Understanding the Scope and Coverage of the Payment of Bonus Act, 1965

 

Introduction:

The Payment of Bonus Act, 1965, is a crucial piece of legislation in India designed to regulate the payment of bonuses, ensuring fair practices and promoting harmony between employers and employees. This comprehensive guide explores the scope, coverage, objectives, constitutionality, and key provisions of the Act.

 

1. Scope and Coverage:

The Payment of Bonus Act applies across India and extends to establishments with twenty or more employees during the accounting year. Additionally, it includes factories as specified by the Factories Act of 1948.

 

Example: A manufacturing unit with 25 employees falls under the Act.

 

Exclusions:

The Act does not apply to certain classes of employees, such as those in the Life Insurance Corporation of India, government departments, educational institutions, and other specified sectors.

 

2. Definition of "Employee":

The term "employee" under Section 2(13) includes any person, except an apprentice, employed on a salary or wage not exceeding twenty-one thousand rupees per month. It encompasses various types of work, from manual and supervisory to managerial and clerical, within an industry.

 

Illustration: Employees earning less than Rs. 21,000 per month are covered.

 

3. Objectives Behind the Act:

The primary objective of the Payment of Bonus Act, 1965, is to facilitate the payment of bonuses to employees in certain establishments based on profits or production. It aims to foster peace and harmony between labor and capital by allowing workers to share in the prosperity of the establishment.

 

4. Constitutionality of the Act:

The constitutional validity of the Act was upheld in the case of Jalan Trading Company Ltd. v. Mill Mazdoor Sabha. The Supreme Court ruled that the main provisions of the Act, requiring the payment of a minimum bonus, are constitutional and align with the principles laid out in Articles 39 and 43 of the Constitution.

 

5. Concept of "Bonus" under the Act:

The term "bonus" is not explicitly defined in the Act. However, it refers to a monetary reward beyond regular payment. The Bonus Commission emphasized the concept of sharing prosperity, allowing workers to participate in the success of the concern where they are employed.

 

6. Eligibility for Bonus:

As per Section 8 of the Act, any employee who has worked for a minimum of 30 days in an accounting year is eligible for a bonus. Even retrenched employees, as established in the case of East Asiatic Co. Ltd. vs. Industrial Tribunal, can qualify for a bonus if they meet the criteria.

 

Example: Employees with a minimum of 30 days of service in a financial year are eligible.

 

7. Disqualification from Bonus:

Section 9 of the Act disqualifies an employee from receiving a bonus if dismissed for fraud, violent behavior on the premises, theft, misappropriation, or sabotage. This provision aims to promote good behavior among workers.

 

8. Rights of Employers and Employees:

Employee Rights:

  - The right to claim unpaid bonus within one year of the due date.

  - The right to dispute resolution through a Labor Court or Tribunal.

  - The right to seek clarity on products and ensure fair compensation.

 

Employer Rights:

  - The right to dispute resolution for interpretation of Act clauses.

  - The right to deduct amounts for festival bonuses or losses caused by employee misconduct.

 

9. Payment of Minimum Bonus (Section 10):

Section 10 mandates the payment of a minimum bonus, regardless of the employer's allocable surplus. The minimum bonus is 8.33% of the employee's salary or Rs. 100, whichever is higher.

 

Example: If the allocable surplus is Rs. 90,000, and the minimum bonus percentage is 8%, the minimum bonus payable is Rs. 7,200.

 

10. Payment of Maximum Bonus:

Employers can pay a bonus equal to each employee's salary if the allocable surplus exceeds the minimum bonus. Section 15 provisions for set-offs must be considered in determining the allocable surplus.

 

*The bonus payable in a year is subject to 20% of an employee's salary or wages.

 

Illustration: If the available surplus is Rs. 1,50,000, and the bonus percentage is 20%, the total bonus is Rs. 30,000.

 

11. Provisions under the Code on Wages, 2019:

The Code on Wages, 2019, incorporates provisions related to bonus payments for establishments with at least 20 workers during the accounting year. It aligns with the principles of the Payment of Bonus Act.

 

Conclusion:

The Payment of Bonus Act, 1965, stands as a pillar in shaping fair employer-employee relationships and ensuring equitable sharing of prosperity. It defines the framework for bonus payments, upholds constitutional principles, and provides a robust dispute resolution mechanism. As the landscape evolves with subsequent legislation, the Act continues to play a pivotal role in fostering a balanced and harmonious work environment. 

FAQs on the Payment of Bonus Act, 1965 1. Object of the Act Q: What is the object of the Payment of Bonus Act, 1965? A: The object is to maintain peace and harmony by allowing employees to share in the establishment's prosperity reflected in profits. 2. Applicability of the Act Q: To which establishments is the Act applicable? A: The Act applies to every factory and every other establishment employing 20 or more persons. The government can extend it to establishments with 10 to 19 persons. 3. Entitlement to Bonus Q: Who is entitled to be paid bonus? A: Every employee drawing a salary or wage up to Rs. 10,000 per month, working for a minimum of 30 days in a year, is entitled to bonus. 4. Bonus for Seasonal Workers Q: Is a seasonal worker entitled to get bonus? A: Yes, if a seasonal worker has worked for more than thirty working days in an accounting year, they are entitled to receive a bonus. 5. Calculation of Bonus Q: What is included and excluded for calculating bonus? A: Bonus calculation includes basic salary, dearness allowance, excluding other allowances, overtime, house rent, etc. 6. Bonus on Entire Salary Q: Is an employee entitled to get bonus on the entire salary? A: Employees earning up to Rs. 3,500 per month receive bonus on their entire salary. For those earning more, bonus is calculated as if their salary were Rs. 3,500 per month. 7. Minimum Bonus Amount Q: What is the minimum bonus payable by the employer? A: The employer must pay a minimum bonus of 8.33% of the salary or Rs. 100, whichever is higher, irrespective of allocable surplus. 8. Maximum Bonus Amount Q: What is the maximum bonus payable by the employer? A: The maximum bonus payable is 20% of the salary or wage. 9. Time Limit for Bonus Payment Q: What is the time limit for making bonus payments? A: Bonus must be paid within 8 months from the close of the accounting year, or within one month from the enforceability of an award in case of a dispute. 10. Offences and Punishments Q: What are the offences under the Act, and their punishments? A: Contraventions may result in imprisonment up to 6 months or a fine up to Rs. 1,000, or both. 11. Exemption for New Establishments Q: Are newly set up establishments exempted from paying bonus? A: Yes, new establishments are exempted from paying bonus in the first five years, unless they derive profits in any of those years. 12. Bonus during Lay-off Q: Is an employee entitled to bonus during a lay-off period? A: Yes, as per Section 14, an employee is deemed to have worked during lay-off, making them eligible for bonus. 13. Maintenance of Registers Q: Is the employer required to maintain registers under the Act? A: Yes, the employer must maintain registers showing allocable surplus, set-on and set-off, and details of bonus payable to each employee. An annual return must also be sent to the Inspector. “Unlock the Potential of Legal Expertise with LegallMantra.net - Your Trusted Legal Consultancy Partner” Article Compiled by:- Mayank Garg (LegalMantra.net Team) +91 9582627751 Disclaimer: Every effort has been made to avoid errors or omissions in this material in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition In no event the author shall be liable for any direct indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information Many sources have been considered including Newspapers, Journals, Bare Acts, Case Materials , Charted Secretary, Research Papers etc.

 

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