Payment of Bonus Act 19651

8/6/2019 Payment of Bonus Act 19651

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PAYMENT OF BONUS ACT

1965


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Presented By

Name of the Student Roll Number

Neelam D. Dungdung 39

Sudhanshu Singh 40

Anup Kullu41

Rajat R. Kerketta 42

Sudhir Kujur 43

Roger M. Anthony 44

Saransh Shreshtha 45

Prity Bala 46

Pallav Chakravarty 48

Utkarsh 52

Presented To

Prof. R.K. Biswas

PAYMENT OF BONUS ACT 1965


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Bonus - History

The practice of paying bonus in India appears to haveoriginated during First World War when certain textile millsgranted 10% of wages as war bonus to their workers in

1917.In certain cases of industrial disputes demand for

payment of bonus was also included. In 1950, the FullBench of the Labour Appellate evolved a formula for

determination of bonus.


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Introduction

An Act to provide for the payment of bonus to persons

employed in certain establishments on the basis of profits oron the basis of production or productivity and for mattersconnected therewith.

It extends to the whole of IndiaEvery other establishment inwhich twenty or more persons

are employed on any day duringan accounting year.


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Bonus - Applicability

(a) Every factory (as def. in Factories Act), & (b) Every other establishment

in which 20 or more persons (less than 20 but 10 or more if appropriate Govt.notifies) are employed on any day subject to certain exemptions.

(b) Bonus to be paid within eight months from the expiry of the accounting year.

Establishments to include departments, undertakings and branches

Where an establishment consists of different departments or undertakings or hasbranches, whether situated in the same place or in different places, all suchdepartments or undertakings or branches shall be treated as parts of the same

establishment for the purpose of computation of bonus


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Definitions

Accounting Year

Accounting Year means-

In relation to a corporation, the year ending on the day on which the books and accountsof the corporation are to be closed and balances;

In relation to a company, the period in respect of which any profit and loss account of thecompany laid before it in annual general meeting is made up;

In any other case-

the year commencing on the 1st day of April; or

if the accounts of an establishment maintained by the employer thereof are closed andbalances on any day other than the 31st day of March, then, at the option of theemployer, the year ending on the day on which its accounts are so closed and balanced.

Provided that an option once executed by the employer under paragraph (b) of this sub-clause shall not again be exercised except with the previous permission in writing of theprescribed authority and upon such conditions as that authority may think fit. [Section2(1)]


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Definitions

Employee

Employee means any person (other than an apprentice) employed on asalary or wages not exceeding Rs.3,500 per mensem in any industry to do anyskilled or unskilled, manual, supervisory, managerial, administrative, technicalor clerical work or hire or reward, whether the terms of employment be expressor implied. [Section 2(13)]

Part time permanent employees working on fixed hours are employees.


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Definitions

Employer

Employer includes:

In relation to an establishment which is a factory, the owner or occupier of thefactory, including the agent of such owner or occupier, the legal representativeof a deceased owner or occupier, and where a person has been named as amanager of the factory under clause (f) of Sub-section 7(1) of the Factories Act,

1948, the person so named; and

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 saidaffairs are entrusted to a manager, managing director or managing agent, suchmanager, managing director or managing agent. [Section 2(14)]


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Definitions

Salary or Wages:

The Salary or Wage 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 ofemployment, express or implied, were fulfilled, be payable to an employee in respect of hisemployment or of work done in such employment and includes dearness allowance (that isto say, all cash payments, by whatever name called, paid to an employee on account of arise in the cost of living) but does not include:

any other allowance which the employee is for the time being entitled to;

the value of any house accommodation or of supply of light, water, medical attendance orany other amenity or of any service or of any concessional supply of foodgrains or otherarticles;

any traveling concession;

any bonus (including incentive, production and attendance bonus);

any contribution paid or payable by the employer to any pension fund or provident fund orfor the benefit of the employee under any law for the time being in force;

any retrenchment compensation or any gratuity or other retirement benefit payable to theemployee or any ex-gratia payment made to him;

any commission payable to the employee [Section 2(21)]


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Definitions

MEANING OF ESTABLISHMENT

The word establishment is not defined in the Act. Normally, establishment isa permanently fixed place for business. The term establishment is much widerthan factory. It covers any office or fixed place where business is carried out.

ESTABLISHMENTS TO INCLUDE DEPARTMENTS, UNDERTAKINGS ANDBRANCHES

Where an establishment consists of different departments or undertakings orhas branches, whether situated in the same place or in different places, all suchdepartments or undertakings or branches shall be treated as parts of the sameestablishment for the purpose of computation of bonus under this Act.


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Bonus Eligibility

Every employee shall beentitled to be paid by hisemployer in an accounting

year, bonus, in accordancewith the provisions of thisAct, provided he hasworked in the establishmentfor not less than thirty

working days in that year.

Disqualificationfor bonus

An employee shall bedisqualified from receivingbonus under this Act :-

(a) fraud; or(b) riotous or violentbehavior while on thepremises of theestablishment; or

(c) theft, misappropriationor sabotage of anyproperty of theestablishment


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Act not to apply to certain classesof employees:

Section 32 of the Act provides that the Act shall not apply to the followingclasses of employees:

Employees employed by any insurer carrying on general insurancebusiness and the employees employed by the Life Insurance Corporation

of India;

Seamen as defined in clause (42) of Section 3 of the Merchant ShippingAct, 1958;

Employees registered or listed under any scheme made under the DockWorkers (Regulation of Employment) Act, 1948 and employed byregistered or listed employers;

Employees employed by an establishment engaged in any industry calledon by or under the authority of any department of Central Government ora State Government or a local authority;


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Employees employed by:

The Indian Red Cross Society or any other institution of a like nature including itsbranches;

Universities and other educational institutions;

Institutions (including hospitals, chambers of commerce and social welfareinstitutions) established not for the purpose of profit;

Employees employed through contractors on building operations;

Employees employed by the Reserve Bank of India;

Employees employed by:

The Industrial Finance Corporation of India;

Any Financial Corporation established under Section 3, or any Joint FinancialCorporation established under Section 3A of the State Financial Corporations Act,

1961;


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a) The Small Industries Development Bank of India established under Section 3of the Small Industries Development Bank of India Act, 1989;

b) The National Housing Bank;

Any other financial institution (other than Banking Company) being an

establishment in public sector, which the Central Government may by notificationspecify having regard to (i) its capital structure; (ii) its objectives and the nature ofits activities; (iii) the nature and extent of financial assistance or any otherconcession given to it by the Government; and (iv) any other relevant factor.

Apart from the above, the appropriate Government has necessary powers underSection 36 to exempt any establishment or class of establishments from all or any

of the provisions of the Act for a specified period having regard to its financialposition and other relevant circumstances and it is of the opinion that it will not bein the public interest to apply all or any of the provisions of this Act thereto. It mayalso impose such conditions while according the exemptions as it may consider fitto impose.


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a) The Small Industries Development Bank of India established under Section 3of the Small Industries Development Bank of India Act, 1989;

b) The National Housing Bank;

Any other financial institution (other than Banking Company) being an

establishment in public sector, which the Central Government may by notificationspecify having regard to (i) its capital structure; (ii) its objectives and the nature ofits activities; (iii) the nature and extent of financial assistance or any otherconcession given to it by the Government; and (iv) any other relevant factor.

Apart from the above, the appropriate Government has necessary powers underSection 36 to exempt any establishment or class of establishments from all or any

of the provisions of the Act for a specified period having regard to its financialposition and other relevant circumstances and it is of the opinion that it will not bein the public interest to apply all or any of the provisions of this Act thereto. It mayalso impose such conditions while according the exemptions as it may consider fitto impose.


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Any other financial institution (other than Banking Company) being anestablishment in public sector, which the Central Government may bynotification specify having regard to (i) its capital structure; (ii) itsobjectives and the nature of its activities; (iii) the nature and extent offinancial assistance or any other concession given to it by theGovernment; and (iv) any other relevant factor.

Apart from the above, the appropriate Government has necessary powersunder Section 36 to exempt any establishment or class of establishmentsfrom all or any of the provisions of the Act for a specified period havingregard to its financial position and other relevant circumstances and it isof the opinion that it will not be in the public interest to apply all or any ofthe provisions of this Act thereto. It may also impose such conditions whileaccording the exemptions as it may consider fit to impose.


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Computation for Numberof Working Days

An employee shall be deemed to have worked in an establishment

in any accounting year also on the days on which,-

(a) he has been laid off under an agreement or as permitted by

standing orders under the Industrial Employment (Standing Orders)Act, 1946, or under the Industrial Disputes Act, 1947, or under any

other law applicable to the establishment;

(b) he has been on leave with salary or wages;

(c) he has been absent due to temporary disablement caused byaccident arising out of and in the course of his employment, and

(d) the employee has been on maternity leave with salary or

wages, during the accounting year


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CALCULATION OF BONUS

The method for calculationof annual bonus is asfollows:

Calculate the Available

Surplus.Available Surplus =

Gross Profit ( deduct) thefollowing :

Depreciation admissible u/s32 of the Income taxAct.

Development allowance


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CALCULATION OF BONUS SIMPLIFIED

The method for calculation of annual bonus is as follow:

1. Calculate the gross profit in the manner specified in-

First Schedule, in case of a banking company, orSecond Schedule, in any other case.

2. Calculate the Available Surplus.

Available Surplus = A+B, where A = Gross Profit Depreciation admissible u/s 32 of the Incometax Act - Development allowance - Direct taxes payable for the accounting year (calculated asper Sec.7) Sums specified in the Third Schedule.

B = Direct Taxes (calculated as per Sec. 7) in respect of gross profits for the immediatelypreceding accounting year Direct Taxes in respect of such gross profits as reduced by the

amount of bonus, for the immediately preceding accounting year.


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CALCULATION OF BONUS SIMPLIFIED

3. Calculate Allocable Surplus

Allocable Surplus = 60% of Available Surplus, 67% in case of foreigncompanies.

Make adjustment for Set-on and Set-off. For calculating the amount of bonusin respect of an accounting year, allocable surplus is computed afterconsidering the amount of set on and set off from the previous years, asillustrated in Fourth Schedule.

The allocable surplus so computed is distributed amongst the employees inproportion to salary or wages received by them during the relevant accountingyear.

4. In case of an employee receiving salary or wages above Rs. 3,500 the bonuspayable is to be calculated as if the salary or wages were Rs. 3,500 p.m. only.


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Allocable & Available Surplus

Allocable Surplus:

It means (a) in relation to an employer, being a company (other than a bankingcompany) which has not made the arrangements prescribed under the Income-tax Act for the declaration and payment within India of the dividends payableout 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 [Section 2(4)].

Available Surplus:

It means the available surplus under Section 5. {Section 2(6)}.


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Available Surplus (Deductions)

Direct taxes payable for the accounting year (calculated as perSec.7) Sums specified in the Third Schedule.

Direct Taxes (calculated as per Sec. 7) in respect of gross

profits for the immediately preceding accounting year.

Allocable Surplus = 60% of Available Surplus, 67% in case offoreign companies.

Make adjustment for Set-on and Set-off. For calculating theamount of bonus in respect of an accounting year, allocablesurplus is computed after considering the amount of set on and

set off from the previous years


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Set On & Set Off

Where in any accounting year any amount has been carriedforward and set on or set off under this section, then, incalculating bonus for the succeeding accounting year, the amountof set on or set off carried forward from the earliest accounting

year shall first be taken into account.

The allocable surplus so computed is distributed amongst theemployees in proportion to salary or wages received by them

during the relevant accounting year.


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Set On & Set Off Provisions

It may happen that in some years, the allocable surplus is morethan the amount paid to employees as bonus calculating it @ 20%.Such excess allocable surplus is carried forward to next year forcalculation purposes. This is called carry forward for being set on insucceeding years. The ceiling on set on that is required to becarried forward is 20% of total salary and wages of employeesemployed in the establishment. In other words, even if actual excessis more than 20% of salary/wages, only 20% is required to becarried forward. The amount set on is carried forward only upto andinclusive of the fourth accounting year. If the amount carried forward

is not utilised in that period, it lapses [section 15(1)].

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Set On & Set Off Provisions

Similarly, in a particular year, there may be lower allocablesurplus or no allocable surplus even for payment of 8.33%bonus. Such shortfall is also carried to next year. This iscalled carry forward for being set off in succeeding years.

Thus, in every year, allocable surplus is calculated. To thisamount, set on from previous years is added. Similarly, setoff, if any, from previous years is deducted. This givesamount which is available for distribution as bonus. Theamount set off is carried forward only upto and inclusive ofthe fourth accounting year. If the amount carried forward isnot set off in that period, it lapses. [section 15(2)]

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Time-limit for payment of bonus

(a) where there is a disputeregarding payment of bonuspending before any authority undersection 22, within a month from the

date on which the award becomesenforceable or the settlementcomes into operation, in respect ofsuch dispute;

(b) in any other case, within aperiod of eight months from theclose of the accounting year:


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Recovery of Bonus Due from anEmployer (Sec-21)

Where any money is due to an employee by way of

bonus from his employer under a settlement or an award or

agreement, the employee himself or any other person

authorized by him in writing in this behalf, or in the case of

the death of the employee, his assignee or heirs may,

without prejudice to any other mode of recovery, make an

application to the appropriate Government or such authority

as the appropriate Government may specify in this behalf is

satisfied that any money is so due, it shall issue acertificate for that amount to the Collector who shall

proceed to recover the same in particular employee.


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RIGHTS OFEMPLOYEES

Right to claim bonus payable underthe Act and to make an applicationto the Government, for the recoveryof bonus due and unpaid, within oneyear of its becoming due.

Right to refer any dispute to theLabour Court/Tribunal.

Employees, to whom the Paymentof Bonus Act does not apply, cannotraise a dispute regarding bonus

under the Industrial Disputes Act.Right to seek clarification and obtaininformation, on any item in theaccounts of the establishment


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Disputes under the Bonus Act

Where any dispute arises between an employer and hisemployees with respect to the bonus payable under this Act orwith respect to the application of this Act to an establishment inpublic sector, then, such dispute shall be deemed to be anindustries dispute within the meaning of the Industrial DisputesAct, 1947 (14 of 1947), or of any corresponding law relating toinvestigation and settlement of industrial disputes in force in aState and the provisions of that Act.


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Maintenance of Register,Records & Inspectors

Every employer shall prepare andmaintain such registers, records andother documents in such form and in

such manner as may prescribed.The appropriate Government may, bynotification on the Official Gazette,appoint such person as it think fit to

be Inspectors for the purposes of thisAct and may define the limits withinwhich they shall exercise jurisdiction.


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Inspectors Duties

An Inspector appointed under sub-section (1) may, for thepurpose of ascertaining whether any of the provisions of thisAct has been complied with

(a) Require an employer to furnish such information as hemay consider necessary;

(b) At any reasonable time and with such assistance, if any,

as he thinks fit enter any establishment or any premisesconnected therewith and require any one found in chargethereof to produce before him for examination any accounts,books, registers and other documents relating to theemployment of persons or the payment of salary or wage or

bonus in the establishment.


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OFFENCES AND PENALTIES

For contravention of the provisions of the Act or rules the penalty isimprisonment upto 6 months, or fine up to Rs.1000, or both.

For failure to comply with the directions or requisitions made thepenalty is imprisonment upto 6 months, or fine up to Rs.1000, or both.

In case of offences by companies, firms, body corporate or associationof individuals, its director, partner or a principal officer responsible forthe conduct of its business, shall be deemed to be guilty of thatoffence, unless the person concerned proves that the offence wascommitted without his knowledge or that he exercised all due diligence


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Documents

Payment of Bonus Act 19651