Select Page

The Payment of Bonus Act, 1965 is an Indian labor law that regulates the payment of bonus to employees in establishments that employ 20 or more workers. The primary purpose of this act is to provide for the payment of annual bonus to eligible employees as a form of incentive and recognition for their contribution to the productivity and profitability of the establishment.

Key provisions of the Payment of Bonus Act, 1965:

  1. Applicability: The act applies to every factory and every other establishment where 20 or more persons are employed on any day during an accounting year.
  2. Eligibility for Bonus: An employee is eligible for bonus if he or she has worked for at least 30 working days in that establishment in the accounting year.
  3. Calculation of Bonus: The bonus is calculated on the basis of the allocable surplus, which is determined after making certain statutory deductions and set-offs.
  4. Determination of Allocable Surplus: The allocable surplus is calculated by subtracting the amount of direct and indirect taxes from the gross profits.
  5. Minimum and Maximum Bonus: The act specifies a minimum and maximum bonus payable. The minimum bonus is 8.33% of the salary or wage earned during the accounting year, and the maximum bonus is 20% if the allocable surplus permits.
  6. Time Limit for Payment: The bonus is required to be paid within eight months of the close of the accounting year.
  7. Set-On and Set-Off of Allocable Surplus: The act allows for the carry-forward and set-off of the allocable surplus from one accounting year to the next.
  8. Disqualification of Bonus: An employee can be disqualified from receiving bonus if he or she is dismissed for fraud, theft, violence, or damage to property.

Amendments to the Payment of Bonus Act:

The Payment of Bonus Act, 1965, has been subject to amendments to address changing economic conditions and to enhance benefits for employees. Some of the significant amendments include:

  1. Amendment of 1976: This amendment introduced the concept of “allocable surplus” and laid down the formula for its calculation.
  2. Amendment of 2007: This amendment enhanced the eligibility limit for bonus from Rs. 3,500 to Rs. 10,000 per month, making more employees eligible for bonus.
  3. Amendment of 2015: The 2015 amendment to the act made the eligibility limit for bonus applicable to employees earning up to Rs. 21,000 per month. It also increased the maximum limit of bonus payable from Rs. 3,500 to Rs. 7,000 or the minimum wage for the scheduled employment, whichever is higher.

These amendments were made to ensure that the Payment of Bonus Act remains relevant and equitable in the context of changing economic and labor conditions in India. They have aimed to enhance the benefits provided to employees under this legislation.