Introduction to Payment of Bonus Act:
The Payment of Bonus Act, 1965 is a significant legislation in India that ensures the provision of bonuses to employees working in a specific establishment. The primary objective of this act is to bridge the gap between the rich and the poor by allowing employees to partake in the success of the company. It aims to distribute the benefits of a company’s prosperity equitably among its employees to foster social justice and economic equality. In India, bonus is paid on Diwali, hence it is sometimes called Diwali Bonus in most companies.
Statutory Bonus Meaning in India:
The legal requirement for employers to provide a specific amount of money to their employees, known as the statutory bonus, is governed by labour laws in various countries, including India. The Payment of Bonus Act, 1965, in India, stipulates that eligible employees must receive bonuses based on their earnings and the company’s profits. The bonus is calculated as a percentage of the employee’s salary, with minimum and maximum limits set by the Act.
Historical Context:
Prior to the implementation of the Payment of Bonus Act, the concept of bonuses lacked consistency, resulting in disparities and discontent among employees. To address this issue, the Indian Government established a Bonus Commission in 1961 to examine and propose a comprehensive bonus payment scheme. The recommendations put forth by this commission eventually led to the enactment of the Payment of Bonus Act in 1965.
For businesses, Labour laws compliance with the Bonus Act is not only a legal obligation but also a step towards building a motivated and satisfied workforce. Understanding the nuances of this Act is important to ensure that employers and employees are able to implement the benefits prescribed by labour laws in India. With periodic amendments and judicial interpretations, the law continues to evolve to reflect the changing economic landscape and workforce needs. This is a testament to the Indian Parliament’s commitment to ensure fair labour practices and promote social justice.
Objectives of the Bonus Act 1965:
The primary goal of the Payment of Bonus Act, 1965 is to grant employees a legal entitlement to receive bonuses from their employers. The act stipulates both minimum and maximum bonus amounts to be paid based on the company’s profits, ensuring that employees are entitled to a portion of the profits.
Bonus Eligibility Criteria:
- To be eligible for a bonus, employees must have completed a minimum of 30 working days during the accounting year.
- Additionally, employees who earn a salary or wage of ₹21,000 or less per month are also eligible for the bonus.
The Payment Bonus Act Applicability and Scope:
What is covered by the Payment of Bonus Act of 1965 is:
- Employees Covered: Employees drawing a salary or wage not exceeding ₹21,000 per month.
- All factories as specified by the Factories Act of 1948.
- Minimum Working Days: Employees must have worked for at least 30 working days in that year to be eligible.
The act extends to various other establishments as designated by the Government through notifications. However, it does not apply to specific categories of employees, including those in the Life Insurance Corporation, seamen, employees under dock workers’ management boards, employees in industries operated by or under the authority of any department of the Central Government or a State Government, among others.
Definitions under the Bonus Act:
An “employee” under the Payment of Bonus Act is any person (other than an apprentice) employed on a salary or wage not exceeding Rs. 21,000 per month in any industry to do any skilled or unskilled, manual, supervisory, managerial, administrative, technical, or clerical work.
An “establishment” means any place where any industry, trade, business, manufacture, or occupation is carried on. This includes factories, shops, mines, and other places where workers are employed.
“Salary or wages” includes basic pay, dearness allowance, and any other allowances, excluding other benefits such as provident fund, pension, bonus, traveling allowance, gratuity, etc
Payment of Bonus calculation:
Minimum and Maximum Bonus:
The Act specifies the minimum and maximum limits of bonus payable:
- Minimum Bonus: 8.33% of the salary or wages or Rs. 100 (whichever is higher), regardless of whether the employer has made any profit.
- Maximum Bonus: 20% of the salary or wages, provided the employer has sufficient allocable surplus.
- Allocable Surplus: Refers to 67% of the available surplus in case of a company other than a banking company and 60% in case of a banking company.
- Available Surplus: Is computed according to the rules laid down in the Payment of Bonus Act, which include deducting certain prior charges (such as depreciation, development rebate or investment allowance, etc.) from the gross profits.
Turn on and turn off Additionally, provisions for “set-on” and “set-off” of allocable surplus are included in the Payment of Bonus Act. If, in any year, the allocable surplus exceeds the amount required for payment of the maximum bonus, the excess shall be carried forward to be “set-on” in the succeeding accounting years up to and including the fourth accounting year. Conversely, if there is a shortfall, the amount of minimum bonus paid can be “set-off” against the allocable surplus of the succeeding accounting years up to and including the fourth accounting year.
- Time Limit: The bonus must be paid within eight months from the close of the accounting year. However, the government can extend this period upon request and for sufficient reasons.
- Mode of Payment: The payment of bonus should be made through cash, cheque, or direct credit to the bank account of the employee.
Maintenance of Registers and Records
It is required that these records be kept for a minimum of eight years.
Employers are required to maintain the following records:
- Register A: A register showing the details of the available surplus.
- Register B: A register showing the details of the allocable surplus.
- Register C: A register showing the set-on and set-off of the allocable surplus.
- Register D: A register showing the details of the amount of bonus due to each employee, the deductions under Section 17, and the amount actually disbursed.
Rights and Obligations under Payment of Bonus Act :
- Right to Receive Bonus: Employees have the right to receive a minimum bonus irrespective of profits.
- Right to Inspect Registers: Employees can inspect the registers maintained by the employer related to the payment of bonuses.
- Maintain Records: Proper maintenance of records and registers as specified under the Payment of bonus act.
- Timely Payment: Employers must ensure timely payment of the statutory bonus.
If any amount payable to an employee under the Payment of Bonus Act remains unpaid, It is recouped in the same way as if it were unpaid land revenue. This ensures that employees receive their due bonuses without unnecessary delay.
An employee can be disqualified from receiving a bonus if they are dismissed from service due to:
- Fraud
- Riotous or violent behaviour
- Theft, misappropriation, or sabotage of any property of the establishment
Non-compliance with the provisions of the Payment of Bonus Act can lead to penalties, which include:
- Fine: The employer can be fined which may extend to Rs. 1,000.
- Imprisonment: The employer can also face imprisonment for a term which may extend to six months, or both fine and imprisonment.
Implementation and Compliance under Payment of Bonus Act:
Record-Keeping
It is mandatory for employers to keep accurate records of bonus calculations, allocable surplus, set-on and set-off amounts, and employee payments.
Resolving Disputes
In case of any disagreements concerning statutory bonus disbursements, the matter can be escalated to the labour court or industrial tribunal for resolution.
Regulatory Checks
Regulatory bodies are authorized to conduct inspections and audits on employer records to verify adherence to the regulations.
Summery of Payment of Bonus Act :
The Payment of Bonus Act, 1965 is a landmark in Indian labour law. Mandating payment of bonus to employees ensures that they have a stake in the financial success of the company they work for. This makes workers feel motivated and like they belong. Meanwhile, it encourages employers to maintain transparency and fairness in financial transactions, thereby promoting a fairer and more just working environment.
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