In this article I will speak about the Payment of Bonus Act, 1965 which is a statutory benefit for the employees and does not cover any performance linked incentive, bonus or commission. It is a Statutory binding for the Employers to pay Bonus to the Employees covered under the Act.
The Last Amendment was made on 1st January,2016 with the applicability effective retrospectively from 1st January,2014.
The Act extends to the whole of India and is applicable to every factory (as defined under Factories Act) and to every establishment wherein 20 or more workmen are employed on any day during the accounting year.
Central/State Government can however, extend its provisions to any establishment employing less than 20 but more than 10 persons.
Even part time employees and employees working in various branches and places of the same organization are to be covered under the Act.
Central and State Government both administer through an Inspector appointed by them.
Every employee receiving salary or wages upto Rs 21,000/- per month (Basic+ DA) is entitled to bonus for every accounting year, if he has worked for atleast 30 working days in that year.
An employee shall be deemed to have worked when:-
He has laid off under agreement.
He has been on leave with salary or wage.
He has been absent due to injury suffered during the course of employment.
The employee is on maternity leave with wages/salary.
Employees of General Insurance Companies, LIC, Central/State Government Establishment, Universities, Hospitals, Educational Institutions, Social Welfare Institutions, Red Cross Society are exempted from the Bonus Act. However they can be paid Ex-Gratia payment instead.
Minimum bonus which an employer is required to pay even if he suffers losses during the accounting year is:
8.33% of the Salary or Wages during the accounting year, or
Rs 100 in case of employees above 15 years of age, at the beginning of the accounting year, whichever is higher.
If an employee has not worked for all the working days in an accounting year, the minimum bonus payable to him for that year shall be proportionately reduced.
Maximum bonus which can be paid to an employee should not exceed 20% of such salary/ wages during an accounting year.
Time Limit for Payment of Bonus
Bonus should be paid within 8 months from the close of the accounting year.
Forfeiture of Bonus
An employee is not eligible for bonus if under the Act, if he/she is dismissed from service for:-
Bonus in case of New Establishment
In the first 5 accounting years following the year in which the employer begins to sell his goods or render services, bonus is payable only in respect of the accounting year, in which employer derives profits.
Calculation of Bonus
For the purpose of calculation of bonus the salary/wages has been capped at Rs 7,000/- which means even when you earn more than Rs 7,000/- per month or Minimum Wage as per schedule, whichever is higher your Bonus will be calculated at the capped salary/wage only.
On the basis of the Wage Ceiling prescribed under the Bonus Act.
Bonus @ 8.33% :- Rs 7,000*12 : Rs 84,000/- *8.33% = Rs 7,000/-
Bonus @ 20% :- Rs 7,000*12 : Rs 84000/- *20% = Rs 16,800/-
Please note, in the States where the Minimum Wage as per schedule is higher than the prescribed rate under the Bonus Act, the Bonus will be calculated on the higher of the two. This implies that Bonus may vary from State to State depending on the Minimum Wage rate set by the respective State.