An Article on the Payment of Bonus Act, 1965 By S K Gupta, Advocate, Supreme Court, Delhi Email: skpfdelhi@gmail.com www.makeinindialawfirm.com What is Bonus? Bonus is the extra payment given to employees in addition to their salary. The purpose of bonus is to motivate the employees. From the enactment of Bonus Act, 1965, bonus has become mandatory obligations for all establishments to whom it is applicable. The act has set two limits for bonus payment, one is minimum bonus and other is maximum bonus. To whom Bonus is applicable? The payment of bonus act extends to the whole of India. The Provisions of this Act, 1965 shall apply to the following factories/ establishments:- · The factory defined in clause (m) of section 2 of the Factories Act, 1948. · Every other establishment in which 20 or more persons are employed on any day during an accounting year. · The Act to also apply to public sectors in certain cases. If in any accounting year an establishment in public sector sells any goods produce or manufacture by it or render any services in competition with an establishment in private sector and the income such sale or services or both is not less than 20% of the gross income of the establishment in private sector for that year then the provision of such Act shall apply to such establishment in public sector. Otherwise nothing in this Act shall apply to employees employed by any establishment in public sector. In brief: · The payment of Bonus Act, 1965 applies to the person employed in every factory and establishment employing not less than 20 persons on any day during an accounting year. The establishment covered under the provisions of Act, 1965 shall continue to pay bonus even if the number of employees falls below 20, and such establishment has to continue to pay bonus o their employees. Exempted Establishment ( Section 32) The Act will not apply to following classes of employees: · Employees of LIC · Seamen as defined in clause 42 of section of the merchant shipping act 1958 · Employees registered or listed under any scheme made under the dock workers Act 1948, and employed by the registered or listed employers. · Employees of any industry controlled by central or state government or a local authority. · Employees of Indian red cross society or university/education institutions, institutions not for the purpose of profit. · Employees employed through contractor on building operations · Employee of RBI · Employees of IFCI, any financial corporation under section 3 or 3a of the state financial corporation act 1951, deposit insurance corporation, agriculture refinance corporation, UTI, IDBI or any financial institution being any establishment in public sector which central government notifies in official gazette with regard to its capital structure its objects, its extent of financial assistance any other relevant factor. · Employees of inland water transport establishment operating on routes passing through any other country. Is there any benefit to new establishments? For the first 5 accounting year following the accounting year in which the employers sells goods/render services, bonus is payable only in respect of the accounting year, in which profit is made. Which employee is eligible for Bonus? An employee, who · Completes 30 days in that year as per section 8. · is drawing Basic Salary and DA of Rs. 21000 or below per month. · An apprentice is not eligible for bonus. How bonus is calculated? According to latest notification of 2015, the bonus ceiling is now raised to Rs. 21,000. Accordingly, the calculation ceiling has also been raised from Rs. 3,500 to Rs. 7,000. This means all employees whose salary is less than Rs. 21,000 per month fall under the criteria of bonus. If the salary of an employee exceeds Rs. 7,000, then bonus should be calculated on Rs. 7,000 only or minimum wages of that State whichever is higher. If the salary of an employee is less than Rs. 7,000, then the bonus is to be calculated on the actual amount. The bonus calculation is Rs. 7,000 or the minimum wages as specified by the government, whichever is higher. Minimum & Maximum Bonus An employee has to have worked for at least 30 days in that company. According to the Bonus Act, 1965 a minimum of 8.33% up to 20% of his basic (earned) wages is to be paid to the employee. S No Salary Scenario [ Salary = Monthly Gross Salary ( including DA ) minus Other allowances ] Actual Salary (e.g) ( To calculate bonus for…. ) 1 More than minimum wage Less than Rs 7000 Minimum Wage less than Rs 7000 6500 Actual salary, ie., 6500 2 More than minimum wage More than 7000 Minimum Wage more than 7000 9000 Minimum Wage 3 More than minimum wage More than 7000 Minimum Wage less than 7000 20000 7000 4 More than minimum wage Equal to 7000 Minimum Wage less than 7000 7000 Actual salary, ie., 7000 5 Less than minimum wage Less than 7000 Minimum Wage less than 7000 5000 Actual salary, ie., 5000 6 Less than minimum wage Less than 7000 Minimum Wage more than 7000 6000 Actual salary, ie., 6000 7 Less than minimum wage Equal to 7000 Minimum Wage more than 7000 7000 Actual salary, ie., 7000 8 Less than minimum wage More than 7000 Minimum Wage more than 7000 7500 Actual salary, ie., 7500 9 Equal to Minimum wage Less than 7000 Minimum Wage less than 7000 6000 Actual salary, ie., 6000 10 Equal to minimum wage Equal to 7000 Minimum Wage equal to 7000 7000 Actual salary, ie., 7000 11 Equal to minimum wage More than 7000 Minimum Wage more than 7000 8000 Minimum Wage, ie., 8000 12 Minimum wage not fixed Less than 7000 6000 Actual salary, ie., 6000 13 Minimum wage not fixed More than 7000 18000 7000 14 Minimum Wage not fixed Equal to 7000 7000 Actual salary, ie., 7000 15 More than minimum wage More than 7000 Exceeding 21000 >21000 Not eligible Period of payment Bonus is to be paid within 8 months of closing the book of accounts. Definition of wages under the Bonus Act, 1965 The definition of term salary in its exclusion clause say "(i) any other allowance which the employee is for the time being entitled to" It is necessary to understand as to what are those allowances which the employee is for the time being entitled to. All the temporary allowances i.e. such allowances paid to employee for time being are excluded from term ‘salary or wage’ and thus not to be considered while calculation of Bonus, but the allowances which are permanent in nature and are attached to the post and are not payable for time being, are within the scope of main part of the definition of salary or wage occurring in section 2(21) of the Act, hence they shall form part of salary or wage and thus Bonus is to be calculated on these amount/allowances also. The Hon’ble Supreme Court in case of “S. Krishnamurthy vs. The Presiding Officer, Central Government Labour Court, 1986(1) LLJ 133 = 1986(1) LLN 710, decided on 13 August, 1985, while considering whether ‘City Compensatory Allowance” is to be treated as part of wages within the meaning of section 2(21) of the Act, remarked that “The allowance was one attached to the post and there was therefore no question of the allowance being payable for the time being only “and finally held that “The employees will be paid the bonus to which they are entitled after taking into account the City Compensatory Allowance….”. Madras High Court also set principle that City compensatory allowance is also wages or salary as defined under Section 2(21) of the Act,1965. ( Jeeva Transport Corp Ltd. Vs. PO , LC ,) In the matter Bhagaband Collery Vs. Their Workmen also further defined wages and salary under the Payment of Bonus Act,1965. Hence, it is crystal clear that the allowances which are permanent in nature and are attached to the post and are being paid in terms of the employment are within the scope of main part of definition of salary or wage and is to be considered while calculating the bonus under the Act. Calculations of Available/Allocable Surplus As per the bonus Act, 1965, first we need to calculate available/Allocable Surplus Based on particular Financial Year of any establishment /company in Form A & Form B (given in the Bonus Act) Calculation: Available Surplus =Net Profit-Direct/Indirect Tax payable by the employer Tax Payable. Allocable Surplus=60% of Available Surplus, in case of Foreign Companies its 67% of Available Surplus. For calculating amount of bonus in respect of Accounting Year Allocable Surplus is computed after considering the amount of Set ON & Set OFF from the previous FY The amount so computed from Allocable Surplus is disbursed in proportionate to Wages/Salaries received by them during Accounting Year . Statutory Return: Form A, B & C has to be submitted to the Labour Office. Die sieben Tage dauern, oder über unsere kürzlich eingeführte Option „Jetzt kaufen“ oder „Bestes Angebot“ verfügbar sind. 2023 best perfect repliky hodinek with high quality on sale.
By S K Gupta, Advocate, Supreme Court, Delhi
Email: skpfdelhi@gmail.com
www.makeinindialawfirm.com
What is Bonus?
Bonus is the extra payment given to employees in addition to their salary. The purpose of bonus is to motivate the employees. From the enactment of Bonus Act, 1965, bonus has become mandatory obligations for all establishments to whom it is applicable. The act has set two limits for bonus payment, one is minimum bonus and other is maximum bonus.
To whom Bonus is applicable?
The payment of bonus act extends to the whole of India. The Provisions of this Act, 1965 shall apply to the following factories/ establishments:-
· The factory defined in clause (m) of section 2 of the Factories Act, 1948.
· Every other establishment in which 20 or more persons are employed on any day during an accounting year.
· The Act to also apply to public sectors in certain cases. If in any accounting year an establishment in public sector sells any goods produce or manufacture by it or render any services in competition with an establishment in private sector and the income such sale or services or both is not less than 20% of the gross income of the establishment in private sector for that year then the provision of such Act shall apply to such establishment in public sector. Otherwise nothing in this Act shall apply to employees employed by any establishment in public sector.
In brief:
· The payment of Bonus Act, 1965 applies to the person employed in every factory and establishment employing not less than 20 persons on any day during an accounting year. The establishment covered under the provisions of Act, 1965 shall continue to pay bonus even if the number of employees falls below 20, and such establishment has to continue to pay bonus o their employees.
Exempted Establishment ( Section 32)
The Act will not apply to following classes of employees:
· Employees of LIC
· Seamen as defined in clause 42 of section of the merchant shipping act 1958
· Employees registered or listed under any scheme made under the dock workers Act 1948, and employed by the registered or listed employers.
· Employees of any industry controlled by central or state government or a local authority.
· Employees of Indian red cross society or university/education institutions, institutions not for the purpose of profit.
· Employees employed through contractor on building operations
· Employee of RBI
· Employees of IFCI, any financial corporation under section 3 or 3a of the state financial corporation act 1951, deposit insurance corporation, agriculture refinance corporation, UTI, IDBI or any financial institution being any establishment in public sector which central government notifies in official gazette with regard to its capital structure its objects, its extent of financial assistance any other relevant factor.
· Employees of inland water transport establishment operating on routes passing through any other country.
Is there any benefit to new establishments?
For the first 5 accounting year following the accounting year in which the employers sells goods/render services, bonus is payable only in respect of the accounting year, in which profit is made.
Which employee is eligible for Bonus?
An employee, who
· Completes 30 days in that year as per section 8.
· is drawing Basic Salary and DA of Rs. 21000 or below per month.
· An apprentice is not eligible for bonus.
How bonus is calculated?
According to latest notification of 2015, the bonus ceiling is now raised to Rs. 21,000. Accordingly, the calculation ceiling has also been raised from Rs. 3,500 to Rs. 7,000.
This means all employees whose salary is less than Rs. 21,000 per month fall under the criteria of bonus. If the salary of an employee exceeds Rs. 7,000, then bonus should be calculated on Rs. 7,000 only or minimum wages of that State whichever is higher. If the salary of an employee is less than Rs. 7,000, then the bonus is to be calculated on the actual amount.
The bonus calculation is Rs. 7,000 or the minimum wages as specified by the government, whichever is higher.
Minimum & Maximum Bonus
S No
Salary Scenario
[ Salary = Monthly Gross Salary ( including DA ) minus Other allowances ]
Actual Salary (e.g)
( To calculate bonus for…. )
1
More than minimum wage
Less than Rs 7000
Minimum Wage less than Rs 7000
6500
Actual salary, ie., 6500
2
More than 7000
Minimum Wage more than 7000
9000
Minimum Wage
3
Minimum Wage less than 7000
20000
7000
4
Equal to 7000
Actual salary, ie., 7000
5
Less than minimum wage
Less than 7000
5000
Actual salary, ie., 5000
6
6000
Actual salary, ie., 6000
7
8
7500
Actual salary, ie., 7500
9
Equal to Minimum wage
10
Equal to minimum wage
Minimum Wage equal to 7000
11
8000
Minimum Wage, ie., 8000
12
Minimum wage not fixed
13
18000
14
Minimum Wage not fixed
15
Exceeding 21000
>21000
Not eligible
Period of payment
Bonus is to be paid within 8 months of closing the book of accounts.
Definition of wages under the Bonus Act, 1965
The definition of term salary in its exclusion clause say "(i) any other allowance which the employee is for the time being entitled to"
It is necessary to understand as to what are those allowances which the employee is for the time being entitled to. All the temporary allowances i.e. such allowances paid to employee for time being are excluded from term ‘salary or wage’ and thus not to be considered while calculation of Bonus, but the allowances which are permanent in nature and are attached to the post and are not payable for time being, are within the scope of main part of the definition of salary or wage occurring in section 2(21) of the Act, hence they shall form part of salary or wage and thus Bonus is to be calculated on these amount/allowances also.
The Hon’ble Supreme Court in case of “S. Krishnamurthy vs. The Presiding Officer, Central Government Labour Court, 1986(1) LLJ 133 = 1986(1) LLN 710, decided on 13 August, 1985, while considering whether ‘City Compensatory Allowance” is to be treated as part of wages within the meaning of section 2(21) of the Act, remarked that “The allowance was one attached to the post and there was therefore no question of the allowance being payable for the time being only “and finally held that “The employees will be paid the bonus to which they are entitled after taking into account the City Compensatory Allowance….”.
Madras High Court also set principle that City compensatory allowance is also wages or salary as defined under Section 2(21) of the Act,1965. ( Jeeva Transport Corp Ltd. Vs. PO , LC ,)
In the matter Bhagaband Collery Vs. Their Workmen also further defined wages and salary under the Payment of Bonus Act,1965.
Hence, it is crystal clear that the allowances which are permanent in nature and are attached to the post and are being paid in terms of the employment are within the scope of main part of definition of salary or wage and is to be considered while calculating the bonus under the Act.
Calculations of Available/Allocable Surplus
As per the bonus Act, 1965, first we need to calculate available/Allocable Surplus Based on particular Financial Year of any establishment /company in Form A & Form B (given in the Bonus Act)
Calculation: Available Surplus =Net Profit-Direct/Indirect Tax payable by the employer Tax Payable. Allocable Surplus=60% of Available Surplus, in case of Foreign Companies its 67% of Available Surplus.
For calculating amount of bonus in respect of Accounting Year Allocable Surplus is computed after considering the amount of Set ON & Set OFF from the previous FY The amount so computed from Allocable Surplus is disbursed in proportionate to Wages/Salaries received by them during Accounting Year .
Statutory Return: Form A, B & C has to be submitted to the Labour Office.