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Bonus Act- 1975

By Sanjeev Prasad

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The Act applies to- (a) every factory; and

(b) every other establishment in which

twenty or more persons are employed on anyday during an accounting year.

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. Establishments to includedepartments, undertakingsand branches Where an establishment

consists of differentdepartments or undertakingsor has branches, whethersituated in the same place orin different places, all suchdepartments or undertakingsor branches shall be treatedas parts of the same

establishment for thepurpose of computation ofbonus :

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PROVIDED that wherefor any accounting yeara separate balance-

sheet and profit andloss account areprepared andmaintained in respect ofany such department orundertaking or branch,then, such departmentor undertaking orbranch shall be treated

as a separateestablishment for thepurpose of computationof bonus, for that year.

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Where an establishment is newly set up, theemployees shall be entitled to be paid bonusunder this Act

In the first five accounting years following

the accounting year in which the employersells the goods produced or manufacturedby him or renders services, bonus shall bepayable only in respect of the accountingyear in which the employer derives profit andsuch bonus shall be calculated in accordancewith the provisions of this Act in relation tothat year but without applying the provisionsof set on & set off.

For the sixth and seventh accounting yearsfollowing the accounting year in which theemployer sells the goods produced ormanufactured by him or renders services, asthe case may be, from such establishment,

the provisions of set on & set off shall apply.

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However employees of L.I.C.,Universities and Educationalinstitutions, Hospitals,

Chamber of Commerce, R.B.I.,IFCI, U.T.I. Social Welfareinstitutions are not entitled tobonus under this Act.

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The payment of Bonus Actprovides for payment of

bonus to persons employedin certain establishments ofthe basis of profits or on thebasis of production or

productivity and for mattersconnected therewith.

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Every employee receiving salary or wagesupto RS. 3,500 p.m. and engaged in any kindof work whether skilled, unskilled,managerial, supervisory etc. is entitled to

bonus for every accounting year if he hasworked for at least 30 working days in thatyear.

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Where the salary or wages of an employeeexceeds two thousand and five hundredrupees per month, the bonus payable to suchemployee shall be calculated as if his salary

or wages were two thousand and fivehundred rupees per month.

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(iii) any travelling concession;

(iv) any bonus (including incentive,production and attendance bonus);

(v) any contribution paid or payableby the employer to any pension fundor provident fund or for the benefitof the employee

(vi) any retrenchment compensationor any gratuity or other retirementbenefit payable to the employee orany ex gratia payment made to him;

(vii) any commission payable to theemployee.

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An employee shall be deemed tohave worked in an establishmentin any accounting year also onthe days on which,-

(a) he has been laid off underan agreement or as permitted bystanding orders under theIndustrial Employment (StandingOrders) Act, 1946, or under the

Industrial Disputes Act, 1947, orunder any other law applicable tothe establishment;

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(b) he has been on leave with salary or wages; (c) he has been absent due to temporary

disablement caused by accident arising out ofand in the course of his employment, and

(d) the employee has been on maternity leavewith salary or wages, during the accountingyear.

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An employee shall be disqualified fromreceiving bonus under this Act, if he isdismissed from service for,-

fraud; or riotous or violent behaviour while on the

premises of the establishment; or theft, misappropriation or sabotage of any

property of the establishment.

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Where in any accounting year, anemployee is found guilty ofmisconduct causing financial lossto the employer, then, it shall belawful for the employer to deduct

the amount of loss from theamount of bonus payable by himto the employee under this Act inrespect of that accounting yearonly and the employee shall be

entitled to receive the balance, ifany.

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MINIMUM BONUS- The minimum bonus which an employer is

required to pay even if he suffers lossesduring the accounting year or there is no

allocable surplus is 8.33 % of the salaryduring the accounting year, or

Rs. 100 in case of employees above 15 yearsand Rs 60 in case of employees below 15

years, whichever is higher

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If in an accounting year, the allocable

surplus, calculated after taking intoaccount the amount set on or theamount set of exceeds the minimumbonus, the employer should pay

bonus in proportion to the salary orwages earned by the employee in thataccounting year subject to amaximum of20% of such salary or

wages.

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The bonus should be paid in cashwithin 8 months from the close of theaccounting year or within one monthfrom the date of enforcement of theaward or coming into operation of a

settlement following an industrialdispute regarding payment of bonus.

However if there is sufficient causeextension may be applied for.

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CALCULATION OF BONUS The method for calculation of annual bonus

is as follows:

Calculate the Available Surplus.

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Available Surplus = Gross Profit ( deduct) the following :

Depreciation admissible u/s 32 of the

Income tax Act

Development allowance

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Direct taxes payable for the accounting year(calculated as per Sec.7) Sums specified inthe Third Schedule.

Direct Taxes (calculated as per Sec. 7) inrespect of gross profits for the immediatelypreceding accounting year

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Allocable Surplus = 60% ofAvailable Surplus, 67% in caseof foreign companies.

Make adjustment for Set-onand Set-off. For calculating theamount of bonus in respect ofan accounting year, allocablesurplus is computed afterconsidering the amount of seton and set off from the previous

years, as illustrated in FourthSchedule.

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Where for any accounting year, theallocable surplus exceeds the amount ofmaximum bonus payable to theemployees, then, the excess shall,subject to a limit of twenty per cent of

the total salary or wages of theemployees employed in theestablishment in that accounting year,be carried forward for being set on inthe succeeding accounting year and so

on up to and inclusive of the fourthaccounting year to be utilised for thepurpose of payment of bonus.

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Where for any accounting year, there isno available surplus or the allocable

surplus in respect of that year falls shortof the amount of minimum bonus payableto the employees, and there is no amountor sufficient amount carried forward andset on which could be utilised for thepurpose of payment of the minimumbonus, then such minimum amount orthe deficiency, as the case may be, shallbe carried forward for being set off in the

succeeding accounting year and so on upto and inclusive of the fourth accountingyear.

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Where in any accounting year any amount hasbeen carried forward and set on or set offunder this section, then, in calculating bonusfor the succeeding accounting year, the

amount of set on or set off carried forwardfrom the earliest accounting year shall first betaken into account.

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The allocable surplus socomputed is distributed

amongst the employeesin proportion to salary orwages received by themduring the relevant

accounting year.

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DUTIES / RIGHTS OF EMPLOYER DUTIES

To calculate and pay the annualbonus as required under the Act To submit an annul return of bonus

paid to employees during the year,in Form D, to the Inspector, within30 days of the expiry of the timelimit specified for payment ofbonus.

To co-operate with the Inspector,produce before him theregisters/records maintained, andsuch other information as may berequired by them.

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RIGHTS An employer has the following

rights: Right to forfeit bonus of an

employee, who has been dismissedfrom service for fraud, riotous orviolent behavior, or theft,misappropriation or sabotage of anyproperty of the establishment.

Right to make permissibledeductions from the bonus payableto an employee, such as,festival/interim bonus paid andfinancial loss caused by misconduct

of the employee. Right to refer any disputes relating

to application or interpretation ofany provision of the Act, to theLabour Court or Labour Tribunal.

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RIGHTS OF EMPLOYEES Right to claim bonus payable

under the Act and to make an

application to the Government, forthe recovery of bonus due andunpaid, within one year of itsbecoming due.

Right to refer any dispute to the

Labour Court/Tribunal. Employees, to whom the Paymentof Bonus Act does not apply,cannot raise a dispute regardingbonus under the IndustrialDisputes Act.

Right to seek clarification andobtain information, on any item inthe accounts of the establishment

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RECOVERY OF BONUS DUE Where any bonus is due to an

employee by way of bonus,employee or any other personauthorised by him can make anapplication to the appropriategovernment for recovery of themoney due.

If the government is satisfied thatmoney is due to an employee byway of bonus, it shall issue acertificate for that amount to thecollector who then recovers themoney.

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Such application shall be made withinone year from the date on which themoney became due to the employee.

However the application may beentertained after a year if theapplicant shows that there wassufficient cause for not making the

application within time.

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OFFENCES AND PENALTIES For contravention of the provisions of the

Act or rules the penalty is imprisonmentupto 6 months, or fine up to Rs.1000, orboth.

For failure to comply with the directionsor requisitions made the penalty isimprisonment upto 6 months, or fine up

to Rs.1000, or both. In case of offences by companies, firms,

body corporate or association ofindividuals, its director, partner or aprincipal officer responsible for the

conduct of its business, shall be deemedto be guilty of that offence, unless theperson concerned proves that the offencewas committed without his knowledge orthat he exercised all due diligence

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Thank You