THE PAYMENT OF BONUS ACT, 1965

The Payment of Bonus Act, 1965, gives to the employees a statutory right to a share in
the profits of his employer. Prior to the enactment of the Act some employees used to
get bonus but that was so if their employers were pleased to pay the same.

The Act enables the employees to get a minimum bonus equivalent to one month's
salary or wages (8.33% of annual earnings) whether the employer makes any profit or
not. But the Act also puts a ceiling on the bonus and the maximum bonus payable
under the Act is equivalent to about 2 1/2 months' salary or wage (20% of annual
earnings).

It is to be noted that employees drawing salary or wage exceeding Rs. 10000.00 per
month are not entitled to get any bonus under the Act. (w.e.f. 1 April 2006)

CHECKLIST
Applicability of Act
Establishment
Every factory where in 10 or more persons are
Establishment includes
employed with the aid of power or an establishment in
Departments, undertakings
which 20 or more persons are employed without the
and branches, etc.
aid of power on any day during an accounting year

Computation of
Separate establishment
available surplus
Components of Bonus
If profit and loss accounts
a. Income taxes and
are prepared and
direct taxes as payable. Salary or wages includes
maintained in respect of any
b. Depreciation as per dearness allowance but no
such department or
section 32 of Income other allowances e.g.
undertaking or branch, then
Tax Act. overtime, house rent,
such department or
c. Development rebate, incentive or commission.
undertaking or branch is
investment or {Section 2(21)}
treated as a separate
development
establishment. {Section 3}
allowance. {Section 5}

Disqualification & Deduction of Bonus

Computation of gross
profit
On dismissal of an employee for;
Fraud; or
For banking company, as
riotous or violent behavior while in the premises
per First Schedule.
of the establishment; or
 theft, misappropriation or sabotage of any
property of the establishment or Others, as per Second
Misconduct of causing financial loss to the Schedule {Section 4}
Employer to the extend that bonus can be
deducted for that year {Section 9 & 18}

Payment of Minimum
Eligibility of Bonus
Bonus
Eligible Employees
An employee will be
8.33% of the salary or
entitled only when he Employees drawing wages
Rs.100 (on completion of 5
has worked for 30 upto Rs.10000.00 per month
years after 1st Accounting
working days in that or less.
year even if there is no
year. {Section 8}
profit) {Section 10}
For calculation purposes
Rs.3500.00 per month
Time Limit for maximum will be taken
Payment of Bonus Set-off and Set-on even if an employee is
drawing upto Rs.10000
Within 8 months from As per Schedule IV per month. {Section 12}
the close of accounting {Section 15}
year {Section 19}

Maintenance of Registers and Records etc.

A register showing the computation of the allocable surplus referred to in
clause (4) of section 2, in form A.
A register showing the set-on and set-off of the allocable surplus, under
section 15, in form B.
A register showing the details of the amount of bonus due to each of the
employees, the deductions under section 17 and 18 and the amount actually
disbursed, in form C. {Section 26 Rule 4}

Act not applicable to certain employees of Life Insurance Corporation, General

Insurance, Dockyards, Red Cross, Universities & Educational Institutions, Chambers of
Commerce, Social Welfare Institutions, Building Contractors, etc. {Section 32}

PENALTY

For contravention of any provision of the Act or the Rule, imprisonment upto 6
months or with fine upto Rs.1000 {Section 28}