Payment of Bonus Act

Payment of Bonus Act, 1965
The term 'Bonus' is not defined under the Payment of Bonus Act,1965 nor there exists any
definition of bonus under any other enactment. According to the definition given in the New
English Dictionary, It is “A boon or gift over and above what is normally due as remuneration to
the receiver and which is, holy to the good. The payment of Bonus Act, 1965 aims at providing
for the payment of bonus to the employees of certain establishments, on the basis of profits or
production or productivity and for matters connected therewith.
The Act applies to every factory and every other establishment employing not less than 20
persons on any day during an accounting year. The Central/State Government can, however,
extend its provisions to any establishment employing less than 20 but more than 10 persons. The
establishments covered under the Act shall continue to pay bonus even if the number of
employees falls below 10, at a later date. However, Employees of the general insurance
companies, LIC, Central/State Government establishments, Indian Red Cross Society,
Universities and Educational Institutions, Hospitals, Chambers of Commerce, Reserve Bank of
India, Industrial Finance Corporation of India, Unit Trust of India, Social Welfare Institutions,
Local Bodies, etc. are not entitled to bonus under the Act. What they are paid as bonus, is ex-
gratia payment.
Every employee of an establishment, Whether employee is daily wager, temporary, permanent,

weekly paid or monthly paid, is covered under the Payment of Bonus Act, 1965 and is entitled to
bonus from his employer in an accounting year, provided he has worked in that establishment for
not less than 30 working days in the year. The wage threshold for determining applicability of
the Act from is INR 21,000 per month. And, the wage ceiling for calculation of bonus is INR
7000 per month.
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 (except in case of new establishments), is 8.33%
of the salary or wages of the employee during the accounting year; Rs 100 in case of employees
above 15 years and Rs 60 in case of employees below 15 years, whichever is higher. For
Maximum, If in any accounting year, the allocable surplus exceeds the amount of minimum
bonus, the employer shall pay bonus in proportion to the salary or wages earned by the employee
during that accounting year, subject to a maximum of 20% of such salary or wages.
Bonus should be paid in cash and is payable only annually. The bonus should be paid in cash
within 8 months from the close of the accounting year or within one month from the date of
enforcement of the award or coming into operation of a settlement following an industrial
dispute regarding payment of bonus. However, if there is sufficient cause extension may be
applied for.
An employee shall be disqualified from receiving bonus under this Act, if he is dismissed from
service for
 fraud; or
 riotous or violent behavior while on the premises of the establishment; or
 theft, misappropriation or damage of any property of the establishment.
Where in any accounting year, an employee is found guilty of misconduct causing financial loss
to the employer, then, it shall be lawful for the employer to deduct the amount of loss from the
amount of bonus payable by him to the employee under this Act in respect of that accounting
year only and the employee shall be entitled to receive the balance, if any.
For contravention of the provisions of the Act or rules the penalty is imprisonment up to 6
months, or fine up to Rs.1000, or both. For failure to comply with the directions or requisitions
made the penalty is imprisonment up to 6 months, or fine up to Rs.1000, or both. In case of
offences by companies, firms, body corporate or association of individuals, its director, partner
or a principal officer responsible for the conduct of its business, shall be deemed to be guilty of
that offence, unless the person concerned proves that the offence was committed without his
knowledge or that he exercised all due diligence.

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Payment of Bonus Act, 1965

Every employee of an establishment, Whether employee is daily wager, temporary, permanent,

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