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The Bonus Act
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The Bonus Act
The Bonus Act

Bonus means a sum of money that is added to an individual's wages as a reward for good performance. The profit earned by an establishment is shared among the employees and staff members. Bonus is governed by the Payment of Bonus Act 1965, which is paid to an individual who is employed by companies and organizations. The bonus is paid based on the employees' profits and productivity. The Payment of Bonus Act 1965 applies to all the establishments who have employed 20 or more persons. The main aim of the Payment of Bonus Act 1965 is to impose legal responsibility on the employer of every establishment that is covered under this act to pay the bonus to his/her employees.

The Payment of Bonus Act 1965 does not apply to the non-profit making organizations, LIC, hospitals that are excluded under section 32, an agreement signed by the employees with the employer and those establishments that are exempted by the appropriate government. An employee can avail bonus in specific conditions that are as follows:

  • If the employee is receiving salary/wages upto Rs. 21,000 every month.
  • If the employee is engaged in any work that is either skilled, unskilled, managerial or supervisory, etc.
  • If the employee has not worked less than 30 working days in the same year.

Hence, if the following conditions are not satisfied, then he cannot avail bonus under the Payment of Bonus Act 1965.

Minimum & Maximum Bonus

The Payment of Bonus Act 1965 also states the provision relating to the minimum and maximum percentage of the bonus that the employer is liable to pay his employees. The employee is entitled to a minimum bonus of 8.33% of the salary during a year. In case if the employee is below the age of 15 years, then he is entitled to a minimum bonus of Rs. 60. In case if the employee is above the age of   15 years, then he is entitled to a minimum bonus of Rs. 100. The employee is entitled to the minimum bonus, whichever is higher from the above three conditions. The employee is entitled to a maximum bonus of 20% of the salary during a year.

Calculation of Bonus

According to the Bonus Act - Amendment of 2015, if the employees are earning below Rs.21,000 then he is entitled to receive the bonus. Following is the calculation of bonus:

If an employee is earning Basic Salary plus allowance below Rs. 7000 then the bonus will be calculated on the actual amount. For Instance - If an employee is working in an establishment, where his basic salary is Rs. 6,500 (below Rs. 7000) every month, then the formula for calculating minimum bonus is Basic Salary*8.33% (6,500*8.33% = 541.45 per month and 6497.4 per annum). In case if an employee is earning Basic salary plus Dearness Allowance above Rs. 7000, then the bonus will be calculated on Rs. 7000. For Instance - If an employee named Aditya is working in an establishment, where his basic salary is Rs. 7,000 every month, then the formula for calculating maximum bonus is Basic Salary*20% (7,000*20% = 1,400 per month). There is no bonus applicable to the employees who are earning a basic salary above Rs. 21,000 every month. The bonus must be paid within eight months from the period of closing the books of account.

Case Law

IDBI Bank Limited Vs. The Union Of India

Patna High Court - 22nd August 2017

Miscellaneous No. 51373/2013

Niranjan Kumar, the Labour Enforcement Officer, filed a complaint case against the IDBI Bank Limited and its Official Chairman cum Managing Director and branch head of Main Branch. IDBI Bank Limited was engaged in banking and had employed 40 employees. According to section 1 of the Payment of Bonus Act 1965 and Central Rules, the Act applies to the establishment of the IDBI Bank Limited. The Inspector had observed that the eligible employees were not paid Bonus and statutory time limit has also been expired. It was also observed that the IDBI Bank Limited had not maintained form C registers under the provision of the Payment of Bonus Act 1965. Even after giving the notice to remove the defects, the IDBI Bank Limited did not rectify those defects. IDBI Bank Limited committed a breach of the provisions that are mentioned under section 28(A) (penalty) and section 29 (Offences by Companies) to be read with section 30 (Cognizance of Offence) of the Payment of Bonus Act 1965.

On 15th April 2010, the Chief Judicial Magistrate of Patna took the cognizance for the offence under section 28(A) and section 29 to be read with section 30 of the Payment of Bonus Act 1965 against IDBI Bank Limited. IDBI Bank Limited had filed an application under section 482 (Inherent Powers of the High Court) of the Criminal Procedure Code. After going through the provision mentioned under section 32(ix)(f) of the Payment of Bonus Act 1965, it was found that the Payment of Bonus Act 1965 did not apply to the Industrial Development Bank (transfer of undertaking and Repeal) Act 2003. According to the above act, the exemption that was granted to the IDBI still continues to IDBI Limited. The High Court held that the order passed for taking cognizance for the offence under section 28(A) and section 29 to be read with section 30 of the Payment of Bonus Act 1965 against IDBI Bank Limited was illegal.

Conclusion

If any action is taken by an employer or the management against the employees in case of Dishonesty, Theft, Violent behaviour and Sabotage of any property of the establishment, while he was on his duty, then he shall be disqualified from availing the bonus under the Payment of Bonus Act 1965. If an employee is earning more than 21,000 of salary, then he is not entitled to receive a bonus under the Payment of Bonus Act 1965. If the employee is not eligible under the Payment of Bonus Act 1965, but still the employer wants to give the bonus to an employee, then it is considered as a moral obligation and not any legal requirement which is also known as ex-gratia. Hence, the bonus is a reward for his work dedication towards an establishment.

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