Tuesday, 25 November 2014

Payment Of Bonus Act, 1965

In this article I will write 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 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.

Administrative Authority

Central and State Government both administer the Act through an Inspector appointed by them.

Employees Entitled

Every employee receiving salary or wages upto Rs 10,000/- 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 been 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.
Exemption from Bonus Act

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

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

Maximum bonus which can be paid to an employee should not exceed 20% of such salary/ wages during an accounting year.
The Bonus amount should not exceed Rs 8,400/-.

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:-
  • Riotous Behaviour
  • Fraud
  • Theft
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 `3,500/- which means even when you earn more than Rs 3,500/- per month your Bonus will be calculated at the capped salary/wage only.

Bonus @ 8.33% :- (Rs 3500*12) :- Rs 42,000/- *8.33% = `3,500/-

Bonus @ 20%    :- (Rs 3500*12) :- Rs 42000/- *20% = Rs 8,400/-

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