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 act in most companies.

DIWALI BONUS

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.

Payment of Bonus act in India
Payment act

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.

Objectives of the payment of Bonus act

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.
Image: Payment of Bonus Act

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:

Payment of Bonus calculation

Minimum and Maximum Bonus:

The Act specifies the minimum and maximum limits of bonus payable:

  1. Minimum Bonus: 8.33% of the salary or wages or Rs. 100 (whichever is higher), regardless of whether the employer has made any profit.
  2. 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.

Payment of Bonus Act
  • 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.

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.

Diwali Bonus 2024

The “Diwali Bonus” for government employees in India typically refers to a one-time bonus or advance provided by the government during the festive season, especially around Diwali. However, the rules regarding this bonus can vary depending on the type of government employee (central or state) and the department they work for.

Here are the general guidelines:

1. Diwali bonus for Central Government Employees 2024:

  • Productivity Linked Bonus (PLB): For non-gazetted central government employees (usually Group C and Group B), the government provides a Productivity Linked Bonus (PLB), which is a one-time bonus granted around the festive season, including Diwali. The amount is linked to the performance of the organization or department and is usually calculated as a number of days of basic pay.
  • Ad-hoc Bonus: For central government employees who are not covered under the PLB scheme (like some Group B and Group C employees), the government may provide an ad-hoc bonus. This is a fixed amount that does not depend on the productivity of the department but is distributed as a Diwali bonus.

2. Diwali bonus for State Government Employees:

  • State governments have their own policies regarding Diwali bonuses. Some states may provide a fixed festival advance or bonus to all employees, while others may follow a scheme similar to the central government’s ad-hoc bonus.
  • The amount and the eligibility criteria can vary from state to state.

3. Eligibility for Diwali bonus:

  • Generally, only non-gazetted employees are eligible for the bonus. Gazetted officers usually do not receive a Diwali bonus.
  • Temporary or contractual employees may or may not be eligible, depending on the specific government department’s rules.

4. Amount of Diwali bonus:

  • The bonus amount is usually calculated based on a number of days’ basic pay, with a cap in place. For example, central government employees often receive a bonus equivalent to 30-60 days of basic pay, depending on the department and performance.

5. Exemptions in Diwali bonus:

  • Senior officials and gazetted officers (Group A and some Group B) are typically not entitled to this bonus.

Each year, the central and state governments announce specific guidelines regarding the Diwali bonus in advance of the festival. The exact amount and distribution can change depending on economic conditions and government policies.

The rules regarding Diwali bonus in India can vary depending on whether an employee works for the central government, state government, public sector undertakings (PSUs), or in the private sector. Here is a general overview of the rules governing the Diwali bonus:

1. Diwali Bonus for Government Employees:

Central Government Employees:

  • Productivity Linked Bonus (PLB):
    • Eligibility: Non-gazetted employees, especially Group C and Group B, are eligible for this bonus.
    • Diwali bonus calculation: The bonus is linked to the performance of the department or organization. The amount is usually equivalent to 30-60 days of basic pay.
    • Exclusions: Gazetted officers (Group A) and senior officials are typically excluded from receiving the PLB.
  • Ad-hoc Bonus:
    • Eligibility: Those who are not covered under the PLB scheme may receive an ad-hoc bonus. This is typically for certain Group B and Group C employees.
    • Fixed Amount: The ad-hoc bonus is a fixed amount that does not vary based on performance.

State Government Employees:

  • Bonus Structure: The rules for the Diwali bonus for state government employees vary from state to state. Some states follow the central government’s PLB model, while others provide a fixed bonus or festival advance.
  • Eligibility: Generally, non-gazetted employees are eligible for a Diwali bonus. Temporary and contractual employees may also be eligible, depending on state-specific rules.

2. Diwali Bonus for Public Sector Undertakings (PSUs):

  • Eligibility: Employees of PSUs, especially non-executive staff, are eligible for a Diwali bonus.
  • PLB or Ad-hoc Bonus: Similar to central government employees, PSU employees may receive a Productivity Linked Bonus based on the organization’s performance or an ad-hoc bonus.
  • Exclusions: Senior management or executives are generally not eligible for a bonus but may receive performance incentives.

3. Diwali Bonus for Private Sector Employees:

Diwali bonus rules for private companies-

  • Payment of Bonus Act, 1965: The Payment of Bonus Act mandates that private sector employers must pay a bonus to employees whose salary does not exceed ₹21,000 per month.
    • Bonus Eligibility: Employees who have worked for at least 30 days in a financial year.
    • Bonus calculator: The minimum bonus is 8.33% of the salary or wage, and the maximum is 20%, depending on the company’s profitability.
    • Bonus Payment Period: The bonus must be paid within eight months of the close of the financial year.
  • Exclusions: Employees earning more than ₹21,000 per month may not be legally entitled to a bonus under the act, but companies can still offer bonuses as per internal policies.

4. Key Factors for Diwali Bonus Rules:

  • Performance-Based: For PLB, the bonus amount depends on the productivity and performance of the department or organization.
  • Fixed Amount: For ad-hoc bonuses, the amount is usually fixed and not tied to performance.
  • Eligibility: Non-gazetted employees (Group C and B) and specific sectors in PSUs are typically eligible. Senior officers and executives are often excluded.
  • Timing: Bonuses are usually paid before Diwali, often in October or early November.

5. General Exclusions:

  • Senior-level officials and gazetted officers (Group A) are usually excluded from receiving the Diwali bonus.
  • Contractual employees and those on probation may or may not receive a bonus, depending on the employer’s policy or government regulations.

Diwali bonus rules are largely determined by the employer’s policies, the employee’s job role, and whether the employee works for the government, a PSU, or a private company. While central and state government employees follow a standard practice, private companies must adhere to the Payment of Bonus Act, 1965 for employees earning less than ₹21,000 per month.

The calculation of the Diwali bonus varies depending on whether you are a government, PSU, or private sector employee. Here’s a breakdown of how the Diwali bonus is calculated in different sectors:

In India, Diwali bonuses are typically discretionary payments made by employers to employees around the Diwali festival. The bonus calculation varies by company and industry, but if you’re looking for a standard approach to calculating Diwali bonuses, here are some common methods:

1. Fixed Bonus Approach:

Some companies offer a fixed amount to all employees, regardless of salary or designation. For example:

  • Bonus = Fixed amount (e.g., ₹10,000 for all employees)

2. Diwali Bonus Percentage of Salary:

Many companies calculate Diwali bonuses as a percentage of the employee’s basic salary or total salary. For example:

  • Bonus = Basic Salary × Bonus Percentage

If the bonus percentage is 20%, the formula would be:

  • Bonus = Basic Salary × 20%

3. Performance-based Bonus

Some organizations give bonuses based on individual or company performance. In this case, the formula might be:

  • Bonus = (Basic Salary or Total Salary) × Performance Rating × Bonus Percentage

Here, the Performance Rating might be a number (such as 1 to 5) that reflects the employee’s performance during the year.

4. Profit-sharing Method

In some organizations, Diwali bonuses may be linked to the overall profit of the company. Employees may receive a percentage of the profit, calculated as:

  • Bonus = (Company Profit / Total Employees) × Profit Sharing Percentage

Example Calculation (Percentage of Salary):

If an employee’s basic salary is ₹30,000 and the company decides to give a 20% bonus, the calculation would be:

  • Bonus = 30,000 × 20% = ₹6,000

Factors That May Affect Bonus:

  • Company Policy: Some companies have specific bonus slabs or tiers for different salary levels.
  • Employee Tenure: Employees who have been with the company longer may receive higher bonuses.
  • Role/Designation: Senior employees might receive higher bonuses than junior staff.

The exact Diwali bonus you receive will depend on your employment type, the bonus policy of your employer, and your salary structure.

Under the Indian Factories Act, 1948, there are specific provisions related to bonuses, although the act itself does not mandate Diwali bonuses specifically. However, the concept of bonuses in industrial and factory settings is often guided by various labor laws and regulations. Here are some key points regarding Diwali bonuses in the context of the Factories Act:

1. Bonus Payments

  • The Payment of Bonus Act, 1965, governs the payment of bonuses to employees in factories and other establishments. This act provides the framework for calculating and distributing bonuses based on profits and the number of employees.
  • The bonus is typically calculated as a percentage of the employee’s salary based on the profits made by the company in the previous accounting year.

2. Eligibility

  • Employees who have worked for a minimum of 30 days in a financial year are generally eligible for bonuses under the Payment of Bonus Act.

3. Minimum and Maximum Bonus

  • The act stipulates a minimum bonus of 8.33% of the salary (or ₹100, whichever is higher) and a maximum bonus of 20% of the salary.
  • Employers may also provide additional bonuses, including Diwali bonuses, at their discretion.

4. Discretionary Bonuses

  • While the Payment of Bonus Act sets certain guidelines, companies can also offer discretionary bonuses, such as a Diwali bonus, as part of their employee welfare programs or to enhance employee morale.

5. Timing of Payment

  • Although not specified in the Factories Act, many companies choose to disburse Diwali bonuses before the festival to help employees with their celebrations.

6. Tax Implications

  • Bonuses paid to employees are subject to income tax under the Income Tax Act. Companies are required to deduct tax at source (TDS) on the bonus amounts paid.

Moreover, the financial reward supports employees in managing their Diwali expenses, such as shopping, gifting, and home decorations, allowing them to enjoy the festival without financial stress.

  • Employee Motivation: Diwali bonuses serve as an important motivational tool. When employees receive bonuses, they feel valued and appreciated, which can lead to increased productivity and loyalty to the company.
  • Financial Support: The festive season can be financially demanding due to shopping, gifts, and celebrations. A Diwali bonus provides employees with the extra financial support they need to celebrate the occasion without stress.
  • Company Culture: Offering a Diwali bonus fosters a positive company culture. It creates a sense of community and belonging among employees, enhancing overall job satisfaction.

As we approach the festive season, companies should take the time to evaluate their bonus policies, ensuring that they are fair, transparent, and aligned with their organizational goals. After all, a happy employee is a productive employee, and what better way to celebrate than with a Diwali bonus that lights up their festive season!

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.

What is the Payment of Bonus Act, 1965?

The Payment of Bonus Act, 1965 is an Indian labour law that mandates payment of bonuses to employees of certain establishments based on their salary and company profits. The Act applies to establishments with 20 or more employees and ensures employees share in the company’s success.

Who is eligible for a bonus under the Payment of Bonus Act?

Employees earning a salary of up to ₹21,000 per month are eligible for bonuses under the Payment of Bonus Act. They must have worked in an establishment for at least 30 days during the financial year to qualify.

How is the bonus amount calculated under the Payment of Bonus Act?

The bonus amount is calculated based on profits or production of the establishment. The Act sets a minimum bonus of 8.33% and a maximum bonus of 20% of the salary, depending on company profitability and individual performance.

What is the minimum bonus payable under the Payment of Bonus Act?

Under the Act, the minimum bonus payable to eligible employees is 8.33% of their salary or wage, regardless of company profit status. This minimum ensures employees receive a share even in low-profit years.

What is the maximum bonus payable under the Payment of Bonus Act?

The maximum bonus payable under the Payment of Bonus Act is 20% of an employee’s annual salary. This is provided in profitable years when the company’s earnings allow for a higher pay-out to employees.

What is the difference between statutory and discretionary bonus?

A statutory bonus is mandated by the Payment of Bonus Act for eligible employees, while a discretionary bonus is additional and given voluntarily by the employer. The Act governs statutory bonuses, which are mandatory, but not discretionary ones.

Are seasonal employees eligible for a bonus under the Payment of Bonus Act?

Yes, seasonal employees are also eligible for a bonus, calculated based on the period of their employment during the season. However, the bonus may vary from that of regular employees, reflecting the shorter employment period.

What records must employers maintain under the Payment of Bonus Act?

Employers must maintain bonus calculation records, employee salary details, and disbursement records for compliance. These records are essential during audits by labour authorities and ensure transparent bonus distribution.

What is the penalty for non-compliance with the Payment of Bonus Act?

Non-compliance with the Payment of Bonus Act can lead to penalties, including fines and potential imprisonment for employers. Penalties are imposed for failure to pay bonuses on time or inaccurately, ensuring accountability.

Is the bonus taxable under the Payment of Bonus Act?

Yes, bonuses paid under the Payment of Bonus Act are considered part of taxable income and are subject to income tax as per the employee’s applicable tax bracket. Employers are required to deduct tax at source on bonus payments.

What is the due date for filing the Bonus Return under the Payment of Bonus Act?

Bonus is to be paid within Eight months of closure of the financial year and the return is to be filed within 30 days after payment as prescribed in Section 19 of the Act

Where should the Bonus Return be filed?

Employers must file the Bonus Return with the relevant Labour Commissioner’s Office or the designated authority in their state. The filing process may vary by state, so it’s important to check specific guidelines for correct submission.

What form is used to file the Bonus Return under the Payment of Bonus Act?

Form D is used to file the Bonus Return under the Payment of Bonus Act, 1965. This form requires details about the bonus paid, the amount distributed, and eligible employees. Correctly filling Form D is crucial for compliance.

Is there a penalty for late filing of the Bonus Return?

Yes, late filing of the Bonus Return can result in penalties. Employers may face fines or even legal actions for failing to meet the filing deadline as specified by the Payment of Bonus Act.

What information is required to file the Bonus Return?

The Bonus Return requires details such as total employees, amount of bonus paid, distribution details, and compliance with minimum and maximum bonus limits. Complete and accurate data is essential for successful submission.

How should employers keep records for Bonus Return filing?

Employers must maintain accurate records of bonus calculations, employee eligibility, and payments to facilitate the Bonus Return filing. These records should be kept for audits and inspections by the labour department.

Can the Bonus Return filing date be extended?

Extensions for the Bonus Return filing date are typically not granted unless exceptional circumstances arise, and only then by the relevant authority. Employers are advised to file within the original deadline to avoid penalties.

What is a Diwali Bonus?

A Diwali bonus refers to a financial reward provided by employers to their employees as part of the festive celebration. This bonus, usually given during the Diwali festival, is an expression of appreciation for the employees’ hard work throughout the year. In certain industries, like manufacturing and retail, paying bonuses during Diwali is even mandatory under labour law compliance norms.

Is the Diwali Bonus Mandatory?

While the Payment of Bonus Act, 1965 mandates annual bonuses in industries employing a certain number of people, Diwali bonuses are often provided as a gesture beyond the legal requirement. However, some companies incorporate the bonus into their regular compliance practices, ensuring that it aligns with both labour law obligations and employee welfare policies.

Many firms see the Diwali bonus as a powerful retention tool. It enhances loyalty and strengthens the employer-employee relationship, making it a significant aspect of employee engagement strategies.

How Companies Decide Diwali Bonuses?

Bonuses may vary depending on company policies, profits, and employee performance. Some common types of Diwali bonuses include:

  1. Fixed Bonuses: A set amount for all employees, usually applicable to entry-level staff.
  2. Performance-based Bonuses: Rewards tied to individual or team performance over the year.
  3. Profit-sharing Bonuses: A portion of the company’s annual profits distributed among employees.

In the case of organized sectors, particularly manufacturing, bonuses may be regulated to ensure labour law compliance. For companies listed under industrial licensing laws or factory compliance rules, specific bonuses may be pre-defined or contractually mandated.

Tax Implications of Diwali Bonuses

The Diwali bonus is considered part of taxable income under Indian income tax laws. Employers deduct tax at source (TDS) on the amount distributed to employees. However, many organizations still provide this benefit to foster goodwill and maintain employee satisfaction.