Payment of Bonus Act

The Government of India affirmed the testimonials of the Commission directed to some alterations. These recommendations by the committee regarding the Payment of Bonus Act Ordinance, 1965 was proclaimed on 29th May 1965 and to restore the said Ordinance the Payment of Bonus Bill was presented in the Parliament.

The Payment of Bonus Bill was relinquished by both the Houses of Parliament but the bill secured the assent of the President on 25th September 1965. 

payment of bonus act

What are bonus payments?

Bonus payments are additional pay given to employees apart from their salary. It is given by the employers as a remuneration for their dedication towards the company and work, which in turn helped the company achieve its business goals. 

The underlying purpose of offering a bonus is to distribute the benefit received by the company to the employees. This added perk helps improve employee morale and productivity. It also encourages them to efficiently work towards their goals, thereby helping the company reach newer heights.

What is the Payment of Bonus Act?

The Payment of Bonus Act 1965 is applicable to all factories and companies who have 20 or more employees employed anytime with them during an accounting year. Also, as per the act, the bonus should be awarded on the basis of profit earned by the company or the productivity of an individual.

If the number of employees in the company registered under this act drops below 20, they are still required to pay a bonus. The act states that a minimum bonus of 8.33% and a maximum bonus of 20% of wages can be awarded as a bonus to employees.

Applicability of Payment of Bonus Act

  • Companies that are well-defined under clause 2 of the companies act 194b 
  • Organisations with 20 or greater than 20 employees anytime during an accounting year
  • Some factories or companies in public sectors 
  • Part-time employees

Eligibility for bonus payments

The Bonus Act is relevant for workers who draw wages/salary which is up-to 10,000/- per month. Also, only those workers are authorized for availing the bonus, who has served for at least 30 working days or more in an accounting year.

Rate of Bonuses under the Payment of Bonus Act, 1965

The rate of bonus under the Bonus act accounted for 8.33% of the salary or wages of the employees in a year or Rs. 100, whichever is higher.

In case the allowed bonus exceeds the expense of provision then the employer shall pay a maximum bonus. This must not surpass 20% of the salary or wages accounted for by employees.

FAQs

Are there deductions from bonus payments?

If an employee has been a part of any misconduct during a financial year and if this has resulted in any financial loss to the employer, the amount of loss suffered can be deducted from the amount of bonus payable by the employer or the company and balance after such deductions shall be paid to the employee.

What are the provisions related to start-ups or new establishments?

Under the act, start-ups and new establishments are exempted from bonus payments for the first five years. Employers are eligible to pay statutory bonus only in the year in which they derive profit after the commencement of operations.