The payment of Bonus Act- For CA-IPCC

Presented By-:CA. Mayank MittalACA, PGDBA, B.com

© 2013 Gurukul CA/CS Classes Prepared by CA. Mayank Mittal.

Payment of Bonus-15th Lecture

© 2013 Gurukul CA/CS Classes Prepared by CA. Mayank Mittal. 1

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An Act to provide for the payment of bonus to persons employed in certain establishments on the basis of profits or on the basis of production or productivity and for matters connected therewith.

It extends to the whole of India It extends to the whole of India Every other establishment in Every other establishment in which twenty or more persons which twenty or more persons are employed on any day during are employed on any day during an accounting year.an accounting year.


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(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 in the Financial Year

Factory means any establishment which employs minimum 20 persons (without aid of Power) and 10 (with aid of Power) in any FY.

Once this act is applicable on any Establishment it will remain applicable on it even though the no of person falls below the required limit in that FY.



It simply denotes any place of business where commercial activity is carried

or any services is being rendered

Establishments to include departments, undertakings and branches

Where an establishment consists of different departments or undertakings or has branches, whether situated in the same place or in different places, all such departments or undertakings or branches shall be treated as parts of the same establishment for the purpose of computation of bonus unless following conditions are satisfied-

Separate Financial Statement is being prepared for that branch AND Such Branch has never being considered for computation of BONUS.

Condition 1-

Condition 2-

Normally a period of 12 months will constitute a FY starting from April and ending on March constitute a Accounting year, HOWEVER EXCEPTIONS ARE ALWAYS THERE.

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oAny person other than Apprentice , engaged for hire or reward.

oIncludes Supervisors, Managers & Administrative staff

oPerson who has worked for minimum of 30 days in an accounting year (SEC 8)

oPerson with a maximum salary of 10,000 per month.

o Whether the Terms of employment are expressed or implied or whether the person doing work is skilled unskilled etc.

o MOTI MOTI BAAAT KOI BHI INSAAN KUCH BHI KAAM KARE ORGANISATION MAI PROVIDED ABOVE CONDITION HE IS EIGIBLE FOR BONUS.

In simple terms we can say that the person who is having the ultimate control of the Establishment (where persons are working) will be termed as EMPLOYER, he can be manager, MD, owner, factory manager, legal representative etc…

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Of anAn employee defined u/s 2(13)

Will be Eligible for Bonus only if

He Has worked in the Establishment for minimum 30 days

Establishment covered u/s 1(3)

Condition u/s 8

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Nothing in this Act shall apply to –(i) Employees employed by any insurer carrying on general insurance business and the employees employed by the Life Insurance Corporation of India;(ii) Seamen (iii) Employees registered or listed under any scheme made under the Dock Workers(iv) Employees employed by an establishment engaged in any industry carried on by or under the authority of any department of the Central Government or a State Government or a Local authority

v) Employees employed by -- (a) the Indian Red Cross Society or any other institution of a like nature (including its branches);

(b) universities and other educational institution. (c) institutions (including hospitals, chambers of commerce and social welfare institutions), established not for purposes of profit;

vi) Employees employed by the Reserve Bank of India;

VII) Employees ofSFC, NABARD, NHB, IFCI, IDBI, SIDBI,UTI

EXCEPTION (SEC 32) (Learn it)

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It means the reward/remuneration which is paid or payable to an employee in

respect of work done in accordance with the terms of Employment.

Include Exclude

What to Include in Salary

1- Mehangai Bhatta means Dearness Allowance.

2- Food Allowance OR Value of food

BAKI SAB KUCH…

NEED TO LEARN ONLY WHAT TO INCLUDE…REMAING ALL WILL BE EXCLUDED.

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The minimum bonus which an employer is required to pay even if he

suffers losses during the accounting year or there is no allocable surplus is

8.33 % of the salary during the accounting year,

OR

Rs. 100 in case of employees above 15 years and Rs 60 in case of employees below 15 years,

whichever is higher

NOTES-1- Establishment is bound to pay the bonus in case it had incurred loss or is not having allocable surplus.2- Salary/Wages for computation of Bonus can be maximum considered as Rs. 3500 per month (Rs. 292 maximum per month).3- No of working days will include the days of PAID LEAVE, Maternity leave with wages, Days not worked due to any inability caused during the execution of work OR being discharged from work.

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Where in respect of any accounting year referred to in section 10, the allocable surplus exceeds the amount of MINIMUM bonus payable to the employee

COMPANY bound to pay to every employee in respect of that accounting; year bonus which shall be an amount in proportion to the salary or wage earned by the employee during the accounting year subject to a maximum of 20 per cent, of such salary or wage.

However , if such allocable surplus exceeds in such a way that bonus payable will exceed 20%, then-

1- Such amount will be c/f to next 4 AY and2- Employee will be paid maximum bonus of 20%..

Similar to Minimum bonus , for the purpose of Bonus Calculation salary will be restricted to Rs. 3500/- (Rs 700 max).

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a) where there is a dispute regarding payment of bonus pending before any authority under section 22, within a month from the date on which the award becomes enforceable or the settlement comes into operation, in respect of such dispute;

(b) in any other case, within a period of eight months from the close of the accounting year:

Time limit in the Second case may be Extended provided-1- Application is made by Employer to Appropriate government.2- AG is satisfied that there are Reasonable conditions to justify such extension and3- If satisfied the Extension can be awarded to maximum period of 2 years.

Bonus should be paid in CASH only……not in consideration….

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It applies only if there is AGREEMENT or SETTLEMENT between the Employer and Employees to pay annual bonus linked with production.

PROVIDED1- Bonus to be paid Annually2- Bonus should be linked with Production3- This Bonus shall be paid instead of bonus paid on Profit

This section Override Entire BONUS Act however it cannot Override Provisions related to

Minimum Bonus

Maximum Bonus

Employee will get minimum 100 Rs or 8.33% of Salary or maximum of 20% only.

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Sec 17- Employer will deduct from bonus amount any customory bonus or Interim Bonus

Sec 18- If any employee is found Guilty for misconduct and any finacial loss is being incurred bcoz of it THENCompany can make the loss GOOD by deducting the amount of loss from its Bonus amount. However the deduction can be made only in the AY in which loss was incurred.

Computation of working days

Sec 14 states that the following days are DEEMED WORKING DAYS • Laid-off • Leave with salary • Temporary disablement(during employment) • Earned maternity leave

Sec 13=where the employee has not worked for all working days the minimum bonus shall be proportionately reduced

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Appropriate Government

Sec2(5) states that the AppropriateGovernment depends upon the establishment

If it is specified in The Industrial DisputeAct,1947 that the AG=CG then the AG=CG

If it is not so specified, AG=SG of the state in which the establishment is situated

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Recovery of Bonus Due from an Employer (Sec-21)

Bonus Not Paid

Application to AG

Recovery certificate

Recovery

Condition 1- Application t be made by Employee, legal heir or any person authorized by Employee ANDCondition 2- Application to be made within 1 Year since Bonus was due , however time can be extended

If AG is satisfied that Bonus is Due, it will issue Recovery Certificate

Once Certificate is issued, Bonus will be recovered by the collector and will be given back to the Applicant..

Agar due hai toh dena hi padega…….

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MISCELLANEOUS CONCEPTS

Any new Establishment is liable to pay Bonus only if there is Surplus …. And set on/set off will not apply For the first 5 years…From 6th to 7th Year Set on and Set off will be made….From 8th year onwards, normal provision will apply…

It is presumed that Financial Accounts of the Company / Corporation is accurate if it is duly audited by Auditor or CAG respectively…

EXEMPTION U/S 36

Ground

Opinion of AG

Publication

Content

AG will consider Financial Condition & Other Circumstances

If AG is satisfied that it is in INTEREST of Public, it will grant Exemption.

Exemption Order shall be Published in Official Gazette

1- Period till which Exemption is Available2- Condition to Which Exemption is Available.

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ESTABLISHMENT IN PUBLIC SECTOR

Any Establishment which is owned , controlled or managed by1- Government Company2- 40% or more Share Capital is held by CG/SG/RBI or corporation hold by CG/SG/RBI

As per General Rule Bonus Act is not applicable on Establishment in Public Sector..However it will be applicable if-

1- in any AY it renders any service or sells any goods in Competition to Private SectorAND2- the Income from such sale is more than 20% of its Total Gross Income.

Sec 28 states that if the provisions of POBA are contravened or a person fails to comply with the directions then the penalty=fine of rs.1000 or imprisonment of 6months or both

PENALTY

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1. Calculate Gross Profit.2. Deduct Prior Charges from Gross Profit.3. Compute Available Surplus.4. Compute allocable Surplus.5. Finally Calculate Bonus Payable.

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Net Profit as per P/L A/c Add-1- Provisions for Bonus, Depreciation and reserves.2- Bonus paid to employees in respect of previous AY3- Gratuity paid or Payable4- Donations in excess of Admissible amount of Income Taxx5- Capital Expenditure6- Losses & Expenditure of any business situated outside India7- Income Directly credited to reserves.Less-1. Profits of any business situated outside India.2- Capital Receipts & Capital Profit3- Cash Subsidy Received from the Government4- Refund of any Excess Direct Tax paid for previous AY

After Deducting 7 items and adding 4 items in Net Profit as per P/L we will get GROSS PROFIT….

STEP 1- CALCULATION OF

GROSS PROFIT

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Step 2- Available Surplus= Gross Profit – ( deduct) the following :Less-1-Depreciation admissible u/s 32 of the Income tax Act. 2-Development Rebate & Investment Allowance 3- Direct taxes payable for the accounting year (calculated as per Sec.7) 4- Sums specified in the Third Schedule of POBA. (Transfer to Reserves & Certain %

on Equity and Preference Share Capital) DETAIL ON NEXT SLIDE

Add-

1- Tax saved in respect of bonus paid during the preceding AY

After deducting 4 items in GP and adding 1 item we get Available Surplus

Step 3-Allocable Surplus = 60% of Available Surplus, 67% in case of foreign companies.

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Sums Deductible under Sch. 3 of POBA

In case of Banking Company

In case of Non- Banking Company

Dividends payable on its preference share capital

7.5% of equity share capital

5% of reserves

Sum to be transferred to Reserve fund or any reserve specified by RBI(higher)



5% of reserves

Sum to be transferred to Reserve fund or any reserve specified by RBI(higher)



6% to reserves



6% to reserves

Retrenched Employee- Employee jisse naukri se nikal diya ho….Reinstated Employee- Employee jisse nikalne ke baad wapas rakh liya ho….

A retrenched employee is Eligible for bonus provided he is not disqualified u/s 9…whereas Reinstated employee will only be avialble if BACK WAGES are paid to him and is not disqualified u/s 9. (in 2nd case Contradiction between Munish Bhundari and ICAI Practise Manual..go with ICAI)

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It is presumed that Financial Accounts of the Company / Corporation is accurate if it is duly audited by Auditor or CAG respectively..i.e

If there is any Dispute relating to Payment of Bonus or regarding its Applicablity (ya toh amount ko ya.. Applicability ko lekar ke)

Then if any appeal is filled with Tribunal… and in the course of Proceedings….if Employer is forced to furnish Financial Statements

Then such Financial Statements will be deemed/presumed to be Accurate if the same is Audited by Auditor in case of Company and Audited by CAG in case of Corporation…

SAME APPLICABLE FOR BANKING COMPANY….

(Moti Moti baat…Students Your Sign matters a lot….if you have Signed the Financial Statements then it will be preumed to be Accurate)

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APPLICABLE ONLY IN CASE WHERE EMPLOYER IS NEITHER A COMPANY NOR CORPORATION

If there is any Dispute relating to Payment of Bonus or regarding its Applicablity (ya toh amount ko ya.. Applicability ko lekar ke)

Then if any appeal is filled with Tribunal… and in the course of Proceedings….if Employer is forced to furnish Financial Statements

Then such Financial Statements will be deemed/presumed to be Accurate if the same is Audited by Auditor (DULLY QUALIFIED TO BE A AUDITOR UNDER COMPANIES ACT)

IF HE IS NOT QUALIFIED & TRIBUNAL IS OF OPNION THAT AUDIT IS NECESSARY THEN ONLY it can order Employer to gets his accounts Audited within the Prescribed time. Accounts Audited by AUDITOR this time will be PRESUMED to be ACCURATESirf itna samaj lijiye ki is case mai 3 condition satisy karni hai1- Employer is nither a Company nor corporation2- Auditor is not Qualified to be Auditor u/s 226 &3- Audit of Accounts is Necessary

Set-on and Set-off of Allocable Surplus

Sec15 provides the rules for set-on and set-off of allocable surplus

Where the allocable surplus is>maximum bonus u/s11,the excess can be set-on in 4 succeeding years

Where there is:

no allocable surplus or

there are no carried forward amounts or

the allocable surplus is<minimum bonus u/s10

The deficiency can be set-off in 4 succeeding years

Set-on and Set-off are done in the manner provided in schedule four of POBA


Q 1- Define the Term Employer & employee under Bonus Act?

Q 2 - Avantika is working as a salesman in GAM limited company and is withdrawing Salary 8500/- on monthly basis. The following payments were made to her in addition to salary.1- Overtime Allowance 2-Commission on Sales 3- Dearness Allowance 4- Value of FoodWith reference to Bonus Act, State which extra payment listed above will form part if Salary for Bonus purpose. Would you Answer same if her salary is Rs. 12000/-

Q- 3Whether the followings are eligible for Bonus under the Payment of Bonus Act?1- Piece Rated Employee. 2- Seasonal Employee 3- Temporary workmen. 4- Employee suspended on grounds of Misconduct 5- Employee worked for less than 30 days. 6- Retrenched Employee.7- Apprentice

Q- 4 Mr Z , a temporary employee drawing salary of Rs. 6000/- per month was prevented by the employer from working in Establishment pending certain Enquiry for 3 months in FY 2012-13. No Adverse Findings were discovered therefore Mr Z was reinstated in Establishment. At the time of Bonus disbursement Employer denied the bonus to Mr Z even though he has worked for remaining period in FY 2012-13. With reference to the provisions of Bonus Act, state Whether the steps taken by Establishment is correct? Would you answer same if the salary is 12000/- per month?


Q. 5 Examine with reference to Payment of Bonus Act, 1965 if an employee drawing a salary of Rs.5000 and who joined duty on January 20th, 2008 and who availed maternity leave for premature delivery from February 8th, 2008 till April 4, 2008, is eligible for bonus for the year 2007-08.

Q 6 An employee Mr. A working in an establishment commits fraud during the accounting year 2004-2005, but continues to work during the subsequent accounting years 2005-2006 and 2006-2007, and has a clean record during the subsequent years. On the basis of the fraud committed in 2004-2005, the employee is dismissed from the service at the end of the accounting year 2006-2007. In this case, thus he lose the bonus for the accounting year of misconduct i.e. 2004-2005 or all 3 accounting years ending with 2006-2007? Discuss in the light of the provisions of the Payment of Bonus Act, 1965. Q 7 Mr. ‘E’ joined as supervisor on monthly salary of Rs. 3,400 on 1.02.2007 and resigned from his job on 28.02.2007. The company declared a bonus of 20% to all eligible employees and paid it on time. Mr. ‘E’ knowing the facts made a claim to HRD, which in turn rejected the claim. Examine the validity in the light of the provisions of the Payment of Bonus Act, 1965.

Q 8 In 2009, the Electronics Corporation, a Public Sector establishment under the Department of Science and Technology, Government of Rajasthan start to sell mobile sets manufactured by it, in addition to T.V. sets, so as to compete with the private sector establishments of mobile sets in the market. The income from sale of mobile sets is 30 percent of the gross income of the Corporation. The employees of the Corporation went to strike for demand of bonus.

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Answer 1- Sec 2(13) of Payment of Bonus Acr’1965 states that Employee means any person other than an apprentice employed on salary or wage not exceeding R. 10000/- per month in an industry to do any Skilled, unskilled, manual, supervisory, managerial, administrative or clerical work for hire or rewards whether the terms of employment are expressed or employed.

Sec 2(14) of Payment of Bonus Acr’1965 states that Employer includes-(i)In relation to an establishment which is a factory, the owner or occupier of the factory or any legal representative or manager of the factory.(ii) In relation to any other Establishment, the person who has the ultimate control over the affairs of the establishment.

This is Direct Question…………no need to divided into paragraphs..


Answer 2-

Sec 2(21) of the Payment of Bonus Act ‘1965 states that Salary & Wages means all remuneration other than remuneration in respect of Overtime allowance, travelling concession, commission etc. payable to an employee in respect of an employment whether Expressed or Implied. It includes dearness allowance and any cash value f food concession.

In the above case Miss Avantika is working in GM limited at a salary of 8500/- pm, besides this she is getting Overtime Allowance, Commission, DA and food Concession.

In th light of Above section , it can be concluded that Only DA and food Concession will be included in Salary for calculation of Bonus. Overtime Allowances and Commission will be excluded.

Further if Miss Avantika is earning Rs. 12000/ per month then she will not be eligible for Bonus as sec 2(13) read with Sec 8 which states that employee will be eligible for bonus only if salary is less than 10000/- per month.

Relevant SectionRelevant Section

Fact of the CaseFact of the Case

ConclusionConclusion


Answer 3-

With reference to sec 2(13) of the payment of Bonus Act’1965 which defines Employee as means any person other than an apprentice employed on salary or wage not exceeding R. 10000/- per month in an industry to do any Skilled, unskilled, manual, supervisory, managerial, administrative or clerical work for hire or rewards whether the terms of employment are expressed or employed, will be eligible for Bonus provided conditions of sec 8 is satisfied.

In the light of above it can be concluded that

Piece Rated Employee. – will be Eligible for Bonus.Seasonal Employee . – will be Eligible for Bonus.Temporary workmen. . – will be Eligible for Bonus.Employee suspended on grounds of Misconduct - will not be eligible for bonus as per sec 9.Employee worked for less than 30 days. - will not be eligible for bonus Retrenched Employee. . – will be Eligible for Bonus.Apprentice- will not be eligible for bonus as Employee definition excludes Apprentice.


Answer 6-

Section 9 of the Bonus Act’ 1965 states that an employee shall be disqualified from receiving bonus under this Act :if he has been dismissed on service and reason was(a)fraud; or(b)riotous or violent behavior while on the premises of the establishment; or(c)theft, misappropriation or sabotage of any property of the establishment. Further also states that he will be disqualified form Bonus for not only CY but also fromBonus of any preceding years.

In the given Question Mr A has committed fraud in FY 2004-05 and thereafter had worked two more years. Further he has been dismissed form service in FY 2006-07 on the grounds of fraud committed in FY 2004-05.

Based on the above provision and given the circumstances it an be concluded that Mr.. Will not be eligible for Bonus of all the 3 Accounting years.


Answer 4- With reference to Sec 8 read with Sec 2(13), which states that every employee is entitled for bonus provided he has worked for at least 30 days in an organisation. And salary is less than Rs. 10000/- also he should not be disqualified under grounds stated inn sec 8 of the act.

Facct of the case----

In the light of above section it can be concluded that if an employee is prevented from working and subsequently reinstated in service employer’s liability for Bonus swill not be lost thus, Mr. X will be eligible for Bonus provided the conditions of sec 8 is satisfied.

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Q21. Skypark Wooden Toys Limited was established in Kolkata in the year 2005 employing 100 workmen. Since then, the company suffered losses, but minimum bonus was paid in the accounting years of 2006 and 2007. In the accounting year 2008, the company earned huge profits. After mitigating the previous losses, the company is having surplus profit and wants to pay bonus to its workmen. Skypark Wooden Toys Limited wants legal advice on the following issues:How much minimum and maximum bonus may be paid to the workmen?Whether the company may adjust the puja bonus already paid to the workmen while calculating the amount of bonus payable to workmen for that accounting year.Company wants to give wooden toys as bonus instead of cash. Whether the company can do so?Advise Skypark Wooden Toys Limited, stating the provisions of the Payment of Bonus Act, 1965.


Education

The payment of Bonus Act- For CA-IPCC