| Details | Information |
|---|---|
| Act Year | 1965 |
| Enactment Date | September 25, 1965 |
| Short Title | The Payment of Bonus Act, 1965 |
| Purpose of the Act | To provide for the payment of bonuses to employees working in specific establishments. |
| Ministry Responsible | Ministry of Labour and Employment |
| Enforcement Date | September 25, 1965 |
Section 1: Short title, extent, and application
1. This Act is called the Payment of Bonus Act, 1965.
2. It applies to all of India.
3. The Act covers:
– Every factory.
– Any establishment employing 20 or more people during any day of an accounting year.
Note: The government can extend the Act to establishments with fewer than 20 employees (but not less than 10) by issuing a notification with two months’ notice.
4. The Act applies to accounting years starting from 1964 onward.
– In Jammu & Kashmir, it applies from 1968 onward.
– For establishments covered by a special notification, the Act applies from the specified accounting year in that notification.
5. Once an establishment comes under the Act, it continues to be governed by the Act even if the number of employees falls below 20 (or the number mentioned in the notification).
Section 2: Definitions
In this Act:
1. Accounting year refers to:
– For corporations: the year when accounts are closed.
– For companies: the period covered by their profit and loss account presented at the annual general meeting.
– For others: typically, the year starting on April 1, unless the establishment’s accounts close on another date.
2. Agricultural income: As defined in the Income-tax Act.
3. Agricultural income-tax law: Laws related to taxes on agricultural income.
4. Allocable surplus: Refers to 67% of available surplus for some companies, and 60% for others.
5. Appropriate Government: The Central or State Government, depending on the establishment’s jurisdiction.
6. Available surplus: As calculated under Section 5.
7. Award: A decision or settlement related to industrial disputes.
8. Banking company: As defined in the Banking Companies Act.
9. Company: As defined in the Companies Act, including foreign companies.
10. Co-operative society: A society registered under the Co-operative Societies Act.
11. Corporation: Any body corporate established by law (excluding companies and co-operatives).
12. Direct tax: Taxes like income tax, super profits tax, and agricultural income tax.
13. Employee: A person employed in an industry earning up to ₹21,000 per month, excluding apprentices.
14. Employer: Includes the owner, occupier, or manager of an establishment.
15. Establishment in the private sector: Establishments that aren’t public sector enterprises.
16. Establishment in the public sector: Government-owned or controlled entities.
17. Factory: As defined in the Factories Act.
18. Gross profits: Calculated under Section 4.
19. Income-tax Act: The Income-tax Act, 1961.
20. Prescribed: Rules made under this Act.
21. Salary or wage: All earnings, excluding overtime, for work done by an employee. Includes dearness allowance but excludes other benefits like housing, travel, and bonuses.
Section 3: Establishments to include departments, undertakings, and branches
If an establishment has multiple departments or branches, they are all considered part of the same establishment for calculating bonuses. However, if a separate profit and loss account is maintained for any branch, it is treated as a separate establishment for that year unless it was previously considered part of the main establishment.
Section 4: Computation of gross profits
Gross profits are calculated:
– For banking companies, as per the First Schedule
– For other establishments, as per the Second Schedule
Section 5: Computation of available surplus
Available surplus is calculated by deducting certain expenses from the gross profits for the year, as outlined in Section 6.
Section 6: Sums deductible from gross profits
The following are deducted from gross profits:
– Depreciation as per the Income-tax Act.
– Development rebate or investment allowance.
– Direct taxes payable by the employer.
– Other sums specified in the Third Schedule.
Section 7: Calculation of direct tax payable by the employer
The direct tax payable by the employer is calculated at the rates applicable for that year, excluding certain losses, exemptions, or rebates.
Section 8: Eligibility for bonus
Every employee who has worked at least 30 days in an accounting year is entitled to a bonus.
Section 9: Disqualification for bonus
An employee is disqualified from receiving a bonus if dismissed for:
– Fraud.
– Violent behavior at the workplace.
– Theft, misappropriation, or sabotage of company property.
Section 10: Payment of minimum bonus
Every employer must pay a minimum bonus of 8.33% of the salary or ₹100, whichever is higher, for each accounting year. If the employee is under 15 years old, the minimum bonus is ₹60.
Section 11: Payment of Maximum Bonus
1. If the bonus amount (allocable surplus) exceeds the minimum required bonus for a particular year, the employer must pay a higher bonus, based on the employee’s salary, up to a maximum of 20% of their salary.
2. The bonus is calculated considering any amounts carried forward (set on) or carried over (set off) from previous years, as outlined in Section 15
Section 12: Calculation of Bonus for Certain Employees
1. If an employee’s salary is higher than ₹7,000 per month (or the minimum wage for their job, whichever is higher), the bonus will still be calculated as if their salary is ₹7,000 or the minimum wage for that job.
Section 13: Proportionate Reduction in Bonus
1. If an employee hasn’t worked for all the days in a year, their minimum bonus will be reduced based on the days they actually worked.
Section 14: Calculation of Working Days
An employee is considered to have worked on days when:
– They were laid off due to agreements or legal provisions.
– They were on paid leave.
– They were absent due to a work-related injury.
– They were on paid maternity leave.
Section 15: Set On and Set Off of Allocable Surplus
1. If the bonus exceeds the maximum payable amount in a year, the excess is carried forward (set on) for up to four years, to be used for future bonuses.
2. If the bonus falls short of the minimum payable amount, the shortage is carried forward (set off) for up to four years.
3. The first amount carried forward from previous years is used when calculating bonuses.
Section 16: Special Provisions for New Establishments
1. In the first five years of a new business, bonus is only paid if the company makes a profit. The bonus will not include set on or set off amounts.
2. In the sixth and seventh years, the company will include set on or set off calculations.
3. From the eighth year onward, the regular bonus rules apply.
Section 17: Adjustment of Customary or Interim Bonus
If the employer has already paid a customary bonus (like a festival bonus) or part of the year’s bonus, they can deduct that amount from the final bonus payment.
Section 18: Deduction for Employee Misconduct
If an employee causes financial loss to the company due to misconduct, the company can deduct the loss amount from the bonus payable to the employee for that year.
Section 19: Time Limit for Payment of Bonus
The employer must pay the bonus:
– Within one month after a legal dispute about the bonus is resolved, or
– Within eight months from the end of the accounting year. This period can be extended by the government, but not for more than two years.
Section 20: Application to Public Sector Establishments
1. If a public sector company competes with private sector companies and earns at least 20% of its income from sales or services, it must follow the same bonus rules as private companies.
2. Public sector employees are generally excluded from this bonus law unless they fall under the specific situation mentioned above.
Section 21: Recovery of Bonus from Employer
If an employee is owed a bonus by their employer under an agreement, settlement, or award, they or someone authorized by them (or their heirs, in case of death) can apply to the government to recover the money. If the government verifies that the money is due, they will instruct the local authority (Collector) to collect the amount like an unpaid tax.
The application must be made within one year of the bonus being due. However, if there’s a valid reason for delay, the government can accept applications after this period.
For this section, the term “employee” includes those eligible for a bonus under this Act but no longer working for the employer.
Section 22: Dispute Resolution for Bonus Claims
Any dispute about bonus payments or the application of the Bonus Act in a public sector organization will be treated as an “industrial dispute.” This means it will be handled under the Industrial Disputes Act, 1947, or similar state laws.
Section 23: Trust in Audited Accounts for Corporations and Companies
During any arbitration or legal proceedings related to a bonus dispute, if a corporation or company (except banks) submits an audited balance sheet and profit-and-loss statement, these documents are generally presumed accurate. There’s no need for further proof unless the authority believes they are incorrect.
If employees or their union need clarification on these documents, the company must provide the necessary explanations as directed.
Section 24: Audited Accounts of Banks Cannot be Questioned
In a bonus dispute involving a banking company, the submitted audited accounts cannot be questioned. However, employees or their union may request information from the bank to verify the bonus amount, as long as the request doesn’t violate other banking laws.
Section 25: Auditing of Non-Corporate Employers’ Accounts
In a bonus dispute involving a non-corporate employer (not a company or corporation), the same trust in audited accounts applies as in section 23. If the accounts aren’t already audited, the authority may order an audit, and the employer must comply.
If the employer refuses, the authority can arrange for an audit, and the employer will be responsible for the costs.
Section 26: Record Keeping by Employers
Employers must maintain certain records and documents in the format prescribed by the law to ensure transparency regarding employee payments and bonuses.
Section 27: Appointment of Inspectors
The government can appoint inspectors to ensure compliance with the Bonus Act. These inspectors can request information, enter premises, examine records, and question individuals to ensure the law is being followed.
Inspectors have the authority to take copies of relevant documents and must be treated as public servants. However, they cannot demand information from banks that isn’t required by banking laws.
Section 28: Penalties for Non-Compliance
If an employer or individual breaks the rules of the Bonus Act or fails to follow instructions, they can be punished with up to six months of imprisonment, a fine of up to 1,000 rupees, or both.
Section 29: Offences by Companies
If a company breaks the rules, those in charge, such as directors or managers, will also be held responsible, unless they can prove they had no knowledge of the violation or did everything possible to prevent it.
If the violation occurred with the consent of any company official (like a director or manager), they will be held guilty as well.
Section 30: Legal Proceedings for Offences
Legal cases under this Act can only be initiated if a complaint is made by the government or an authorized officer. Only high-ranking courts, like a presidency magistrate or first-class magistrate, can try these cases.
Section 31: Protection of Government Actions under the Act
No legal action, such as a lawsuit or prosecution, can be taken against the Government or its officers for anything done in good faith as part of this Act or any rules made under it.
Section 31A: Special Provision for Bonus Linked to Production or Productivity Notwithstanding anything else in this Act:
1. If an agreement or settlement between employees and employers was made before the Payment of Bonus (Amendment) Act of 1976, or
2. If such an agreement is made after the Act came into effect,
employees are entitled to receive an annual bonus based on production or productivity, instead of the usual profit-based bonus.
However, any agreement where employees give up their right to receive the minimum bonus under Section 10 is invalid, and the bonus given cannot exceed 20% of their salary or wage for that year.
Section 32: Act Exemptions for Certain Employees
This Act does not apply to:
1. Employees of general insurance companies and the Life Insurance Corporation of India.
2. Seamen, as defined in the Merchant Shipping Act, 1958.
3. Employees registered under the Dock Workers (Regulation of Employment) Act, 1948.
4. Employees working in industries managed by the Central or State Government or local authorities.
5. Employees of non-profit institutions like the Indian Red Cross Society, universities, and social welfare organizations.
6. Employees of the Reserve Bank of India, and various financial institutions, such as the National Bank for Agriculture and Rural Development, Unit Trust of India, Industrial Development Bank of India, and Small Industries Development Bank of India.
7. Employees working in inland water transport that operates across other countries.
Section 33: Repealed Section
This section, which originally addressed disputes about bonus payments, was repealed by the Payment of Bonus (Amendment) Act of 1976.
Section 34: Overriding Effect of the Act
The provisions of this Act override any conflicting laws, agreements, or contracts of service unless mentioned in Section 31A.
Section 35: Saving Clause
This Act does not affect the provisions of the Coal Mines Provident Fund and Bonus Schemes Act, 1948, or any related schemes.
Section 36: Power to Grant Exemptions
The Government may exempt certain establishments from parts or all of this Act, based on their financial condition and other factors, if it is deemed in the public interest. This exemption is made by notification in the Official Gazette for a specified period and under conditions set by the Government.
Section 37: Repealed Section
This section, which originally granted power to remove difficulties, was repealed by the Payment of Bonus (Amendment) Act of 1976.
Section 38: Power to Make Rules
1. The Central Government may make rules to carry out the provisions of this Act, after public notice.
2. The rules may include matters like:
– The authority responsible for granting permissions under Section 2.
– Preparing and maintaining records and documents under Section 26.
– Powers given to Inspectors under Section 27.
– Any other prescribed matters.
3. Any rule made must be presented to both Houses of Parliament for approval, and if modified or annulled, the rule will be updated accordingly.
Section 39: Application of Other Laws Not Restricted
This Act is in addition to other laws, such as the Industrial Disputes Act, 1947, that deal with resolving industrial disputes.
Section 40: Repeal and Saving
1. The Payment of Bonus Ordinance, 1965, is repealed.
2. Any actions taken under the Ordinance are considered valid under this Act, as if it had been in effect from May 29, 1965.