This article will provide in depth information regarding Compliance to be maintain under Bonus Act, its applicability, Eligibility, Rate, calculation method, register maintenance, annual returns etc.
Table of Contents
Short Description of Bonus
Bonus was regarded as an ex-gratia payment made by an employer to his employees to provide a stimulus for extra efforts made my them in the production process , on occasions, it also represent the desire of the employer to share with his employees the surplus generated by common endeavor and enterprise. From this limited connotation of the word, we have travelled a long way to reach the stage of enactment of the Payment of Bonus Act, 1965 which makes the annual payment obligatory of Bonus on the employer.
History of Payment of Bonus Act
1917: During the First World War, certain textile mill granted ‘war bonus’ to their employees 10% of their wages.
1950: A full bench of Labour Appellate came up with a formula for payment of Bonus to employees.
1961: A triplicate commission was set up by the Central Govt. to recommend on the payment of Bonus in a comprehensive manner.
1965: The payment of Bonus Act came into existence and was implemented on 29th May, 1965.
Objectives of Payment of Bonus Act
- To impose statutory liability upon the employers of the establishments covered by the act to pay Bonus to employees in the establishments.
- To define the principles of payment of Bonus according to the prescribed formula.
- To provide for payment of minimum and maximum bonus and linking the payment of bonus with the scheme of ‘set off’ and ‘set on’.
- To provide machinery for enforcement of the liability for payment of bonus.
Applicability of Bonus
- The Act extends to the whole of India without any exception geographically.
- It applies to every factory (defined under the Factories Act) and to every other establishment in which 20 or more persons is employed on any day during as accounting year.
- It also applied to public sector enterprises in subject to certain provision.
- Part time employees are also covered under the Act.
- Once the Act has been made applicable to an establishment it continues to apply even when the number of employees falls below 20 or below the number specified in the notification.
- For newly established company, during the first 5 years if the company makes profit by selling their manufactured product or by rendering services, then only they are liable to pay bonus and bonus shall be calculated in accordance with the provision of the Act in relation to the specific year but without applying the provision of the section 15.
Eligibility & non- eligibility for Bonus
In the below condition one employee eligible to get Bonus:
- According to the provision of section 8 of the Act an employee should have worked for at least 30 days to be eligible to receive bonus from his employer irrespective of the nature of worked performed.
- Salary less than 21000/- at present. (subject to change in future)
In the below condition employees not eligible to get Bonus:
- An employee involved in any fraud, violation, theft, sabotage of any property of the establishment.
- Hospitals, Employees of LICI, Universities, education institution, Dock yards, General Insurance, Indian Red Cross society, employees of construction industries, employees of RBI, employees of IFC, SFC, DIC, ARC, UTI, IDBI, employees of inland water transport establishment etc. (details available in the Act)
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Rates of Minimum and Maximum Bonus
The minimum bonus which an employer needs to pay to his employees even if he suffers losses during the accounting year or there is no allocable surplus (except in case of new establishment) is 8.33% of salary or wages.
The maximum bonus including productivity linked bonus that can be paid in any accounting year shall not exceed 20% of salary or wages of an employee.
Computation of Available surplus and Allocable surplus
Calculation of available surplus
Available surplus = 1+2
- Gross profit – depreciation admissible under sec 32(I) of the Indian Income Tax Act –Development rebate or investment allowance or development allowance – Direct taxes payable for the accounting year calculated as per provision of Sec 7 – sums mentioned in the third schedule.
- Direct taxes calculated as per the provision of sec 7 in respect of the gross profits for the immediately preceding accounting year – direct taxes in respect of such gross profit as reduced by the amount of bonus for the immediately preceding accounting year.
Gross profit can be calculated in the manner specified in the first schedule in case of a Banking company and second schedule in any other cases.
Calculation of allocable surplus
Allocable surplus is the employees share in the available surplus. It is defined in Sec 2(4). According to that section allocable surplus =
- 67% of the available surplus in case of foreign company.
- 60% of available surplus in other cases.
Set on and Set off of Allocable Surplus
There are few provisions of set on and set off of allocable surplus under the Act as below:
- In any accounting year, the allocable surplus exceed the amount of maximum bonus paybel to the employees (i.e 20% of the total salary or wages) be carried forward for being set on in the succeeding accounting year and so on up to 4th accounting year to be utilized for the purpose of payment of bonus.
- If there is no available surplus or shortage of allocable surplus or short fall of the amount of minimum bonus payable to carried forward and set on which could be utilized for the purpose of minimum bonus then the amount of such deficiency will be carried forward for being set off in the succeeding accounting year and so on up to and inclusive of 4th accounting year.
- The principle of set on and set off shall apply to all other cases not covered for the purpose of payment of bonus under the Act.
- Any amount has been carried forward and set on or set off in any accounting year then for calculating bonus for the succeeding accounting year, the amount of set on or set off carried forward from the earliest accounting year shall first be taken into account.
Calculation of Bonus before 2016 Amendment
If the gross earning of an employee is below Rs- 10000/- he is liable for bonus payment with a calculated ceiling of Rs-3500/- .
- If Basic + DA is below Rs- 3500/- then bonus will be calculated on actual amount.
- If Basic + DA is above Rs- 3500/- then bonus will be calculated on Rs- 3500/-.
Amendment of Bonus Act 2016
In section 12 of the Payment of Bonus Act, 1965 hereinafter referred to as the principal Act), in clause (13), for the word “ten thousand rupees” the word “twenty one thousand rupees” shall be substituted.
In section 12 of the of the Principle Act- (i) for the word” three thousand and five hundred rupees” at both of the places where they occur, the word “seven thousand rupees or minimum wage of the schedule employment, as fixed by the appropriate Government, whichever is higher” shall be substituted.
Calculation of Bonus after 2016 Amendment
- If the Basic+ DA of an employee is less than Rs- 21000/- then he is liable for bonus payment.
- Calculation of bonus will be based on Minimum wages of the state or Rs- 7000/- whichever is higher.
- Minimum wages is fixed amount given by state Govt.
- Minimum wages of the state will be considered according the class of employment like skilled, high-skilled, semi-skilled, un-skilled.
Examples of Bonus Computation
Case 1: When Minimum wages is less than Rs-7000/-:
Basic+ DA= Rs-13000/-, Percentage of Bonus= 8.33%, Minimum wages of the state assumed as for unskilled= Rs- 6800/-, ceiling bonus= 7000/- then bonus calculation would be= (7000*12)*8.33%= Rs- 6997.20/-
Case2: When Minimum wages is higher than Rs-7000/-
Basic+ DA= Rs-13000/-, Percentage of Bonus= 8.33%, Minimum wages of the state assumed as for unskilled= Rs- 8500/-, ceiling bonus= Rs-7000/- then bonus calculation would be= (8500*12)*8.33%= Rs- 8496.60.
Time of Payment of Bonus
The bonus should be paid in monetary term within eight months from the closing of the accounting year. For example if the accounting year ends on 31st March, Bonus should be paid within November month.
Register to be maintained under Bonus Act
Every employer need to prepare and maintain such register, records and other documents in such a manner as may be prescribed under the act:
- Under section 2 in clause 4 a register showing the computation of allocable surplus need to maintain in Form A.
- Under Section 15 register showing the set-on and set-off of the allocable surplus need to maintain in Form B.
- Under section 17 and 18, details showing the amount of bonus due to each of the employee, the deductions and actual bonus amount disbursed need to maintain in Form C.
Return To be submitted under Bonus Act
Every employer shall on or before by the 1st Feb in each year, upload unified annual return in Form D on the web portal of the Central Govt. in the Ministry of Labour and Employment giving information as to the particulars specified in respect of the preceding year.
Also provided in the Act that during any inspection, the inspector may ask to produce books, accounts and registers and other documents that need to maintained for ready reference in electronic form or otherwise.
Offenses & Penalties under Bonus Act
- For contravention of the provision of the Act or any rules the penalty would be imprisonment that may extend up to 6 months or with fine which may extend to one thousand rupees or both.
- For failure to comply with the direction or requisition made the penalty would be imprisonment that may extend up to 6 months or with fine which may extend to one thousand rupees or both.
- In case of offenses by companies, firms, body corporate or association of individuals, its director partner or principle officer responsible for the conduct of its business, as the case may be, shall be deemed to be guilty of such offenses and punishable accordingly unless the person proves that such offense were unintentional and committed without knowledge.
I hope this article will help the readers to get the answer of the relevant queries and doubt regarding bonus. If you have any further question you may ask in the comment below.
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