NAME : AVINASH S.

BAWANE
CLASS : LLB 3 YEARS 1ST SMESTER
ROLL NO : 17
COLLEGE : G H RAISONI LAW
COLLEGE
TOPIC : COMPREHENSIVE
ANALYSIS OF PAYMENT OF
BONUS ACT 1965 &
AMENDMENT ACT 2015
FACULTY : SWATI JOSHI
Introduction :-

The Payment of Bonus Act of 1965 imposes a contractual obligation on

employers to pay bonuses to employees in proportion to the resources
available for the establishment's smooth functioning. The Act's purpose was
to give workers a say in the company's profits and to enable them to earn
slightly more than the minimum wage based on their performance.

History Of Payment Of Bonus Act, 1965

The tradition of paying bonuses in India seems to have started during World
War I, when some textile mills gave their employees a 10% wage increase as
a war bonus in 1917. In certain cases of labour disputes, the claim for
bonus payment was also included. The Full Bench of the Labour Appellate
Tribunal established a bonus calculation formula in 1950. In 1959, a
demand was made to change the formula.

It was decided at the second and third meetings of the eighteenth Session of
the Standing Labour Committee (G.O.I) in New Delhi in March/April 1960 to
appoint a Commission to look into the issue of bonuses and develop
appropriate norms. The Government of India established a Tripartite
Commission to examine the issue of bonus payments based on earnings to
employees working in establishments in a detailed manner and make
recommendations to the Government.

The Commission's recommendations were adopted by the Indian

government with some modifications. The Payment of Bonus Act of 1965
was enacted to carry out these recommendations, and it went into effect on
September 25, 1965.

Scope And Coverage Of The Payment Of Bonus Act, 1965

The Bonus Payment Act covers the entire India. It covers any establishment
with twenty or more employees on any given day during the accounting year,
as well as any factory as specified by the factories act of 1948. Employee is
defined in Section 2 (13) of the Act as any person (other than an apprentice)
employed on a salary or wage of not more than twenty one thousand rupees
per mensem in any industry to perform any skilled or unskilled manual,
supervisory, managerial, administrative, scientific, or clerical work for hire
or compensation, regardless of whether the terms of employment are
express or implied.
The Act does not apply to the following classes of employees:

Employees employed in:

 Life Insurance Corporation of India

 Industry carried on or under the authority of any department of
Central Government or a State Government or a Local Authority.
 Indian Red Cross Society or any other institution of like nature
including its branches;
 Universities and other educational institutions;
 Hospital, Chambers of Commerce and Social Welfare Institutions
established not for purposes of profits;
 employed through contractors on building operations;
 Reserve Bank of India;
 Industrial Finance Corporation of India, Deposit Insurance
Corporation and other financial corporations being set up financially
assisted by the Government, and Unit Trust of India, Agricultural
Refinance Corporation, and Industrial Bank of India,
 Seamen as defined in Sec. 3(42) of the Merchant Shipping Act, 1958;
 Inland Water Transport establishment. (Section 32).
 Coal Mines, Provident Fund and Bonus Schemes Act, 1948.

Objective Behind The Act

The objective of the Payment of Bonus Act, 1965 is to provide for the
payment of bonus to the persons employed in certain establishments on the
basis of profits or production. The object of the Payment of Bonus Act was
very clearly described in Jalan Trading v Mill Mazdoor Sabha 1, the
Supreme Court observed that the purpose of the Bonus Act was to maintain
peace and harmony between labour and capital by allowing workers to share
the prosperity of the establishment and prescribing the maximum and
minimum rates of bonus, as well as the scheme of "set-off" and set - on to
not only secure the labour's right in the share of profits but also to ensure a
reasonable degree of uniformity.

Constitutionality Of The Act

The constitutional validity of the act was challenged in the Supreme Court
in the case of Jalan Trading Company Ltd. v. Mill Mazdoor Sabha2, on the
grounds of violation of Articles 14 and 19 of the Constitution. The Supreme
Court ruled that the main provision of the Act which required the payment
of a minimum bonus was constitutional. The payment of a bonus is fair
since it complies with Articles 39 and 43 of the Constitution.

Bonus As Under The Act

The word "bonus" is not specified anywhere in the bonus payment act. A
bonus is a monetary reward that is above and beyond the standard
payment. According to the Cambridge dictionary, a bonus is an additional
sum of money offered to you as a gift or incentive for good performance. The
primary goal of providing bonuses is to distribute the company's profits to
its workers and employees.

The bonus commission in its report suggested "It is difficult to define in rigid
terms the concept of bonus, but it is possible to urge that once the profits
exceed a certain base, labour should legitimately have a share in them. In
other words, we think it to construe the concept of bonus as sharing by the
workers in the prosperity of the concern in which they are employed.

This has also the advantage that in the case of low paid workers sharing in
prosperity augments their earnings to bridge the gap between the actual
wage and the need-based wage. If it is not feasible to better the standard of
living of all the industrial and agricultural workers as aimed at in Article 43
of the Constitution it is nothing wrong in endeavouring to do so in respect of
those workers whose efforts have contributed to the profits of the concern in
which they have worked.

The validity of such a conception of bonus is not affected by the difficulty of

determining or qualifying precisely the living wage or even the need-based:
wage at any given time and place. It appears tows that a properly conceived
bonus system that is linked to profit also imparts a measure of desirable
flexibility to wage structure. The workers are enabled to share in the
prosperity of the concern without disturbing the underlying- basic wage
structure.

Eligibility For Bonus Under The Act

The payment of bonus is a statutory right under the act and According to
the Section 8 of the act,

 The employee must receive salary/wage up to Rs. 21,000/- per month

(By the Amendment of 2015) (earlier 10,000)
 The employee must have worked in the factory or establishment for
not less than 30 days in a year
In East Asiatic Co. Ltd. Vs Industrial Tribunal 3, it was held that a
retrenched employee is eligible for bonus if they worked for a min of 30 days
and have a salary of 10,000 pm in a year.

In the case of J. K. Ginning & Pressing Factory v. Second Labour Court,

Akola & Others 4, a factory employed ten seasonal employees, and the issue
of their bonus eligibility arose. The Bombay High Court ruled that the Act
does not exclude such seasonal workers from employment; the only criterion
for eligibility is that they meet the Section 8 requirements. As a result, even
seasonal employees were deemed to be entitled to bonus payments under
the Act.

Disqualification From Bonus Under The Act :-

According to the section 9 of the act an employee shall be disqualified from

receiving bonus under the Payment of Bonus Act, 1965, if he is dismissed
from service for:

 Fraud, or
 Riotous or violent behavior while on the premises of the
establishment, or
 Theft, misappropriation or sabotage of any property of the
establishment
 This provision is based on the recommendation of Bonus Commission,
which stated that:

After all, bonus can only be shared by those workers who promote the
stability and well-being of the industry, not by those who positively exhibit
disruptive tendencies. Bonuses, without a doubt, impose a duty of good
behaviour.

The appellant, a bus conductor working for a government of Tamil Nadu

undertaking, was dismissed from service in Pandian Roadways Corporation
Ltd. vs. Presiding Officer 5. Following that, the petitioner and management
reached an agreement, and the petitioner as appointed as a new entrant.
Following that, the petitioner claimed an bonus of rs 1,842 for the duration
after his re-appointment. the court ruled in the case that " If an employee is
dismissed from service, he is disqualified from receiving any bonus under
the said Act, not just the bonus for the accounting year," the court ruled.

In Gammon India Ltd Vs Niranjan Das 6, the court held that an employee
who is dismissed from service for fraud, riotous or aggressive behaviour on
the premises of the company, or who is guilty of theft, misappropriation, or
sabotage of any establishment's property is disqualified from receiving
bonus for the accounting year under section 9 of the Payment of Bonus Act,
1965. A dismissed employee who has been reinstated with back pay has
evidently not committed the above crimes and has not been fired. As a
result, he is entitled to a bonus.

Rights Of Employer And Employee :-

The Said act defines the rights available to the employees as defined below:

 Right to claim bonus due under the Act, which allows them to make a
request to the government for payment and recovery of bonus
amounts that are not paid to them within one year of their due date
 The right to take any dispute to a Labour Court or Tribunal; however,
it is necessary to remember that employees who are not entitled to
bonuses are unable to take their case to a Labour Court or Tribunal.
 Right to seek clarity to obtain details about whatever products are in
the name of the business so that they can determine whether or not
they are being fairly compensated for their services.
 The rights available to the Employer against any exploitation or the
protection of their business are given as below:
 Rights to bring any dispute to the Labour Court or the Tribunal over a
request for an interpretation of any clause of the Act.
 Right to deduct a fair amount from an employee's bonus on account of
a bonus already paid as a festival bonus or in the event of a monetary
loss caused by the employee's misbehaviour.
 Right to deduct the value of a bonus paid to an employee who has
been fired for misbehaviour, offensive behaviour, or obstructing the
establishment's land.

Payment Of Minimum Bonus

Section 10 of the Act states that, regardless of whether the employer has
some allocable surplus in the accounting year, each employer must pay
each employee a minimum bonus equivalent to 8.33 percent of the
employee's salary or wage earned during the accounting year, or one
hundred rupees, whichever is greater. However, if an employee is under the
age of fifteen at the start of the accounting year, the terms of this Section
refer to that employee as if the words "one hundred rupees" were replaced
with "sixty rupees." Section 10 of the Act does not contradict Articles 19 and
301 of the Constitution. Even if the employer loses money during the fiscal
year, he must pay the minimum bonus as according to section 10 of the act.

In J.K. Chemicals Ltd. vs. Govt. of Maharashtra7 the court held that the
company would not be relieved from its liability to pay minimum bonus, if
the bonus liability is negligible in comparison to the loss incurred. If the
employer's damages were not caused by employee wrongdoing, the employer
must pay the statutory minimum bonus.

Payment Of Maximum Bonus

If the allocable surplus for any accounting year referred to in Section 10

exceeds the amount of the minimum bonus available to workers under that
Section, the employer is allowed to pay a bonus equal to each employee's
salary or wage received during that accounting year. In determining the
allocable surplus under this Section, the amount set on or set off under the
provisions of Section 15 must be taken into account in accordance with
those provisions.

Calculation of Bonus

For bonus calculation only employee’s Salary/Wages and Dearness

allowance is considered.

Therefore, if the Basic Salary and Dearness Allowance is less than Rs. 7,000
(calculation ceiling), the Bonus will be calculated on the actual amount, and
in case the Basic Salary and Dearness Allowance, exceeds Rs. 7,000; bonus
will be calculated on Rs 7000 only.

Bonus Calculation:

Basic Salary + DA < 7,000, then in such cases, Bonus Payable = (Basic
Salary + DA) * Amount %, either 8.33% (establishment is supposed to give
even in case of deficit) or could go up to 20%

Basic Salary + DA > 7000, then in such cases, Bonus Payable= Rs. 7000, %
either 8.33% (establishment is supposed to give even in case of deficit) or
could go up to 20%.

Proportionate reduction in bonus :-

If an employee has not worked for any day in the accounting year, his
minimum bonus which is ₹ 100 (or ₹60) or his salary or wages subject to
8.33%, whichever is higher would be reduced proportionately.

Computation of the number of working days :-

The computation of the working day is an important criterion for the

calculation of the bonus. The employee would be considered working even
on the days when he is on leave but is paid salary or wages or he is on a
maternity leave with salary or wages, or he met with an accident while in
undertaking the employment or he has been laid off under an agreement or
as permitted under the Industrial Employment Act, 1946 or Industrial
Disputes Act, 1947 or any legal provision which is applicable on the
establishment at the given time.

Set on and set off of allocable surplus

The allocable income which is left even after paying the maximum bonus at
the rate of 20% on the salary or wages, would be carried forward to the next
year to compensate in case there is any shortage in that year. This is called
set on.

However, the set off is the complete opposite of set on in which the profit
falls short to pay even the minimum bonus at the rate of 8.33%. Then, in
this case, the set on of the previous year would be used to pay the bonuses
of the given accounting year.

In calculating the bonus, the amount of set on and set off from the previous
accounting year shall be first taken into consideration. This allocable
income would be distributed to the employees in proportion to their salary
or wages in a given accounting year.

Special provisions with respect to certain establishments

In the first five accounting years, after the establishment has started selling
and manufacturing goods or rendering services, it has to pay bonuses only
in case of profits.

However, in the sixth, seventh and eighth accounting year, after the
establishment has started selling and manufacturing goods or rendering
services, the bonus shall be paid, taking into account the set on or set off.

In the case of the sixth year, the allocable surplus of the fifth and the sixth
year would be taking into account and in the case of the seventh year, the
allocable surplus of the sixth and the seventh year is taken into
consideration.

Adjustments of customary or interim bonus against bonus payable

under the Act
If the employer has paid any puja bonus or any other customary bonus or
has paid the bonus before the date on which the bonus becomes payable,
then, in that case, the employer has the right to deduct the amount of
bonus from the actual bonus payable, and the employee shall get the
remaining amount.

Deduction of certain amounts from bonus payable under the Act

If the employee is found to be guilty of misconduct due to which the

establishment has to bear losses then such an establishment has the right
to deduct the amount of loss from the bonus that has to be paid to the
employee in that accounting year and shall be paid the balance if any.

The time limit for payment of bonus

Under the provisions of this Act, the employees must be awarded the bonus
within 8 months from the closure of the accounting year. However, in cases
of disputes (under the purview of the Industrial Dispute Act), the bonus has
to be paid within 1 month from the time when the settlement becomes
effective.

Application of Act to establishments in the public sector

If any public establishment manufactures or sells any product or renders

any services and the income from them is less than 20% of the gross income
of such public establishment then the provisions of this Act shall apply to it
in the same manner as if it is a private establishment. However, except for
the above case, the provisions of this Act would not be applicable to the
employees working in the public establishment.

Recovery of bonus due to an employer

In case of any amount of the bonus which is due from an employer, the
employee can or any of his assignees or in case of his death his heirs, have
the right to make an application to the government and if it is satisfied with
the veracity of the application then it shall issue a certificate to the collector
who shall proceed to recover the amount in the like manner as if it were an
arrear of land revenue.

However, such an application must be within one year after the payment
has become due, if the application is made after the expiry one year and the
government is satisfied with the reasons for doing so, then that application
could be entertained.

Reference of disputes under the Act

In case of any dispute between the employee and the employer, that shall be
treated as an industrial dispute within the meaning of Industrial Dispute
Act or any other Act which is dedicated to the investigation and settlement
of the disputes of like nature. Such law shall be applied as expressed.

Presumption about the accuracy of balance sheet and profit and loss
account of corporations and companies

The disputes falling under the purview of the Industrial Dispute Act or any
other law dedicated to the investigation and settlement of the disputes of
like nature would be referred to an arbitrator or a tribunal in accordance
with the above-mentioned laws. If the balance sheet or the profit and loss
account of the corporations or the companies are audited by the Auditor
General of India or any other auditor who is empowered to do so under the
Companies Act, then there is no need to file an affidavit to prove its
accuracy.

However, if the tribunal or the arbitrator is certain about the inaccuracy of

the balance sheet or the profit and loss account then it can take any steps
that it deems necessary to find out the accuracy of the balance sheet and
the profit and loss accounts.

The trade unions or the employees, being a party to the dispute, can file an
application to the authority for any clarification in the balance sheet or the
profit and loss statement. The authority, after satisfying itself about the
need for such clarifications, would further direct the company and
corporation to tender the required clarification to the other party.

Audited accounts of banking companies not to be questioned

In case of the dispute (as per Section 22 of the Act), where one of the party is
a banking company and it has rendered its account, to the authority which
is duly audited, the trade union or the employee which is the other party
has no authority to question the accuracy of the accounts. However, it can
ask for information to verify the amount of bonus.

The trade union or the employee cannot ask for any information which the
banking company is not obliged to give as per the banking regulations Act.

Audit of accounts of employers, not being corporations or companies

In case of a dispute between an employee and the other party not being a
corporation or company and if it has tendered an account which is duly
audited by an auditor empowered to do so under the Companies Act, 2013
then Section 23 of the Act would be applicable.
If however the accounts are not audited and the said authority thinks that it
is necessary to have an audited account for making a decision, then it can
direct the employer to get the accounts audited by the specified time.

If the employer fails to get the accounts audited then, in that case, the
authority itself can get the accounts audited by the auditor and the
authority is also entitled to levy punishments in accordance with Section 28
of this Act. The expenses incurred by the authority, in this case, shall be
recoverable from the employer and if the employer does not pay the
expenses then it would be recovered as per Section 21 of the Act.

Maintenance of registers, records, etc

Every employer is responsible to maintain records and register in the

manner as it is prescribed in the provisions of this Act.

Inspectors

The government by way of notification in the official gazette may appoint a

person to be an inspector under the provision of this Act.

The inspector can enter any premises at a reasonable time and ask for an
examination of the accounts. The employer is legally bound to furnish the
information asked by the inspector.

Penalty

If any person contravenes a provision of this Act or fails to comply with any
of the directions made under this Act, it would be punishable for
imprisonment which shall extend up to 6 months or fine up to ₹ 1000 or
both.

Offences by companies

If any offence is committed under the provisions of this Act and the offence
is committed by the company, then everyone who is in charge of the
company or responsible for the affairs of this company would be liable and
could be proceeded against. However, if the offence has been committed
while taking all due diligence or the offence so committed was beyond the
knowledge of the person, then such person shall not be punishable under
this Act.

However, if the offence so committed was in the knowledge of the director,

manager, secretary or officer of the company then such person shall be
liable and can be punished accordingly.

Cognizance of offences
No court shall take cognisance of the offence committed under this Act
except there is a complaint by or under the authority of the government or
by an officer of the government not below the rank of the regional labour
commissioner or labour commissioner in the central and the state
government respectively. Moreover, the court under which such complaints
would be filed shall not below the court of presidency magistrate or
magistrate of the first class.

Protection of action taken under the Act

The government and the government officers are protected from any suit or
any other legal proceedings against them for their actions done in good faith
in pursuance of the provision of the given Act.

Special provisions with respect to payment of bonus linked with production

or productivity

Under the given Act, the procedure for the computation of the bonus has
been delineated, however, in certain circumstances, the payment of the
bonus is linked with the productivity and production of the given employee.
Such an arrangement will take place when there is any settlement or
agreement between the employer and the employee in this regard.

Provisions Related To Bonus Under The Code On Wages, 2019 :-

The chapter relating to bonus payments under the code on wages applies
only to establishments employing at least 20 workers on any day during the
accounting year, similar to the provisions of the Payment of Bonus Act,
1965.

An annual bonus would be paid to all workers whose salaries do not exceed
a certain monthly sum (to be determined by the federal or state
governments). Bonuses are paid on the higher of the minimum wage or the
wage limit set by the relevant government. Along the lines of the Payment of
Bonus Act, the Code on wages lists disqualifications for receiving bonuses. It
should be noted, however, that the Code also states that removal from
service due to a conviction for sexual assault would be provided a ground for
disqualification of bonus under the Code.

Employees and employers not to be precluded from entering into agreements

for grant of bonus under a different formula

It is provided that the employee and the employers can indulge in any
agreement or settlement, for the purpose of bonus, with a different formula.
If any law or rule which renders such agreement or settlement to be null
and void, that law or rule would be inconsistent to that effect.

Effect of laws and agreement inconsistent with the Act

With regards to the Section 31A of the Act, the provisions of this Act shall
apply even if there is an inconsistency with any other law in force at that
time or with respect to any agreement or settlement.

Power of exemption

If the central government finds it necessary in the public interest to prevent

the application of a certain provision of this Act in certain establishment or
class of establishment then it may, through the notification in the official
gazette, specify the time for which the application of those provisions would
be ceased for that particular establishment or class of establishment

Power to make rules

The central government has the power to make rules with regard to the
provisions of this Act. The government can make rules with respect to the
accounting year, maintenance of records and registers, working of the
inspectors under this actor any other matter which may be prescribed. The
new rule shall be presented before each house of the parliament while it is
in the session and if both the house have agreed that the rule shall be
applicable or shall be applied will have the same effect accordingly. However,
any modification or annulment made shall not be contrary to the rule
previously made.

Application of certain laws not barred

Certain enactments like the Industrial Dispute Act, 1947 or any other
statutory provision dedicated to the investigation and settlement of the
dispute in the distribution of the be applicable in such cases. The
applicability of the given legislation does not in any way bar the relevancy of
other statutes.

Statutory compliance on the part of Employer

Considering the Act, there are certain obligations or the compliances on the
part of the Employer which they are supposed to comply to, if not, they
could be subjected to certain offences or penalties provided in the act.

Several compliances that the employer needs to follow are:

  The employer shall pay the amount of Bonus within 8 months, from
the end of the accounting year, in cash
 The employer shall prepare Registers such as:
 Register having the entire computation of allocable surplus, in FORM
A
 Register showing set-on and set-off, in FORM B
 Register containing details such as amount of bonus payable,
deductions to be made, the amount disbursed, in FROM C
 Employer shall upload details of Annual Returns in FORM D, on the
Portal of Ministry of Labour and Employment, on or before 1st day of
Feb, every year
 Every employer is supposed to file Annual Return in FROM D, to the
inspector on or before 1st Feb every year
 In case of any disputes relating to the payment of bonus, and the case
is before any authority, then in such cases, amount shall be paid
within 1 month from the date the award passed becomes enforceable.

Conclusion

The Payment of Bonus Act of 1965 aims to legalise the practise of various
establishments paying bonuses. It provides a mechanism for calculating
bonus based on profit and performance. It allows workers to make more
money than the minimum wage or salary. This Act establishes various
procedures for different types of businesses, such as banks and government
agencies, as well as businesses that are not corporations or firms. This Act
also establishes a rigorous redress process in addition to the procedure.