to whom bonus act is applicable?

All employees earning up to the wage threshold (increased to Rs. 21,000 by the Amendments), and who have worked in the establishment for not less than 30 working days in the year are eligible to receive this statutory bonus.

What is statutory bonus in CTC?

Statutory Bonus in India is paid as per Payment of Bonus act (1965). The bonus rate is between 8.33% and 20% based on the ‘available surplus’ as mentioned in the act. Bonus is essentially deferred earnings, and some companies choose to pay it out in advance.

What disqualifies you to receive a bonus?

Employees can be disqualified from bonus payments if they are dismissed on the basis of fraud, misconduct, or even absenteeism.

The Act Applies to all Factories and every other establishments, which employs twenty or more workmen. The Payment of Bonus Act, 1965 provides for a minimum bonus of 8.33 percent of wages.

As per statutory laws, the Government on India mandates organisations to pay yearly bonuses to their employees. But - which organizations is it applicable to? When and how much bonus do you actually need to pay?  And what if you don't?

The Payment of Bonus Act, 1965, in summary:

1. Applicable to any establishment with 20 or more employees or any factory with 10 or more employees.

2. Eligible for employees drawing ₹21000 per month or less (basic + DA, excluding other allowances). As per the 2015 amendment, when salary exceeds ₹7000 or the minimum wages fixed by the government, bonus is payable on whichever is higher.

3. Bonus payable will be at a min rate of 8.33%, and max at 20 %.

If you do not fit into the applicability criteria, you can stop worrying about paying any bonuses.  greytHR customers can automatically calculate appropriate amount of bonuses compliant with all statutory laws, if they do fit into the criteria.

Further details of the act and rules for manual calculation for bonuses have been outlined below.

Objective: The objective of the Payment of Bonus Act is to reward the employee of the organization by sharing the profits earned and is linked to productivity.

Applicable to: The Payment of Bonus Act is applicable to any establishment with 20 or more employees or any factory with 10 or more employees.

Eligibility: Employees drawing ₹21000 per month or less (basic + DA, excluding other allowances) and have completed 30 working days in that financial year are eligible for bonus payment.

Components of bonus: Please note, salary or wages include only basic and DA for bonus payment, and the rest of the allowances (e.g. HRA, overtime, etc.) are excluded.

Min/max and time limits on bonus payments: Bonus should be paid at a minimum rate of 8.33% and maximum rate of 20%. It needs to be paid within 8 months from the close of the accounting year.

Disqualification of bonus: Employees can be disqualified from bonus payments if they are dismissed on the basis of fraud, misconduct, or even absenteeism. Please ensure that on dismissal, the procedures of domestic enquiry, proper documentation and employee acceptance of the misconduct are all carried out as per the standing orders before disqualifying the bonus payment.

Calculation of bonus: As per the amendment on the Payment of Bonus Bill passed in 2015, when wages or salary exceeds ₹7000 or the minimum wages fixed by the government, bonus will be payable on ₹7000 or the minimum wages as fixed by govt., whichever is higher.

Examples:

Note: This bonus payable will be at a min rate of 8.33%.

Compliance required by employers: Employers need to comply with the following:

Penalty: Any violation can lead to imprisonment for up to 6 months and may (or may not) include a fine amount.

To make sure you stay 100% compliant and avoid any penalties, use greytHR to calculate you employee bonuses automatically!

1. Should we pay bonus to contractual employees?

No, it is not the prerogative of the employer to pay bonus to the contractors working under him. The bonus liability lies with the vendor who has contracted out the employees.

Some employers pay out bonus to their contractors for their welfare on goodwill when the vendor is unable to pay out the bonus. This is considered ex-gratia and not bonus and is the discretion of the employer in this case and he is not legally bound to pay bonus to his contractors.

2. If I own a startup, should I pay out bonus for my employees in the first year?

For the first 5 years, organizations need not pay 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 bonus for that particular year. After the completion of 5 years, organizations are required to pay bonus as per Sec 16-1b, irrespective of whether they are making a profit or loss. Refer to section 16-1b for detailed clarifications on the calculation of bonus in the 6th accounting year and the 10th accounting year.

3. How do we settle bonus if an employee exits the organization before the completion of the financial year?

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 or a cheque sent before Nov 30th of that year.

It is important to ensure that this is done as any amount due to be paid to any employee and not paid will appear on the liability side of the balance sheet of the employer and will be considered as non-compliance.

According to Section 8 of the Payment of Bonus Act, every employee shall be entitled to the bonus to be paid by his employer in an accounting year in accordance with the provisions of this Act, provided that the employee should have worked in the establishment for not less than thirty working days in that year.

The Payment of Bonus Act, 1965 applies to the following categories of employees:

The Hon’ble Allahabad High Court in the matter of Kale Khan Mohammad Hanif vs. Jhansi Bidi Mazdoor Union, 1980 Lab IC 1973 has laid down the settled principle of law that workers who have the option to attend work at the factory premises are entitled to a bonus. The Court further held that it is true that on any particular day, they may choose to attend to the work at the premises of the factory or not. Still, nonetheless, they were employees of the petitioner within the meaning of the Bonus Act since, on those days on which they did work, they worked under the control and supervision of the petitioner.

The mere fact that the payment was on daily wages did not affect their status as employees. Hence, any person who works at the factory will be entitled to a Bonus under the Bonus Act.

The Hon’ble Bombay High Court in the matter of J.K. Ginning & Pressing factory v P.O.  2nd Labour Court (1991) 62 FLR 207 has laid down the settled principle of law that the seasonal worker is entitled to a bonus under bonus act, provided that he should work for more than thirty days.

The Court further held that under Section 8, which relates to the eligibility for a bonus, the only requirement is that the employee should have worked in the establishment for not less than thirty working days in an accounting year. In the present case, the claimants had put in more than thirty working days in an accounting year; it would be highly inequitable to grant a bonus to a worker who had put in only thirty days and allow a bonus at the same rate to another worker who may have worked for a considerably longer period.

Now, if the Legislature has determined the eligibility for bonus by an express provision, it would not be permissible to import these considerations while interpreting the provision relating to eligibility.

According to section 10 of the payment of bonus act, the employer is obliged to pay every employee for that accounting year commencing after the year 1979 and thereafter, every subsequent year, the minimum bonus shall be 8.33% of the net salary of the employee of One Hundred rupees whichever is higher irrespective of the fact that the employer has any allocable surplus in the accounting year.

Under Section 10 of the payment of bonus act, when an employee has not completed the age of fifteen years at the beginning of the accounting year, the employer has to pay either 8.33 % of the employee's net salary or sixty rupees, whichever is higher.

According to section 9 of the Bonus Act, an employee shall be disqualified from receiving a bonus  if he is dismissed from service due to below-mentioned act:

The Hon’ble High Court of Andhra Pradesh has laid down the settled principle of law in the matter of KLJ Plastics Ltd vs. Labour Court –III, Hyderabad, (2002) 3 LLJ 619 Bom.  that the bar of disqualification for bonus is clear and hence, the distinction cannot be drawn from this particular provision. The Court further held that object of the Act also, in my considered opinion, the bar of disqualification for bonus imposed under Section 9 of the Act is a clear and unequivocal bar. If the wording of the provisions also is carefully gone through, a distinction cannot be drawn between the bonus payable subsequent to the order of termination or prior to the order of termination, and the bar applies to the bonus as such payable under the Act.

The Hon’ble Karnataka High Court has laid down the settled principle of law in the matter of Himalaya Drug Co. Makali vs. 2nd  Additional Labour Court, (1986) 52 FLR 704  that the bonus shall be forfeited on for that accounting year in which the employee has committed fraud. The Hon’ble High Court further construed that the right of the management to forfeit bonus on the ground that the workman was dismissed from service for misconduct, more particularly mentioned in Section 9 of the Act, would be only with reference to the accounting year in which the said act of misconduct was committed and not with reference to any year or years preceding or succeeding the accounting year in question.

Section 1: - Short title, extent and application.-(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 –

(a) every factory; and

(b) every other establishment in which twenty or more persons are

employed on any day during an accounting year.

4

[Provided that the appropriate Government may, after giving not less than

two months’ notice of its intention so to do, by notification in the Official Gazette,

apply the provisions of this Act with effect from; such accounting year as may be

specified in the notification, to any establishment or class of establishment

[including an establishment being a factory within the meaning of sub-clause (ii)

of clause (m) of section 2 of the Factories Act, 1948 (63 of 1948)] employing

such number of persons less than twenty as may be specified in the notification;

so, however, that the number of persons so specified shall in no case be less

than ten.]

(4). Save as otherwise provided in this Act, the provisions of this Act shall, in

relation to a factory or other establishment to which this Act applies, have effect

in respect of the accounting year commencing on any day in the year 1964 and

in respect of every subsequent accounting year:

5

[Provided that in relation to the State of Jammu and Kashmir, the reference to

the accounting year commencing on any day in the year 1964 and every

subsequent accounting year shall be construed as reference to the accounting

year commencing on any day in the 1968 and every subsequent accounting

year:]

4

[Provided further that when the provisions of this Act have been made

applicable to any establishment or class of establishments by the issue of a

notification under the proviso to sub-section (3), the reference to the accounting

year commencing on any day in the year 1964 and every subsequent accounting

year or, as the case may be the reference to the accounting year commencing on

any day in the year 1968 and every subsequent accounting year, shall, in relation

to such establishment or class of establishments, be construed as a reference to

the accounting year specified in such notification and every subsequent

accounting year.]

(5) An establishment to which this Act applies shall continue to be

governed by this Act notwithstanding that the number of person employed therein

falls below twenty

[or, as the case may be, the number specified in the

During the initial phase in any company, employers are often worried about how they will manage payroll in each pay period. But once the company gets firmly established, employers not only manage payroll but also want to compensate their employees with additional income as bonus payments.

So if you are a small business owner, This one’s for you!

Bonus payments are additional pay given to employees apart from their salary. It is given by the employers as a remuneration for their dedication towards the company and work, which in turn helped the company achieve its business goals.

The underlying purpose of offering a bonus is to distribute the benefit received by the company to the employees. This added perk helps improve employee morale and productivity. It also encourages them to efficiently work towards their goals, thereby helping the company reach newer heights.

The Payment of Bonus Act 1965 is applicable to all factories and companies who have 20 or more employees employed anytime with them during an accounting year. Also, as per the act, the bonus should be awarded on the basis of profit earned by the company or the productivity of an individual.

If the number of employees in the company registered under this act drops below 20, they are still required to pay a bonus. The act states that a minimum bonus of 8.33% and a maximum bonus of 20% of wages can be awarded as a bonus to employees.

The act applies to all companies throughout India. The provisions of this act are applicable to –

An employee drawing at least a monthly salary of Rs 21,000/- and has served at least 30 days during an accounting year in the company is qualified for the bonus payment.

If an employee is not eligible for the statutory bonus payment, but if the employer wishes to reward him with a bonus, it can be granted as ex-gratia.

According to the Bonus Payment Act, a minimum bonus of 8.33% of wage or salary earned by the employee for an accounting year or Rs 100, whichever is higher shall be paid to the employee. The employer shall also pay a higher bonus to employees if, in a year, the allocable surplus exceeds the amount of minimum bonus payable to the employees.

Note: A ceiling limit of 20% of the wage or salary earned by the employee during an accounting year is fixed.

If an employee’s gross salary or earning is under Rs. 21,000, then they are eligible for a bonus.

The following section of employees is exempted from the applicability of this act.

If an employee has been a part of any misconduct during a financial year and if this has resulted in any financial loss to the employer, the amount of loss suffered can be deducted from the amount of bonus payable by the employer or the company and balance after such deductions shall be paid to the employee.

Under the act, start-ups and new establishments are exempted from bonus payments for the first five years. Employers are eligible to pay statutory bonus only in the year in which they derive profit after the commencement of operations.

Companies incurring losses can be exempted from paying a minimum bonus to their employees for a certain period. Although, the factors of occurrence of losses to the company must be justifiable, and the employer must have no intentions to avoid payment of bonus by creating fake losses.

Employers can disqualify employees from receiving bonus payments on the basis of any misconduct, absenteeism, or fraud. Also, before disqualifying the bonus payment, employers must ensure that the process of domestic inquiry, appropriate documentation, and employee acceptance of misconduct are as per the standing orders.

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