Compensation Management

Payment of Bonus Act 1965

Payment of Bonus Act 1965 – Bonus is a concept referring to ex gratia payment or bounty or a payment by way of gift. Normally the term bonus implies an extra payment over and above what is due to the person concerned given as a voluntary gift. Bonus also is one method of sharing of profits with the workers. However, with enactment of the Payment of Bonus Act, 1965 the concept of bonus has undergone considerable change. The obligation to pay a minimum bonus irrespective of the financial results has turned bonus into an additional statutory payment by an employer to his employees.

Objectives of Payment of Bonus Act 1965

  • To impose statutory liability upon an employer of every establishment covered by the Act to pay bonus to employees in the establishment;
  • To define the principle of payment of bonus according to the prescribed formula;
  • To provide for payment of minimum and maximum bonus and linking the payment of bonus with the scheme of ‘set-off and set- on’, and
  • To provide machinery for enforcement of the liability for payment of bonus.

Eligibility and Disqualification for Bonus

(1) Eligibility for Bonus [Section 8] – Every employee shall be entitled to be paid by his employer in an accounting year, bonus, in accordance with the provisions of the Act, provided he has worked in this establishment for not less than 30 working days in that year.

Where an employee has not worked for all the working days in an accounting year, the minimum bonus of 100 or as the case may be, of sixty rupees, if such bonus is higher than 8.33% of his salary or wage for the days he has worked in that accounting year, shall be proportionately reduced [Section 13].

(2) Disqualification for Bonus [Section 9] – An employee shall be disqualified from receiving bonus, if he is dismissed from service for –

  • Fraud;
  • Riotous or violent behaviour while on the premises of the establishment; and
  • Theft, misappropriation or sabotage of any property of the establishment.

(3) Amount of Bonus – Technically the entire allocable surplus is available for distribution of bonus. However, irrespective of the quantum of allocable surplus the Act statutorily prescribes the minimum and maximum amount of bonus payable to the employees.

(4) Payment of Minimum Bonus [Section 10] – Subject to the other provisions of this Act, every employer shall be bound to pay to every employee in respect of the accounting year commencing on any day in the year 1979 and in respect of every subsequent accounting year, a minimum bonus which shall be 8.33 per cent of the salary or wage earned by the employee during the accounting year or one hundred rupees, whichever is higher, whether or not the employer has any allocable surplus in the accounting year.

It is provided that where an employee has not completed fifteen years of age at the beginning of the accounting year, the provisions. of this section shall have effect in relation to such employee as if for the words “one hundred rupees” the words “sixty rupees” were substituted.

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