Payment of Bonus Act: Applicability, Calculation & FAQ

By Savithri Subramanian
payment of Bonus act

The Payment of Bonus Act, 1965 aims to regulate the amount of bonus to be paid to the persons employed in establishments based on its profit and productivity. The act applies to the whole of India for all establishments which had twenty or more persons employed on any day during the year. In this article, we examine some of the main features of the Payment of Bonus Act in detail.

Applicability of bonus:

  • It applies to any factory or establishment which had twenty or more workers employed on any day during the year.
  • The act does not apply to non-profit making organizations.
  • The employee receiving salary or wages up to Rs.21,000 per month
  • The employee engaged in any work whether skilled, unskilled, managerial, supervisory etc.
  • The employee who have worked not less than 30 working days in the same year.

Quantum of bonus:

  • The minimum bonus will be 8.33% of the salary during the year.
  • The maximum bonus is 20% of the salary during the accounting year.

Offences and Penalties:

  • In case of violation of the provisions under the Act or rules, then the penalty is imprisonment for six months or may impose a fine of Rs.1000 or both.
  • In case of failure to comply with the directions or requisitions made, then the penalty is imprisonment for six months or may impose a fine of Rs.1000 or both.
  • In case of offenses by companies, firms, body corporate or association of individuals, its director, partner or a principal or officer responsible for the conduct of its business, should be deemed to be guilty of that offense, unless the person concerned proves that the crime was committed out of his knowledge or that he exercised all due diligence.

Commonly Asked Questions (FAQ)

Q: Who are eligible for Bonus?

Every employee whether on probation, part-time, contractual, permanent, supervisor or manager whose wage is less than or equal to Rs. 10,000/- and has completed 30 days in an accounting year is eligible for a bonus. Apprentice under Apprentice Act is not eligible.

Q: On which components of the salary bonus is calculated?

The bonus is calculated on Basic and DA.

Q: Do a start-up organization needs to pay a bonus?

In the first five accounting year following the accounting year in which the employer sells the goods produced or manufactured by him or renders services, as the case may be, from such establishment, the bonus shall be payable only in respect of the accounting year in which the employer derives profit from such establishment and such bonus shall be calculated as per the provisions of this act concerning that year but the concept of set-off and set on will not apply.

Q: What is the time limit to pay a bonus?

A bonus should be paid within 8 months from the end of the financial year.

Q: Can Bonus be paid on a monthly basis?

Many companies follow the practice of paying bonuses on a monthly basis, some pay a minimum 8.33% of Rs. 3,500, i.e. Rs. 292/- or some 20% of Rs. 3,500/- i.e. Rs. 700/- per month.

They do it for achieving the following purpose:

  • In hand salary of employees will increase as we are paying statutory bonuses upfront on a monthly basis.
    • Company liability of bonus payment is taken care of.

Q: What are the circumstances when an employee is not eligible for a bonus?

An employee shall be disqualified from receiving bonus under this Act if he is dismissed from service for —
(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.

Q: Which institutions are exempted from payment of bonus?

Hospitals, Social welfare institutions, Chambers of the Commerce, Indian Red Cross society or other institutions of a like nature, universities and educational institutions.

Q: How working days of an employee calculated for computing bonuses?

Computation of the number of 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;
(b) he has been on leave with salary or wage;
(c) he has been absent due to temporary disablement caused by accident arising out of and in the course of his employment; and
(d) the employee has been on maternity leave with salary or wage, during the accounting year.

Q: Can an organization pay a different percentage of bonuses to a different sets of employees?

No, the bonus percentage should be the same for every employee who is eligible under the Act. No discrimination is allowed by the act.

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