Payment Of Bonus Act, 1965

Applicability

  • Every factory wherein 10 or more persons are employed with the aid of power or
  • An establishment in which 20 or more persons are employed without the aid of power on any day during an accounting year. Sec.1
  • The Act not applicable to certain employees of LIC, General Insurance, Dock Yards, Red Cross, Universities & Educational Institution, Chambers of Commerce, Social Welfare Institutions, Building Contractors, etc.etc. Sec.32

Establishment

Establishment includes departments, undertakings and branches, etc. Sec.1
If profit and loss accounts are prepared and mainland in respect of any such department or undertaking or branch,then such department or undertaking or branch is treated as a separate establishment. Sec. 3

Eligibility Of Bonus

  • An employee will be entitled only when he has worked for 30 working days in the subject year. Sec.8
  • For the purpose of considering the minimun 30 working days, an employee shall be deemed to have worked, during the day/s of:(i)Lay Off, (ii) Leave with pay, (iii) Temporary disablement caused by accident in the course of employment, or(iv) Maternity leave.

Components of Bonus

Salary or wages includes dearness allowance but no other allowances e.g. over-time, house rent, incentive or commission. Sec.2(21)

Minimum Bonus

An establishment has to pay bonus @8.33% of the salary or Rs.100(on completion of 5 years in existence in business after 1st Accouting year, even if there is no profit).

Wage/Salary Ceiling

  • Employees drawing wages upto Rs.10,000 per month or less.
  • However, for calculation purposes Rs.3,500 per month maximun will be considered for bonus calculation even if an employee is drawing upto Rs.10,000 per month.    Sec.12

Method Of Bonus Calculation

  • 1. Calculate the gross profit profit in the manner specified in:-
    • a. First Schedule, in case of a banking company, or
    • b. Second Schedule, in any other case.
  • 2. Available Surplus = A+B, where:-
    A = Gross Profit (–) Depreciation admissible u/s 32 of the Income tax Act (-) Development rebate or investment Development or Development allowance (-) Direct taxes payable for the accounting year(calculated as per Sec.7) (-) Sums specified in the Third Schedule.
    B = Direct Taxes (calculated as per Sec. 7) in respect of gross profits for the immediately preceding accounting year (–) Direct Taxes in respect of such gross profits as reduced by the amount of bonus, for the immediately preceding accounting year.
  • 3. Calculate Allocable Surplus:-
    Allocable Surplus = 60%* of Available Surplus (67% in case of foreign companies).
  • 4. Make adjustment for 'Set-on' and 'Set-off':- For calculating the amount of bonus in respect of an accounting year, Allocable surplus is computed after considering the amount of Set On and Set Off from the previous years, as illustrated in Fourth Schedule.
  • 5. The allocable surplus so computed is distributed amongst the employees in proportion to salary or wages.

Maintenance of Registers and Records etc.

  • Form A: A register showing the computation of the allocable surplus    clause (4) of section 2
  • Form B: A register showing the set-on and set-off of the allocable surplus.     section 15
  • Form C: A register showing the details of the amount of bonus due, the deductions, and the amount actually disbursed to each of the employees.    Sec.17 and 18.

Submission of Return

In Form D to the inspector within 30 days of the expiry of time limit.     Sec 19. Rule 5.

Disqualification and Deduction of Bonus

  • On dismissal of an employee for fraud; or
  • Riotous or violent behaviour while on the premises of the establishment;or
  • Theft, misappropriation or sabotage of any property of the establishment; or
  • Misconduct of causing financial loss to the employer to the extent that bonus can be deducted for that year.     Sec 9 & 18

Time Limit for Payment of Bonus

Within 8 months from the close of accounting year.    Sec 19

Penal Provision

For contravention of any provision of the Act or the Rules : Upto 6 months or with fine upto Rs.1000.    Sec 28