Payment of Bonus Act 1965
1.1 What is
Bonus?
The term
‘Bonus’, though not defined in the payment of Bonus Act 1965, means sharing the
surplus with the workers, generated by common endeavour and enterprise.
1.2 Object of the Act
a. The object of
the Act is to provide for the payment of bonus to persons employed in certain
establishments, to:
i. make employer
of the establishment statutorily liable to pay bonus to employees in the
establishment;
ii. prescribe
formula for payment of bonus;
iii. provide for
payment of minimum and maximum bonus, linking the payment of bonus with 'set-off
and set-on'; scheme
iv. enforcement of
the liability for payment of bonus.
b.
Liability for bonus is a statutory liability and not a
contingent liability.
1.3 Application
of the Act (Sec. 1)
The Act applies
to whole of India
A.
It applies to :
i.
Every factory as defined under Factories Act.
ii.
Every other establishment in which 20 or more persons are
employed on any day during any accounting year. [Ramanajam Press v. R.P.F. Commr.]
iii.
Any other establishment or class of establishments as may be
notified by the appropriate Government.
B.
The term
‘Factory’ does not include :
i. a mine covered
under the Mines Act, 1952;
ii. mobile unit
belonging to the armed forces of the Union ;
iii. a railway
running shed;
iv. a hotel
restaurant or eating place.
C.
Departments,
undertakings and branches (Sec. 3)
:
All the branches, departments and
undertakings of an establishment shall be treated as part of the same
establishment for the purpose of computation of bonus under this Act
irrespective of their locations, unless the branch, department or undertaking
is maintaining a separate balance sheet and profit and loss a/c and has been
treated as a separate entity in the previous accounting year.
1.4 Categories
of employees whom the Act does not apply (Sec.32)
The payment of
bonus Act, 1965 does not apply to the employees of following establishments:
a.
GIC, LIC
b.
Seamen, Dock workers
c.
Any establishment of Central Government, State Government or
a local authority
d.
The Indian Red Cross or other institutions of its nature,
universities and other educational institutions and non-profit institutions
(including hospitals, chambers of commerce and social welfare institutions)
e.
Financial corporations, National Housing Board, NABARD, IFCI, IDBI,
SIDBI, UTI and RBI.
f.
Employees employed through contractors and building operations.
g.
Employees employed by inland water transport establishments operating on
routes passing through any other country.
h.
Deposit Insurance Corporation.
1.4.1 Person exempted from giving bonus
1. Specifically declared establishment
[ u/s 32]
2. Establishment in which
employees are less than specified minimum.
3. New establishment for 5
years. (for profit accumulation)
4.
Productivity linked bonus is applicable as per agreement signed between
employer and employee.
5. Established exempted by
govt.[u/s 36]
1.5 Power of exemption
(sec.36)
The appropriate government
may exempt certain establishment from all or any of the provision of the act,
under certain circumstances by notification in the official gazette. However,
The Court has jurisdiction to consider whether the powers under Section 36 has
been properly exercised by the Government.
1.6
Definitions (sec.2)
1.6.1 Establishment
The term
‘establishment’ means –
a.
Establishment
in private sector (Sec. 2(15)): This includes any establishment other than an establishment in
public sector.
b.
Establishment
in public sector (Sec. 2(16)): It means an
establishment owned, controlled or managed by,-
A
government company as defined in (Sec. 617) of Companies Act, 1956 (Sec. 617)
A
corporation in which not less than forty per cent of its capital is held
(whether singly or taken together) by government or by RBI
Corporation
owned by the Government or the Reserve Bank of India
1.6.2 Award [sec.2 (7)]
It means the
settlement of any industrial dispute by any appropriate authority under the
Industrial Disputes Act, which includes an arbitration award made under the Act
or under that law.
Any
question relating thereto by any Labour
Court
1.6.3 Available surplus
[sec.2 (6)]
"Available
surplus" means the available surplus computed u/s 5 of the Act.
1.6.4 Direct tax [sec. 2 (12)]
It refers to any chargeable
tax under Income Tax Act, Super Profits Act, Companies (Profits) Surtax Act,
Agricultural Income-tax Act or any other tax of direct nature as declared by
the Central government.
1.6.5
Accounting year [Sec. 2 (1)]
It means
a.
In relation to
a corporation: the year
ending on the day on which the books and accounts of the corporation are to be
closed and balanced ;
b.
In relation to a company: the period in
respect of which any profit and loss account of the company laid before it in
annual general meeting is made up.
c.
In other cases:
i.
The year commencing on the first day of April,
ii.
where accounts are not closed on 31st day of the
March, the day on which its accounts are so closed.
1.6.6 Allocable
surplus [Sec. 2 (4)]
It is the
workers' share in the “Available Surplus” as defined, in Sec. 2 (6)
a.
In case of company (other
than a banking Company) not declaring dividends, 67 per cent of
the available surplus in an accounting year;
b.
In other cases, 60 per cent of
the available surplus.
1.6.7 Employee
[Sec. 2 (13)]
'Employee'
means any person (other than an apprentice) employed on a salary or wage not
exceeding Rs.10,000 (w.e.f. 1.4.2006) in any industry to do any work (i.e.,
skilled, unskilled, manual, supervisory, managerial, administrative, technical
or clerical) on hire or reward, whether the terms of employment are expressed
or implied.
1.6.8 Employer
[Sec. 2 (14)]
'Employer'
includes:
i.
in case of Factory, the owner or occupier (including his
agent, legal representative and manager)
ii.
in other
establishment, manager, managing
director, person having the ultimate control over the affairs of the
establishment.
1.6.9 Salary or
wage [Sec. 2 (21)]
i. It includes
: all remuneration (except for overtime work) capable of being
expressed in terms of money payable to an employee in terms of employment. It
includes Dearness allowance, any food allowance or the value of free food given by the employer
provided such food allowance or food is given in lieu of the whole or part of
the salary or wages payable to him.
ii. Where an employee is given
in lieu of the whole or part of the salary or wage payable to him, free food
allowance or free food by his employer, such food allowance or the value of
such food shall, for the purpose of this clause, be deemed to form part of the
salary or wages of such employee.
iii. Salary does not
include :
any casual
allowance, value of house accommodation, supply of light, water, medical
attendance, concessional supply of food grains or other articles, traveling
concession, bonus, contribution to pension fund or provident fund, commission,
gratuity or other retirement benefit,
any remuneration in respect of over-time work. [Gopalanv. Angamaly
Chit Fund]
1.6.10 Appropriate government [Sec.2(5)]
Appropriate government
means –
i. In relation to an
establishment, the appropriate government under the Industrial Disputes Act
1947 means central government.
ii. In relation to any other
establishment, the appropriate Government means the Government of the state in
which that establishment is situated.
1.6.11 Establishment in Public or Private sector [Sec. 2(15) and 2(16)]
Establishment in private
sector [Sec.2(15)] means an establishment other than an establishment in public
sector.
Establishment in public
sector [Sec.2(16)] means an establishment owned, controlled and managed by –
a. a Government Company as
defined in Sec. 617 of the Companies Act.
b. a corporation in which not
less 40 per cent of the capital whether singly or taken together by –
i. the Government,
ii. the Reserve Bank of India
iii. a Corporation owned by the
Government or the Reserve Bank of India
1.7 Eligibility
for bonus (Sec. 8)
a. Every employee
shall be entitled to bonus if he has worked in the establishment for 30 or more
working days in an accounting year on a salary of less than Rs.10,000/- p.m. The following persons are entitled to bonus:
A temporary workman, on the basis of total number of days
worked;
A part time employee engaged on a regular basis, say, a
sweeper;
A probationer and a piece-rated worker.
An employee of a seasonal factory is entitled to proportionate bonus and
not minimum bonus as presented u/s 10 of the Act.
Employees employed through contractors on building operations (Effective
from 1.4.2006).
b.
A Retrenched/ Dismissed employee shall also be entitled to
bonus provided he had worked for the minimum qualifying period.
c.
In case of an employee suspended, he shall be entitled to
bonus if he is subsequently reinstated with full back wages. [Khas
Joyrampur Colliery Co. (Pvt.) Ltd. V. Kailash Srivastave and Superintending
Engineer Vellore
d.
Provision of Sec. 14 will not apply for the computation of the
qualifying period of 30 working days under Sec. 8 as the provisions of Section
14 are specifically enacted for the purpose of Section 13, which deals with
proportionate deductions in bonus in certain cases.
1.8 Computation
of number of working days (Sec. 14)
To compute
number of working days for determining eligibility to receive bonus, the
following period would be added to his working days:
a.
Lay-off under an agreement:
The lay off for the days which are to be deemed as
working days should be under an agreement or as permitted by the Standing
Orders.
b.
Leave with salary or wage:
The benefit under section 14(b) can be claimed if
the employee has been on leave with salary or wage. Leave without salary or
wage or any other type of leave is not entitled to the benefit.
c.
Maternity leave with salary
or wage:
Maternity leave should be with salary or wage for
determining the absence due to maternity leave as the working period.
d.
Absent due to temporary disablement
caused during the course of employment:
Such absence should be due to disablement of
temporary nature caused by an accident arisen out of and in the course of
employment. An accident is said to have arisen out of and in the course of
employment if, at the time of the accident the employee was in fact employed on
the duties of his employment, the accident occurred at the place where be was
performing his duties.
1.9
Disqualification for bonus (Sec. 9)
a.
An employee shall be disqualified from receiving bonus if
he has been dismissed from the service for committing fraud, riotous or violent
behaviour in the premises of the establishment, theft, misappropriation or
sabotage of any property of the establishment. [Burn & Co. v. Their
employees], [Calcutta Jute Mfg. Co. Ltd. V. Workers’ Union ],
[Punjab National Bank Ltd. V. Their Workmen.], [Tikaram & Sons Ltd. V.
Their Workmen]
i.
Fraud: Dismissal for fraud must
be in accordance with the standing orders of the establishment.
ii.
Riotous or violent behavior: “Whenever force or violence is used by an
unlawful assembly, every member of such assembly is guilty of the offence or
rioting”. [Sammngger Jute Factory v.
Their workmen]
iii.
Theft, Misappropriation or
Sabotage:
Theft has been defined in S. 378 and criminal misappropriation has been defined
by S. 403 of the Indian Penal Code.
The dismissal of an
employee for acts of theft, misappropriation or sabotage disqualifies him from
receiving bonus only if such are committed with respect to the property of the
establishment.
b.
Conditions for disqualification
i.
If the dismissal is due to any cause other than specifically u/s 9, the
employee will not be disqualified from receiving bonus.
ii.
The disqualification under Section 9 is applicable to the entire bonus
payable under the Bonus Act remaining unpaid on the date of the dismissal.
iii.
He is disqualified from receiving bonus in the accounting year in which
he committed fraud, theft it etc.
iv.
If the tribunal set aside the order of dismissal, he gets the right to
receive bonus.
v.
If the dismissed employee is re – instated, he will again become
eligible for receiving bonus.
1.10 Adjustment
of customary or interim bonus (Sec. 17)
Customary bonus
refers to voluntary payment to meet the special expenses of festival, It does
not require calculation of profits or allocable surplus. The employer is
authorized to deduct this type of bonus along with interim bonus (if paid) from
the total bonus payable in an accounting year.
Law does not give
recognition to puja bonus or other customary bonus. At the same time it does
not discontinue the practice of paying such bonus to the employer.
Customary bonus or interim
bonus if paid, during an accounting year should be considered as bonus paid “on
account” and deducted from the amount finally payable under the Act as bonus.
1.11 Deduction
of certain amounts from bonus (Sec. 18)
If any employee
is found guilty of misconduct causing financial loss to the employer, the
employer can deduct the amount of loss from the amount of bonus payable by him.
Such deduct are subject to
the following conditions:
i. The employee is guilty of
misconduct during an accounting year;
ii. The misconduct results in a
financial loss to the employer;
iii. The deduction is to be
equivalent to the amount of loss suffered by the employer;
iv. Deduction has to be made
only from the bonus payable in the accounting year in which the loss was
caused.
1.12 Time limit
for payment of bonus (sec.19)
i. The employer
shall pay the bonus within 8 months from the close of accounting year.
ii. In case of any
dispute of Bonus pending before any authority, bonus must be paid within a
month from the date on which the award becomes enforceable unless extended by
Govt due to sufficient reason.
1.13 Recovery
of bonus from Employer (Sec. 21)
a.
Where any money is due to an employee by way of bonus, the employee (or legal representative of dead
employee) may apply in writing (or authorise any one) to appropriate authority specified within 1
year from the date on which the money became due (the authority can entertain a
late application for sufficient cause).
The appropriate authority being
satisfied, will issue a certificate for recovery to the collector and then the
collector shall proceed to collect the money due.
b.
Section 21 of the Payment of Bonus Act, 1965 provides one of the modes
for recovery of money due as bonus under a settlement or agreement or an award
:
i. Employee is to make an
application by for the amount due to the Appropriate Government, within one year from the due date of the
money (it can be made after the expiry of the said period if the Appropriate
Government gets satisfied by the reason) shown by the applicant for not making
the application within the said period or prescribed period.
ii. In case of death of
employee his assignee or heir can make an application to the appropriate
authority.
iii. On receiving the
application; the appropriate authority, on being satisfied, will issue a
certificate to the collector who is authorized to recover the same as arrears
of land revenue.
1.14 Infancy
Protection for new establishments (Sec. 16)
In the case of
a new establishment the liability for paying bonus is judged with reference to
different accounting years as follows:
1.
First 5 accounting years. Sec. 16 (1-A) Bonus shall be payable only in respect
of the accounting year in which the employer derives profits. However, the
provisions of ‘set on or set off of allocable surplus’, as prescribed u/s 15
shall not apply.
2. 6th and 7th
accounting years. First 5 years
explained above, but applying ‘set off’ and ‘set on’ as follows (sec.15):
a.
for the 6th accounting year, ‘set on’ or ‘set
off’ shall be made as per Fourth Schedule taking into account the excess or
deficiency (if any), of the 5th and 6th
accounting years.
- for the 7th accounting
year, set on or set off, shall be made as per Fourth Schedule taking into account
the excess or deficiency, if any, of the 5th, 6th and 7th accounting years
[Sec. 16 (IB)).
3. From the 8th
accounting year. From this point, the provisions as they apply in relation to
any other establishment would be applicable. (Sec. 16 (1-C))
Clarifications:
a. An
establishment shall not be deemed to be newly set up merely by reason of a
change in its location, management, name or ownership
b. The sale of the
goods produced or manufactured during the course of the trial run of any
factory or of the prospecting stage of any mine or oilfield are not to be taken into consideration.
c. The employer
shall not be deemed to have derived profit in any accounting year, unless –
An employer must have made provision for depreciation as
entitled under the Income Tax
Arrears of depreciation and losses have been fully set of
against profits.
In the first 5 accounting
years to be reckoned from the year in which the employer begins to sell his
goods or renders service, bonus is payable only in respect of the accounting
year in which the derives profits, and the bonus is to be calculated according
to the provisions of the Act excepting Section 15.
For the sixth and seventh
accounting years, so reckoned section 15 shall apply subject to the
modification as provided under clauses (i) and (ii) of sub-section (IB) of Sec.
16. From the eighth accounting year Section 15 will totally apply.
1.15
Productivity linked Bonus (Sec. 31-A)
In case of
agreement for payment of bonus linked with production / productivity in lieu of
Annual Bonus:
1. Bonus shall be
calculated on the basis of production or productivity of employees, and shall
be paid annually and such payment of bonus shall be lieu of bonus based on
profits payable under this Act.
2. Any agreement
or settlement to deprive or relinquish the workers right to get minimum
bonus shall be void.
3. The
amount of bonus should not exceed 20% of the salary or wages earned.
1.16 Applicability of
the Act in Public Sector (sec. 20)
For a public sector establishment
having more than 20% of its gross income in selling, producing or servicing in
competition with a private sector establishment, the provisions of this Act
shall apply as they apply in private sector.
Once the Act has been made
applicable to an establishment, it will continue to be governed by the
provisions of the Act although the number of employees may fall below 20.
In case of a factory which
ceases to be a factory within the Factories Act, 1978, the Bonus Act will not
be attracted to it. [S. 1(B)]
1.17 Rights of Employers
An
employer has the following rights:
1.
Employer has the right to forfeit bonus of an employee who has been
dismissed from service for fraud, riotous or violent behaviour or theft,
misappropriation or sabotage of any property of the establishment.
2.
Employer has the right to refer any dispute relating to application or
interpretation of any provision of the Act to the Labour Court of Labour
Tribulal.
3.
Employer has the right to make permissible deductions from the bonus
payable to an employee, such as festival/interim bonus paid and financial loss
caused by misconduct of the employee.
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