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The Payment of Bonus Act, 1965 ( Amendment 2015 )

Compliance under The Payment of Bonus Act, 1965

Introduction
The payment of Bonus Act, 1965 aims to regulate the amount of bonus to be paid to the persons employed in establishments based on its profit and productivity. The act is applicable to the whole of India for all establishments which had twenty or more persons employed on any day during the year. An establishment in which 20 or more persons are employed on any day during an accounting year, must continue to be governed by this act, in spite of the fact that the number of persons employed therein falls below 20.
This act came in 25 September 1965, which is applicable throughout the entire Union of India. The objective of this legislation is to ensure payment of bonus to employees of certain establishments, with respect to the profits earned or the production/productivity matters concerned therewith, in the duration of a particular accounting year. This Act has been amended a number of times since its introduction in 1965. The latest of these amendments were done in 2015. . In this article, we examine the various aspects of Payment of Bonus Act in detail.
 
The Payment of Bonus Act, 1965 ( Amendment 2015 )
The Payment of Bonus Act, 1965 ( Amendment 2015 )
 
 
History of The Payment of Bonus Act, 1965
 
       1917: During the First World War, certain textile mills granted 10% of “war bonus” to the wages of the workers under their employment.
 
             1950: A full bench of Labour Appellate came up with a formula for payment of Bonus to employees.
 
            1961: At the second and third meetings of the Eighteenth Session of Standing Labour Committee (G. O.I.) held in New Delhi in March/April 1960, it was agreed that a Commission be appointed to go into the question of bonus and evolve suitable norms. A Tripartite Commission was set up by the Government of India to consider in a comprehensive manner.
 
    1965: The Government of India accepted the recommendations of the Commission subject to certain modifications. To implement these recommendations the Payment of Bonus Ordinance, 1965 was promulgated on 29th May, 1965. To replace the said Ordinance the Payment of Bonus Bill was introduced in the Parliament.
 
 
 

BONUS:The Payment of bonus act

The bonus is a reward that is paid to an employee for his good work & dedication towards the organization. The basic objective to give the bonus is to share the profit earned by the organization amongst the employees and staff members.

 
APPLICABILITY OF ACT ( Sec.1)

This Act applies to;
Ø     Every Factory
Ø     Every Establishment in which 20 or more persons are employed on any day during an accounting year
Ø     If less than 20, then this act can be applied by ‘Appropriate Government’ by way of notification in the official gazette.
Ø   Once the “The Payment of Bonus Act, 1965” is applicable, then it’s ‘Forever Applicable’ even the number of persons falls below 20.
 

Important Definitions of The Payment of Bonus Act, 1965

Employee{sec.2(13)} : An employee is any individual who is hired in any industry to do any skilled or unskilled manual, supervisory, managerial, administrative, technical, or clerical work. As per the latest amendment to this Act (2015), to be considered an employee eligible for a bonus, the persons have to earn Rs. 21,000 per month. 

Employer {Sec.2(14)} :- Employer under the scope of this Act is considered in two ways- in relation to any establishment that is a factory, or in relation to any other establishment.
Employer includes-
 
(i) in relation to an establishment which is a factory, the owner or occupier of the factory, including the agent of such owner or occupier, the legal representative of a deceased owner or occupier and where a person has been named as a manager of the factory under clause (f) of subsection (1) of section 7 of the Factories Act, 1948 (63 of 1948), the person so named; and
 
(ii) in relation to any other establishment, the person who, or the authority which, has the ultimate control over the affairs of the establishment and where the said affairs are entrusted to a manager, managing director or managing agent, such manager, managing director or managing agent.
 
Establishment in private sector {sec.2 (15)} :-  This expression means any establishment other than an establishment in public sector.

Establishment in public sector{sec.2(16)} :- means an establishment owned, controlled or managed by-

(a) a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956); (b) a corporation in which not less than forty per cent of its capital is held (whether singly or taken together) by-

 (i) the Government; or
(ii) the Reserve Bank of India; or
(iii) a corporation owned by the Government or the Reserve Bank of India;

Salary or Wage {sec.2(21)}:-  means all remuneration (other than remuneration in respect of over-time work) capable of being expressed in terms of money, which would, if the terms of employment, express or implied, were fulfilled, be payable to an employee in respect of his employment or of work done in such employment and includes dearness allowance (that is to say, all cash payments, by whatever name called, paid to an employee on account of a rise in the cost of living), but does not include-
(i)             any other allowance which the employee is for the time being entitled to;
(ii)    the value of any house accommodation or supply of light, water, medical attendance or other amenity or of any service or of any concessional supply of food grains or other articles;
(iii)         any traveling concession;
(iv)         any bonus (including incentive, production and attendance bonus);
(v)      any contribution paid or payable by the employer to any pension fund or provident fund or for the benefit of the employee under any law for the time being in force;
(vi)    any retrenchment compensation or any gratuity or other retirement benefit payable to the employee or any ex gratia payment made to him;
(vii)       any commission payable to the employee.

Explanation. – Where an employee is given in lieu of the whole or part of the salary or wage payable to him, free food allowance or free food by his employer, such food allowance or the value of such food shall, for the purpose of this clause, be deemed to from part of the salary or wage of such employee;

Allocable Surplus {Sec.2(4)}:- means-

(a) in relation to an employer, being a company 3 [(other than a banking company)] which has not made the arrangements prescribed under the Income-tax Act, 1961 for the declaration and payment within India of the dividends payable out of its profits in accordance with the provisions of section 194 of that Act, 67% of the available surplus in an accounting; year;
 (b) in any other case, 60% of such available surplus;
 
Available surplus ( Sec.5) —
The available surplus in respect of any accounting year shall be the gross profits for that year after deducting therefrom the sums referred to in section 6; 2 [Provided that the available surplus in respect of the accounting year commencing on any day 1968 and in respect of every subsequent accounting year shall be the aggregate of –

(a) the gross profits for that accounting year after deducting therefrom the sums referred to in section 6; and

(b) an amount equal to the difference between –
 (i) the direct tax, calculated in accordance with the provisions of section 7, in respect of an amount equal to the gross profits of the employer for the immediately preceding accounting year; and
(ii) the direct tax, calculated in accordance with the provisions of section 7, in respect of an amount equal to the gross profits of the employer for such preceding accounting year after deducting therefrom the amount of bonus which the employer has paid or is liable to pay to his employees in accordance with the provisions of this Act for that year.]
 
ELIGIBILITYFOR BONUS ( Sec.8)
Any employee is eligible for availing bonus if the following conditions are satisfied:
ü The employee receiving salary or wages up to Rs.21,000 per month.
ü The employee engaged in any work whether skilled, unskilled, managerial, supervisory etc. (apprentice is not included in the definition of Employee hence not entitled for Bonus)
ü The employee who have worked not less than 30 working days in the same year.

DISQUALIFICATION FOR BONUS (Sec.9)
ü An employee shall be disqualified from receiving bonus If he is dismissed from Services for:
o   Fraud; or
o   Riotous or violent behaviour while on the premises of the establishment; or
o   Theft, misappropriation or sabotage of any property of the establishment.

MINIMUM AND MAXIMUM BONUS ( Sec. 10 & 11)

 
Ø The minimum bonus will be 8.33% of the salary during the year, or
100 rupees will be given in case of employees above 15 years and 60 rupees in the case of  employees below 15 years, whichever is higher.
Ø The maximum bonus is 20% of the salary during the accounting year. 
Ø Even if the employer suffers losses during the accounting year, he is bound to pay minimum bonus.
Ø If allocable surplus exceeds minimum bonus then employer shall be bound to pay maximum bonus.
Ø If allocable surplus exceeds minimum bonus but not to the extent of maximum bonus then employer shall pay to the extent of availability of allocable surplus.
 
 
WHAT WILL BE CEILING ONSALARY OR ON WAGE

Ø If the salary or wage exceed Rs.7,000/- per month or Minimum Wages whichever is higher, it shall be taken as Rs.7,000/- or M.W. (higher amount) per month for computing Bonus.
Ø If Salary/Wages (Basic + DA) is below Rs.7000 then bonus will be calculated on the actual amount.
Ø If Salary/Wages (Basic + DA) is above Rs.7000 then the bonus will be calculated on Rs.7000.
  Examples:

§  Salary (Basic + DA) = ₹6000, Min Wages = ₹8000, Bonus will be payable on ₹6000
§  Salary (Basic + DA) = ₹6000, Min Wages = ₹6500, Bonus will be payable on ₹6000
§  Salary (Basic + DA) = ₹7200, Min Wages = ₹8000, Bonus will be payable on ₹8000
§  Salary (Basic + DA) = ₹10000, Min Wages = ₹8000, Bonus will be payable on 8000
 
 
WORKING DAYDS:

(How are the working days computed for Bonus/computation of 30 working days)
Under section 14, following days shall be deemed to be the working days of an employee and shall be counted while calculating the total working days on wgich he has been on working for purpose of bonus:_
Ø Laid off eg. employee was not given the work because of a shortage of raw material, power cut, breakdown. However, strikes and lockouts are not included.
Ø The employee during employment has taken leave with salary (Holiday leave with salary/ Paid Leave Salary included)
Ø The employee has been on maternity leave with the salary in the accounting year (Maternity Leave with salary included).
Ø The employee who has been absent due to temporary disablement during the course of employment
 
 

SPECIAL PROVISION WITH RESPECT TO NEW ESTABLISHMENT( Sec. 16)

 
ØFirst 5 Years :-
a.     Bonus is payable only in respect of an AY in which the employer derives profit.
b.    Bonus shall be calculated in accordance with the provisions of the act.
c.     The provisions od sec. 15(Set on/off of allocable Surplus) shall not apply.
Ø6th  & 7th  Yaar:-
Set on/off shall be made
Taking into account the excess/deficiency of the allocable surplus
In respect of 5th,6th and 7th AY.
Ø8th Year:-  
Sec.15 ( set on or set off  ) shall apply as it applies to any other establishment.
 
 
 
ADJUSTMENT IN BONUS PAYABLE (Sec. 17)
If in account year the employer had already paid_
·       Puja Bonus
·       Interim Bonus
·       Any Other Bonus
then, the employer shall be entitled to deduct the amount of bonus so paid from the amount of bonus payable by him to the employee under this Act in respect of that accounting year and the employee shall be entitled to receive only the balance.

DEDUCTION OF CERTAIN AMOUNT BY EMPLOYER FROM BONUS PAYABLE (Sec. 18)

Where in any accounting year, an employee is found guilty of misconduct causing financial loss to the employer, then, it shall be lawful for the employer to deduct the amount of loss from the amount of bonus payable by him to the employee under this Act in respect of that accounting year only and the employee shall be entitled to receive the balance, if any.

TIME-LIMIT OF PAYMENT OF BONUS (Sec.19)

The bonus shall be paid in CASH within a period of eight months from the close of the accounting year.
But where there is a dispute regarding the payment of bonus pending before any authority the same must be paid within a month from the date on which the award becomes enforceable or the settlement comes into operation.
 
Maintenance of register, records, etc.(Sec.26)

Every employer shall prepare and maintain such registers, records and other documents in such form and in such manner as may prescribed.

Rights of Employers

The following rights to be claimed out by the employers:
  • Right to notice any disputes relating to application or interpretation of any provision of the Act, to the Labour Court or Labour Tribunal.
  • Right to make a valid deduction from the bonus due to an employee, such as festival bonus paid and financial loss created by the misbehaviour of the workers.
  • Right to take the bonus of an employee, who has been dismissed from service for misbehaviour, violent behaviour, fraud, misappropriation or sabotage of any property of the establishment.

Rights of Employees

The following rights to be claimed out by the employees:Employee Rights
  • Right to claim bonus due under the Act and to request an application to the Government for the redemption of bonus amount which is unpaid, within one year of its being due.
  • Right to notice any dispute to the Labour Court/Tribunal.
    • Employees who are not eligible for the Payment of Bonus Act, cannot raise a dispute about the bonus under the Industrial Disputes Act.
  • Right to seek clarification and obtain information, on any item in the accounts of the establishment.
ANNUAL RETURNS:

Every employer shall send a return in Form D to the Inspector so as to reach him within 30 days after the expiry of the time limit specified in section 19 for payment of bonus.

SET ON AND SET OFF OF ALLOCABLE SURPLUS (Sec. 15)

v Where for any accounting year, the allocable surplus exceeds the amount of maximum bonus payable to the employees, then the excess shall be carried forward for being set on in the succeeding accounting year and so on up to and inclusive of the 4th accounting year. The set on is subject to a limit of 20% of the total salary or wage of the employees employed in the establishment in that accounting year.
Example:
FIRST YEAR DATA
SUBSEQUENT YEAR DATA
Allocable Surplus
100L
Allocable Surplus
NIL
Salary Wages
200L
Salary Wages
200L
Maximum Bonus
40L
Maximum Bonus
40L
Set on i.e. 100-40=60 but Restricted to 20% of Wages and Salary i.e. 200*20%
40L
Maximum Bonus to be paid due to the availability of set on
Allocable Surplus = 40 L (0+40)
   
Ø The excess allocable surplus will be carried forward to the subsequent accounting year for utilization of payment of bonus and it shall be carried forward only up to 4 accounting years. At the end of the 4th accounting year such excess shall lapse automatically.
Ø However, the amount that can be carried forward shall not exceed 20% of salaries & wages.
Ø Bonus of the current year shall be paid first out of current years profit and then the brought forward set on should be use.
Ø There may be a case where there is no available surplus or where the allocable surplus in respect of that year falls short of the amount of  minimum bonus  payable to the employee and there is no amount or sufficient amount carried forward and set on which could be utilised for the purpose of payment of minimum bonus. In such a situation minimum amount or the deficiency as the case may be shall be carried forward for being set off in the succeeding accounting year and so on up to and inclusive of the 4th accounting year.
Example:
FIRST YEAR DATA
SUBSEQUENT YEAR DATA
Allocable Surplus
NIL
Allocable Surplus
15L
Salary Wages
100L
Salary Wages
100L
Minimum Bonus
8.33L
Minimum Bonus
[Surplus 15L – 8.33L (Last year deficiency) i.e. 6.67L]
8.33L
Set off
8.33L
Set off (8.33L-6.67L)
1.66L
 
 
·  Where in any accounting year, the allocable surplus is Nil or is inadequate, minimum Bonus is to be paid.
·     The deficiency arising here shall be carried forward for set off to the subsequent accounting year.
·       It can be carried forward for 4 accounting years.
Ø Where in any accounting year, any amount has been carried forward and set on or set off under this Section, then, in calculating bonus for the succeeding accounting year, the amount of set on or set off carried forward from the earliest accounting year shall first be taken into account.


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