Payment of Bonus Act 1965: Objectives and Definitions

Payment of bonus Act, 1965 the concept of bonus has undergone considerable change. The obligation to pay a minimum bonus irrespective of the financial results has turned bonus into an additional statutory payment by an employer to his employees.

payment of bonus act-1965

Short Title, Extent of Payment of Bonus Act[Section 1]

  1. This Act may be called the Payment of Bonus Act, 1965.
  2. It extends to the whole of India.
  3. Save as otherwise provided in this Act, it shall apply to: Every factory and Every other establishment in which twenty or more persons are employed on any day during an accounting year.

Objectives of Payment of Bonus Act

  1. To impose statutory liability upon an employer of every of every establishment covered by the Act to pay bonus to employees in the establishment.
  2. To define the principle of payment of payment of bonus according to the prescribed formula.
  3. To provide for payment of minimum and maximum bonus and linking the payment of bonus with the scheme of ‘set-off and set-on.
  4. To provide machinery for enforcement of the liability for payment of bonus.

Definitions Under Payment of Bonus Act

  1. Accounting Year[Section 2(1)] means:(i) 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;
    (ii) 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, whether that period is a year or not;
    (iii) in any other case- (a) the year commencing on the 1st day of April; or (b) if the accounts of an establishment maintained by the employer thereof are closed and balanced on any day other than the 31st day of March, then, at the option of the employer, the year ending on the day on which its accounts are so closed and balanced.
  2. Aallocable Surplus [Section 2 (4)] means:
    i). in relation to an employer, being a company (other than a banking company)] which has not made the arrangements prescribed under the Income-tax Act for the declaration and payment within India of the dividends payable out of its profits in accordance with the provisions of section 194 of that Act, 67% of the available surplus in an accounting year;
    ii). in any other case, 60 per cent of such available surplus.

  3.  Direct Tax” means:
    i). Any tax chargeable under-

    (i) The Income-tax Act; 1961.
    (ii) The Super Profits Act, 1963.
    (iii) The Companies (Profits) Surtax Act, 1964.
    (iv) The Agricultural income-tax law; and

    ii). any other tax which, having regard to its nature or incidence, may be declared by the Central Government, by notification in the Official Gazette, to be a direct tax for the purposes of this Act.

  4. Company [Section 2(12)]: Company means any company as defined in Section 3 of the Companies Act, 1956 and includes a foreign company within the meaning of Section 591 of the Act.

Eligibility for Bonus

Every employee shall be entitled to be paid by his employer in an accounting year, bonus, in accordance with the provisions of the Act, provided he has worked in this establishment for not less than 30 working days in that year.

Disqualification for Bonus

  1. Fraud
  2. Riotous or violent behaviour while on the premises of the establishment; and
  3. Theft, misappropriation or sabotage of any property of the establishment.

Calculation of Bonus [Sections 12]

Where the salary or wage of an employee exceeds Two thousand and five hundred rupees per mensem, the bonus payable to such employee under section 10 or as the case may be, under section 11, shall be calculated as if his salary or wage were two thousand and five hundred rupees per mensem.