Topics to be covered

• The Payment of Bonus Act 1965

• amendment of the Year 2007
• amendment of the Year 2015
Payment Of Bonus Act, 1965

The Payment of Bonus Act of 1965 imposes a contractual obligation on

employers to pay bonuses to employees in proportion to the resources
available for the establishment's smooth functioning. The Act's purpose was
to give workers a say in the company's profits and to enable them to earn
slightly more than the minimum wage based on their performance
History Of Payment Of Bonus Act, 1965

The tradition of paying bonuses in India seems to have started during World War I,
when some textile mills gave their employees a 10% wage increase as a war bonus in
1917. In certain cases of labour disputes, the claim for bonus payment was also
included. The Full Bench of the Labour Appellate Tribunal established a bonus
calculation formula in 1950. In 1959, a demand was made to change the formula.

It was decided at the second and third meetings of the eighteenth Session of the
Standing Labour Committee (G.O.I) in New Delhi in March/April 1960 to appoint a
Commission to look into the issue of bonuses and develop appropriate norms. The
Government of India established a Tripartite Commission to examine the issue of
bonus payments based on earnings to employees working in establishments in a
detailed manner and make recommendations to the Government.

The Commission's recommendations were adopted by the Indian government with

some modifications. The Payment of Bonus Act of 1965 was enacted to carry out
these recommendations, and it went into effect on September 25, 1965.
Scope And Coverage Of The Payment Of Bonus Act, 1965

The Bonus Payment Act covers the entire India. It covers any
establishment with twenty or more employees on any given day
during the accounting year, as well as any factory as specified by the
factories act of 1948. �Employee� is defined in Section 2 (13) of
the Act as any person (other than an apprentice) employed on a
salary or wage of not more than twenty one thousand rupees per
mensem in any industry to perform any skilled or unskilled manual,
supervisory, managerial, administrative, scientific, or clerical work
for hire or compensation, regardless of whether the terms of
employment are express or implied.
The Act does not apply to the following classes of employees:
Employees employed in:

•Life Insurance Corporation of India

•Industry carried on or under the authority of any department of Central
Government or a State Government or a Local Authority.
•Indian Red Cross Society or any other institution of like nature including its
branches;
•Universities and other educational institutions;
•Hospital, Chambers of Commerce and Social Welfare Institutions established
not for purposes of profits;
•employed through contractors on building operations;
•Reserve Bank of India;
•Industrial Finance Corporation of India, Deposit Insurance Corporation and
other financial corporations being set up financially assisted by the
Government, and Unit Trust of India, Agricultural Refinance Corporation, and
Industrial Bank of India,
•Seamen as defined in Sec. 3(42) of the Merchant Shipping Act, 1958;
Inland Water Transport establishment. (Section 32).
Objective Behind The Act

The objective of the Payment of Bonus Act, 1965 is to provide for

the payment of bonus to the persons employed in certain
establishments on the basis of profits or production. The object of
the Payment of Bonus Act was very clearly described in Jalan
Trading v Mill Mazdoor Sabha 1, the Supreme Court observed that
the purpose of the Bonus Act was to maintain peace and harmony
between labour and capital by allowing workers to share the
prosperity of the establishment and prescribing the maximum and
minimum rates of bonus, as well as the scheme of "set-off" and set -
on to not only secure the labour's right in the share of profits but
also to ensure a reasonable degree of uniformity.
Constitutionality Of The Act

The constitutional validity of the act was challenged in the Supreme

Court in the case of Jalan Trading Company Ltd. v. Mill Mazdoor Sabha2,
on the grounds of violation of Articles 14 and 19 of the Constitution.
The Supreme Court ruled that the main provision of the Act which
required the payment of a minimum bonus was constitutional. The
payment of a bonus is fair since it complies with Articles 39 and 43 of
the Constitution.
�Bonus� As Under The Act

The word "bonus" is not specified anywhere in the bonus

payment act. A bonus is a monetary reward that is above and
beyond the standard payment. According to the Cambridge
dictionary, a bonus is an additional sum of money offered to
you as a gift or incentive for good performance. The primary
goal of providing bonuses is to distribute the company's profits
to its workers and employees.

The bonus commission in its report suggested "It is difficult to

define in rigid terms the concept of bonus, but it is possible to
urge that once the profits exceed a certain base, labour should
legitimately have a share in them. In other words, we think it to
construe the concept of bonus as sharing by the workers in the
prosperity of the concern in which they are employed.
This has also the advantage that in the case of low paid workers sharing in
prosperity augments their earnings to bridge the gap between the actual
wage and the need-based wage. If it is not feasible to better the standard
of living of all the industrial and agricultural workers as aimed at in Article
43 of the Constitution it is nothing wrong in endeavoring to do so in
respect of those workers whose efforts have contributed to the profits of
the concern in which they have worked.

The validity of such a conception of bonus is not affected by the difficulty

of determining or qualifying precisely the living wage or even the �need-
based:� wage at any given time and place. It appears tows that a properly
conceived bonus system that is linked to profit also imparts a measure of
desirable flexibility to wage structure. The workers are enabled to share in
the prosperity of the concern without disturbing the underlying- basic
wage structure.�
Eligibility For Bonus Under The Act
The payment of bonus is a statutory right under the act and According to the
Section 8 of the act, any employer who has worked for a minimum of 30 days in
an accounting year, shall be eligible for a bonus.

In East Asiatic Co. Ltd. Vs Industrial Tribunal 3, it was held that a retrenched
employee is eligible for bonus if they worked for a min of 30 days and have a
salary of 10,000 pm in a year.

In the case of J. K. Ginning & Pressing Factory v. Second Labour Court, Akola &
Others 4, a factory employed ten seasonal employees, and the issue of their
bonus eligibility arose. The Bombay High Court ruled that the Act does not
exclude such seasonal workers from employment; the only criterion for
eligibility is that they meet the Section 8 requirements. As a result, even
seasonal employees were deemed to be entitled to bonus payments under the
Act.
Disqualification From Bonus Under The Act

According to the sec 9 of the act an employee shall be disqualified from

receiving bonus under the Payment of Bonus Act, 1965, if he is dismissed
from service for:
•Fraud, or
•Riotous or
•violent behavior while on the premises of the establishment, or
•Theft, misappropriation or sabotage of any property of the establishment
This provision is based on the recommendation of Bonus Commission, which
stated that:

After all, bonus can only be shared by those workers who promote the
stability and well-being of the industry, not by those who positively exhibit
disruptive tendencies. Bonuses, without a doubt, impose a duty of good
behaviour.
Rights Of Employer And Employee

The Said act defines the rights available to the employees as

defined below:
•Right to claim bonus due under the Act, which allows them to
make a request to the government for payment and recovery of
bonus amounts that are not paid to them within one year of their
due date
•The right to take any dispute to a Labour Court or Tribunal;
however, it is necessary to remember that employees who are not
entitled to bonuses are unable to take their case to a Labour Court
or Tribunal.
•Right to seek clarity to obtain details about whatever products are
in the name of the business so that they can determine whether
or not they are being fairly compensated for their services.
Payment Of Minimum Bonus

Section 10 of the Act states that, regardless of whether the

employer has some allocable surplus in the accounting year, each
employer must pay each employee a minimum bonus equivalent
to 8.33 percent of the employee's salary or wage earned during
the accounting year, or one hundred rupees, whichever is greater.
However, if an employee is under the age of fifteen at the start of
the accounting year, the terms of this Section refer to that
employee as if the words "one hundred rupees" were replaced
with "sixty rupees." Section 10 of the Act does not contradict
Articles 19 and 301 of the Constitution. Even if the employer loses
money during the fiscal year, he must pay the minimum bonus as
according to section 10 of the act.
Provisions Related To Bonus Under The Code On
Wages, 2019

The chapter relating to bonus payments under the code on wages applies
only to establishments employing at least 20 workers on any day during
the accounting year, similar to the provisions of the Payment of Bonus Act,
1965.

An annual bonus would be paid to all workers whose salaries do not

exceed a certain monthly sum (to be determined by the federal or state
governments). Bonuses are paid on the higher of the minimum wage or
the wage limit set by the relevant government. Along the lines of the
Payment of Bonus Act, the Code on wages lists disqualifications for
receiving bonuses. It should be noted, however, that the Code also states
that removal from service due to a conviction for sexual assault would be
provided a ground for disqualification of bonus under the Code.
 Important section of
payment of bonus act 1965
Applicability

Section 8 (2007 amendment)

Section 10 minimum Bonus

Section 11 maximum Bonus

Section 9 – disqualification

Section 16 special provision

Section 27 inspector

The government may be by notification in the

official Gazette can a point such person as an
inspector
• Powers
• In any reasonable time can enter in the permises
• Can inspect the entire organisation
• Can be ask two exam in records accounts books
registers of the organisation
Sec 28-29

• For contravention of the provision of the act

imprisonment of 6 month or final up to 1000 or both
• Every person who at the time the offence was
committed was in charge of and was responsible to
the company for the conduct of business of the
company as well as the company shall be deemed to
be guilty of the offence and shall be liable to be
proced date against the punished accordingly
Section 32