 years the above sum of one hundred rupees substituted by sixty rupees.

  • The maximum bonus is 20% of the salary or wages earned by the employee during the accounting year.

The time limit for Payment of Bonus

Under this Act, the employee by way of bonus shall be paid in cash by his employer –

(a) Under Section 22, if any dispute regarding payment of bonus pending before any authority, within a month from the date on which the award becomes enforceable or the settlement comes into operation, in respect of such dispute;

(b) in any other case, within eight months from the closure of the accounting year.

Note: The appropriate Government or authority, upon an application, moved by the employer and for sufficient reasons, by order, extended the time of eight months as it thinks fit; so, however, that the total time extended shall not, in any case, exceed two years.

Powers of Inspector

As per Section 27 of the Act, the appropriate government appoints Inspectors for this Act after notification in the official gazette. Following are the powers provided to the inspector appointed under this Act:

  •  Require an employer to furnish the necessary information.
  •  Do visit any establishment during the working hours.
  • Make an order to produce documents and examine the same.
  • Take copies & extracts from the records.
  • To examine & enquire the employers, his agent or servant, or any other person found in charge of the establishment.
  • And execute any other powers prescribed by the Act, if required.

Recovery of Bonus Due

1.   If any bonus is due to an employee, an employee or any other person authorized by him can make an application to the appropriate authority for the recovery of the due bonus.

2.    If the government is satisfied that money is due to an employee by way of a bonus, it shall issue a certificate for that amount to the collector who then recovers the money.

3.    Such an application needs to be made within one year from the date on which the bonus amount became due to the employee.

4.    However, such an application may be entertained after a year if the applicant provides that there was sufficient cause for not making the application within time.

Offences and Penalties

  1. If any person contravenes:
  • the provisions of the Act or rules made thereunder or the penalty is imprisonment up to 6 months, or fine up to Rs.1000, or both.
  • Fails to comply with the directions or requisitions made under this act,

he shall be imprisoned up to 6 months, or fine up to Rs.1000, or both.

  • In case of offences by companies, firms, body corporate or association of individuals, its director, partner or a principal officer responsible for the conduct of its business, as the case may be, shall be deemed to be guilty of that offence and punished accordingly, unless the person concerned proves that the offence was committed without his knowledge or that he exercised all due diligence.

-Mohit Goyal
Associate at Law Offices of Kr. Vivek Tanwar, Advocate & Associates

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