Payment of Bonus Act, 1965

Payment of Bonus Act, 1965 There are different types of bonuses given by Employers to its workforce. Here we are talking about the bonus which is mandatory as per the law. It shall apply to-- (a) every factory; (defined by Factory Act, 1948) and (b) every other establishment in which twenty or more persons are employed on any day during an accounting year. Establishments covered under this Act shall continue to pay bonus even if the falls below threshold number.. The conditions which are to be satisfied for the payment of Bonus are: An employee has to have worked for at least 30 days in that company. According to the Bonus Act, a minimum of 8.33% up to 20% of his earned wages is to be paid to the employee. Note: Bonus is to be paid within 8 months of closing the book of accounts. Later developed the trend of paying near Diwali without knowing the statutory compliances. For the first 5 years, organizations need not pay the bonus if they have made losses. If they have made profits in any year in the first 5-year period, they will have to pay out the bonus for that particular year. After the completion of 5 years, organizations are required to pay the bonus, irrespective of whether they are making a profit or loss. Computation of number of working days. For the purposes of calculating working days, an employee shall be deemed to have worked in an establishment in any accounting year also on the days on which-- (a) he has been laid off under an agreement or as permitted by standing orders under the Industrial Employment (Standing Orders) Act, 1946, or under the Industrial Disputes Act, 1947 , or under any other law applicable to the establishment; (b) he has been on leave with salary or wage; (c) he has been absent due to temporary disablement caused by accident arising out of and in the course of his employment; and (d) the employee has been on maternity leave with salary or wage, during the accounting year. (consider updated Maternity Benefit Act) Establishments to include departments, undertakings and branches. Where an establishment consists of different department or undertakings or has branches, whether situated in the same place or in different places, all such departments or undertakings or branches shall be treated as parts of the same establishment for the purpose of computation of bonus under this Act: Provided that where for any accounting year a separate balance-sheet and profit and loss account are prepared and maintained in respect of any such department or undertaking or branch, then, such department or undertaking or branch shall be treated as a separate establishment for the purpose of computation of bonus, under this Act for that year, unless such department or undertaking or branch was, immediately before the commencement of that accounting year treated as part of the establishment for the purpose of computation of bonus. This is done so that the companies unnecessarily don’t show them as separate units. Bonus Calculations: For Payment of Bonus, the eligibility is to be determined with the Basic + DA. If the Basic+DA is 21000 or less, the employee is eligible. Wage to be considered for calculation of Bonus for such eligible employees is Rs 7,000 only or minimum wages whichever is higher (For every employee whose Basic+DA is between 7000 and 21000). 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 or minimum wages 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 Examples: 1: Assume your basic + DA is INR 5000, then your minimum bonus is 8.33% of 5000, which is 416.5. 2: Assume your basic +DA is INR 8000, and you live in Rajasthan where the minimum wage is INR 5720 per month, then your minimum bonus will be 8.33% of INR 7000. 3: Assume your basic +DA is INR 8000, and you live in Delhi where the minimum wage is INR 13,000 per month, then your minimum bonus will be 8.33% of INR 13,000, this is because minimum wage is higher than INR 7,000. Every employee whether on probation, part time, contractual, permanent, supervisor or manager whose wage is less than or equal to Rs 21,000/- and has completed 30 days in an accounting year is eligible for bonus. Apprentice under Apprentice act are not eligible. Question: If an employee earns Rs 40,000 total monthly salary, but Basic + DA is Rs 20,000, is the employee eligible for Statutory Bonus? Answer: Yes, such an employee is eligible for payment of Statutory Bonus because Basic + DA is less than INR 21,000/-. Question: Could there be more than one rate of bonus in a company? Can bonus rate be reduced in between if the existing payment of bonus is maximum, i.e. 20%? Answer: No. It should be equal for all eligible employees. Statutorily, it is required to be between 8.33% and 20%. Percentage of Bonus can be different each Accounting year, as it is on the profit earned. Disqualification for Bonus An employee shall be disqualified from receiving bonus under this Act, if he is dismissed from service for -- 1. Fraud 2. Riotous or violent behavior in the premises of the establishment, 3. Theft, misappropriation or sabotage of any property of establishment, 4. Conviction for sexual harassment Different situations: Those who are on Leaves with wages - Bonus is paid Those who are on Leaves without wages - No Bonus is paid Accident in Factory - Bonus is paid No bonus for illegal work such as fraud, sexual harassment For Poor performance - bonus is paid Have to follow same format in all the branches Question: Which institutions are exempted from payment of bonus? Answer: Hospitals, Social welfare institutions, Chambers of the Commerce , Indian Red Cross society or other institutions of a like nature, universities and educational institutions. Question: If the company has a performance bonus as part of the regular salary for all employees, will the Statutory Bonus still apply? Can the variable performance bonus be treated as payment against this liability? Answer: No. Performance bonus is based on the skills of the individual, it cannot be considered as Statutory Bonus. Question: Is a manger covered under his act if his Basic + BA is Rs. 20,500/- Answer: Yes, wages are a deciding factor not the designation. Question: How do we settle bonus if an employee exits the organization before the completion of the financial year? Answer: Bonus needs to be paid as part of the settlement to the employee, when he exits, on a pro-rata basis. If the bonus percentage is later increased due to increase in profits, then the difference in the bonus amount needs to be transferred to the employee