The Payment of Bonus Act, 1965 was enacted to provide for the payment of bonus to persons employed in certain establishments on the basis of profits or productivity and for the matters connected therewith. The Purpose of the Act is to provide payment of bonus to persons employed in certain establishments on the basis of profits or on the basis of production or productivity. It is the only labour law that is concerned with the profits of the establishment.
- The Act applies to
- Every factory as defined under the Factories Act, 1948; and
- Every other establishment (including departments & branches) in which twenty or more persons are employed on any day during an accounting year.
However, the Government may, after giving two months notification in the Official Gazette, make the Act applicable to any factory or establishment employing less than twenty but not less than ten persons.
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.
- "Allocable surplus" means,-
- In relation to an employer, being a company (other than a banking company) which has not made the arrangements prescribed under the Income Tax Act for the declaration and payment within India of the dividends payable out of its profits in accordance with the provisions of section 194 of that Act, sixty-seven per cent of the available surplus in an accounting year;
- In any other case, sixty per cent of such available surplus.
- Company - means any company as defined in section 3 of the Companies Act, 1956 and relevant company under Companies Act,2013 and includes a foreign company within the meaning of section 591 of that Act;
- Employee - means any person (other than an apprentice) employed on a salary or wage not exceeding Rs. 21000 per month in any industry to do any skilled or unskilled manual, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether terms of employment be express or implied
- Employer – Includes:
- in relation to an establishment which is a factory, the owner or occupier of the factory, including his agent of such owner or occupier, the legal representative of a deceased owner or occupier and where a person has been named as a manager of the factory under section 7(I)(f) of the Factories Act, 1948, the person so named; and
- in relation to any other establishment, the person who, or the authority which, has the ultimate control over the affairs of the establishment and where the said affairs are entrusted to a manager, managing director or managing agent, such manager, managing director or managing agent;
- Salary or wage - means all remuneration capable of being expressed in terms of money, which would, if the terms of employment, express or implied, were fulfilled, be payable to an employee in respect of his employment or of work done in such employment
Includes - Dearness allowance and free food allowance
Excludes - Any other allowance or compensation or perquisities
- Establishment - includes departments, undertakings and branches except if separate financials are prepared and maintained in which case it will be treated as a separate establishment.
When we talk about Merger (under section230 to 232 of the Companies Act, 2013) under Bonus Act, there are three parties involved in a transaction i.e.,
- Transferor Company, (Seller Company)
- Transferee Company and (Buyer Company)
- Employees of Transferor Company.
Let us discuss about regulation parties have to comply with while going for any merger.
After a transaction, Liability of Transferor Company towards its employees get transferred to Transferee Company and Transferee Company is liable to pay bonus to the employees of Transferor Company for period and rate as mentioned below.
Eligibility for bonus
Every employee shall be entitled to be paid by his employer in an accounting year, bonus, in accordance with the provisions of this Act, provided he has worked in the establishment for not less than thirty working days in that year.
Disqualification for bonus
Notwithstanding anything contained in this Act, an employee shall be disqualified from receiving bonus under this Act, if he is dismissed from service for-
(a) fraud; or
(b) riotous or violent behaviour while on the premises of the establishment; or
(c) theft, misappropriation or sabotage of any property of the establishment.
Payment of Minimum Bonus
The employer is bound to pay to his employees every year a minimum bonus of 8.33% of the salary or wage or Rs.100/-, whichever is higher, whether he has any allocable surplus or not. (Rs. 60 if employee has not completed 15 years).
When in any year the allocable surplus exceeds the amount of minimum bonus payable to the employees, the employer is bound to pay to his employees a bonus which is in proportion to salary or wages of the employee subjected to a maximum of 20%.
Where the salary or wage of an employee exceeds Rs. 7000 per month or minimum wage for scheduled employment, whichever is higher, the bonus payable to such employee shall be calculated as if his salary or wage were Rs. 7000 per month.