oo Chapter 29 The Payment of Bonus Act, 1965 The right to share in the profits of an industrial undertaking was conferred i the workers under tho Payment of Bonus Act, 1965. The Payment of Bonus (Second Amendment) Act, 1980 provided for payment of a minimum bonus of 8.33 Percent of annual wages, irrespective of whether there is allocable surplus or not. Bonus upto a maximum of 20 per cent of the annual Wages is payable under this law in accordance with a prescribed formula. Objects of the Act The chief object of the Payment of Bonus Act, 1965 as contained in its Preamble is to Provide for the payment of bonus to Persons employed in with only profit bonus and matters connected therewith and does not govern customary, traditional or contractual bonus. [Workmen vs. National and Grindlays Banks Ltd. (1976)]. In Hutti Gold Mines Kamgar Union vs. Govt. of India (1973), it was observed that “the object of the Payment of Bonus Act, 1965 is to maintain Peace and harmony between labour.and capital by allowing the employees in recognition of their right to share in the Prosperity of the establishment, reflected by the contributions made by capital, management and labour.” Broad Features of the Act The salient features of Payment of Bonus Act are as under : 1. It imposes a statutory liability upon an employer of every establishment covered by thé Act to Pay bonus to employees in establishment, 2. It defines the Principle of payment of bonus according to. the Prescribed formula. 3. It provides for payment of minimum and maximum bonus with the scheme of ‘set off anq ‘set on’, 4. It provides machinery for enforcement of the liability for payment of bonus, Application of the Act The Payment of Bonus Act, 1965 (as amended up to date) applies to every factory and every other establishment in which 20 or more Persons are employed on any day during an accounting year. An establishment to which this Act applies shall continue to be governed by the act notwithstanding that number of persons employed therein falls below 20, (400)THE PAYMENT OF BONUS ACT, 1965 in ‘The Act.applies to an establishment in public sector if it sells any goods produced or manufactured by it or renders any services in competition with an establishment in private sector and the income received by it from such sale or services or both is not less than twenty percent of its gross income for ~ that year. The appropriate government has a power to extend the provisions of this Act to factories and other establishments employing less than twenty persons by giving two months’ notice. The Act shall not apply to the following classes of employees : (a) employees.employed by the Life Insurance Corporation of India ; (6) seamen as defined in clause (42) of Section 3 of the Merchant Shipping Act, 1958 ; (c) employees registered or listed under any scheme made under the Dock Workers (Regulation of Employment) Act, 1948 and employed by registered or listed employers ; (d) employees employed by an establishment engaged in any industry carried on by or under the authority of any department of the Central Government or a State Government or a local authority ; (e) employees employed by— (i) the Indian Red! Cross: Society or any other institution of a like nature (including its branches) ; (ii) universitites and other education institutions ; (iii) institutions (including hospitals, chambers of commerce and social welfare institutions) established not for purpose of profit ; (employees employed through’contractors on building operations ; @® employees employed by the Reserve Bank of India ; (h) employees-employed by — (® the Industrial Finiance Corporation of India. (ii) ‘any Financial Corporation established under Section 3 or any Joint Financial Corporation established under Section 3A of the State Financial Corporation Act 1951 ; (iii) the Deposit Insurance Corporation of India (iv), the Agricultural Refinance Corporation ; iowurol (v)) the Unit Trust of India; (vi) the Banking Company ; (vii) the Industrial Development Bank of India ; (viii) the Industrial Reconstruction Corporation of India ; (iz) any other finiancial initiations (other than a banking company) being’an establishment in public’ sector, which the Central Government, may by notification in the ‘pfficial Gazette, specify, having regard:to— (1) its capital structure ; (2) its objectives and the nature of its activities ; (3) the natute andee _, INDUSTRIAL RELATION 402 extent of financial assistance or any concession given to it by the Government ; and (4) any other relevant factors (i) employees employed by inland water transport establishment operating on routes passing through any other country. 22.1 DEFINITIONS Accounting Year [Sec. 2(1)]. It means : ; @ inrelation to a corporation, the year ending on the day on which the books and accounts of the corporation are to be closed and balanced ; i) in relation to a company, the period in respect of which any profit and loss account of the company laid before it in annual general meeting is made up, whether that period is a year or not ; (ui) in any other case, the year commencing on the first day of April or if the accounts of an establishment maintained by the employer thereof are closed and balanced on any day other than the 31st day of March, then at the option of the employer, the year ending on the date on which its accounts are so closed and balanced. An option once exercised by the employer shall not again be exercised except with the previous permission in writing of the prescribed authority and upon such terms as the authority may think fit to impose, Allocable Surplus [Sec. 2(4)]. It means : (@) in relation to an employer being a company (other than a banking company) which has not made the arrangements prescribed under the Income-Tax Act, 1961 for the declaration and payment within India of the dividends payable out of its profits in accordance with the provisions of Section 194 of the Income-Tax act, 67% of the available surplus’ in an accounting year ; (6) in any other case, sixty Per cent of the available surplus. Thus, the allocable surplus is the workers’ share in the available surplus. It is the amount available for distribution amongst the employees in the relevant accounting year. Appropriate Government [Sec; 2(6)]. It means : @ in relation to an establishment in respect of which the appropriate Government under the Industrial Disputes Act, 1947 is the Central Government; @) in relation to any other establishment, the Government of the State in which that other establishment is situated, Award [Sec. 2(7)]. It means an interim or final determination of any industrial dispute or of any question relating thereto by any Labour Court, ; Available surplus as computed under Sec. 5 of this Act.THE PAYMENT OF BONUS ACT, 1965 403 corresponding law relating to investigation and settlement of industrial disputes in force in a State and includes an arbitration award made under Sec. 10-A of that Act or under that iaw, Direct-Tax [Sec. 2(12)]. It means : @ any tax chargeable under the Income-tax Act, 1961 ; the Super Profits Tax Act, 1963 3 the Companies (Profits) Surtax Act, 1964 ; and (i) any other tax which, having regard to its nature or incidence, may be declared by notification in the Official Gazette to be a direct tax for the purposes of this Act. Employee [Sec. 2(18)]. Employee means any person (other than an apprentice) employed on a salary or wage not exceeding Rs. 3500 per mensem in any industry to do any skilled or unskilled, manual, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of employment be express or implied 2 Employer [Sec. 2(14)]. Employer includes : () in relation to an establishment which is a factory, the owner or occupier of the factory, including the agent of such owner or occupier, the legal representative of a deceased owner or occupier and the manager of the factory ; (#) in relation to any other establishment, the person who, or the authority which has, the ultimate control over the affairs of the establishment. Where the said affairs are entrusted to a manager or managing director, such manager or managing director is the employer. Establishment in Private Sector [Sec. 2(15)]. It means any establishment other than an establishment in public sector. Establishment in Public Sector [Sec. 2(16)]. It means an establishment owned, controlled or managed by : (a) aGovernment company as defined in Sec. 617 of the Companies Act, 1956 ; (6) a corporation in which not less than forty per cent of its capital is held (whether singly or taken together) by the government, or the Reserve Bank of India, or a Corporation owned by the Government or the Reserve Bank of India. ._ Salary or Wage [Sec. 2(21)].-It means all remuneration (other than remuneration in respect of overtime work) capable of being expressed in terms of money, which would, if the terms of. employment express or implied, were fulfilled, be payable to an. employee in respect of his employment or of work done in such employment, It includes dearness allowance (that is to say, all 2. The definition includes a casual or part-time worker, [Automobile Karamchari Sangh vs. Industrial Tribunal, 1971—22 -FLR—98-All,)4 INDUSTRIAL RELATIONS 404 cash payments, by whatever name called, paid to an employee on account ofa rise in the cost of living). But it does not include : @ any other allowance which the employee is for the time being entitled to ; (ii) the value of any house accommodation or of supply of light, water, medical attendance or other amenity or of any service or of any concessional supply of foodgrains or other articles ; (ii) any travelling concession ; (jv) any bonus (including incentive, production and attendance bonus) ; (v) any contribution paid or payable by the employer to any pension fund or provident fund or for the benefit of the employee under any law for the time being in force ; any retrenchment compensation or any gratuity or the retirement benefit payable to the employee or any ex gratia payment made to him; (vii) any commission payable to the employee, Where an employee is given in lieu of the whole or part ofthe salary or Wages payable to him, free food allowance or free food by his employer, such food allowance or the value of such food shall, for purpose of this clause, be deemed to form part of the salary or wage of such employee. 22.2 ELIGIBILITY AND DISQUALIFICATION FOR BONUS. Eligibility for Bonus (Sec. Bonus provided he has worked in. working days in that year. Disqualification for Bonus (Sec. 9). An employee shall be disqualified for receiving bonus if he is dismissed from service for — @. fraud, or @) riotous or violent b establishment, or (ii) theft, misappropriation or sabotage ‘of “any Property of the establishment, 22.3 DETERMINATION OF BONUS. The Act requires 67 percent of the available surplus to be allotted for the payment of bonus in relation to a company (other than ing company) which has not made the arrangements Prescribed under Income Tax Act for the declaration and payments of. dividends: payable out. of its profit within India and in other cases 60 Percent of such available surplus, Allocable surplus shall be available for distribution as bonus. In order to aye ait this figure, the first step is’ to find out gross profit of os establishment. Gross Profit (Sec. 4). The Bross profit is to be worked out in the manner specified in the first and second schedule, (vi) 8). Every employee shall be entitled for ” the establishment for not less than 30 haviour while von’. the’ premises. of the \‘THE PAYMENT OF BONUS ACT, 1965 os According to Section 4, the gross profits derived by an employer from an establishment in respect of an accounting year shall— (a) in the case of banking company, be calculated in the manner specified in the First Schedule [Sec. 4(a)] ; (b) in any other case, be calculated in the manner specified in the Second Schedule, [Sec. 4(b)]. Available Surplus (Sec. 5). The available surplus in respect of any accounting year shall be gross profit after deducting the following prior charges : (a) depreciation; (b) development rebate or investment allowance or development allowance ; (©) direct taxes ; (d) such further sums as are specified in the third schedule. ‘The figure so arrived at is available surplus and sixty percent or sixty seven percent thereof is allocable surplus for payment of bonus. Net Profit. The starting point for determination of bonus under this Act is the net profit shown in the profit and loss account. Payment of Minimum Bonus [Sec. 10] " Every employer shall be bound to pay every employee a minimum bonus which shall be 8.33 percent of the salary or wages earned by him during the accounting year, whether or not the employer has any allocable surplus in that accounting year. ‘When in respect of any accounting year the allocable surplus exceeds the amount of minimum bonus, the employer shall be bound to pay to the employee an amount in proportion to the salary earned subject toa maximum. of 20 percent of salary or wages. Where the salary or wages of an employee exceeds Rs. 3500/- per month the bonus payable to him shall be calculated as ifhis salary or wages is Rs. 3500/- per month. Proportionate Reduction in Bonus (Sec. 13) Where an employee has not worked for all the working days, the minimum bonus shall be proportionately reduced. For this purpose an employee shall be deemed to have worked on the days on which— (a) he has been laid off ; (6) “he hasbeen on leave with salary or wage; (c) he has-been’ absent due to temporary disablement caused by accident arising out of, and in the course of employment ; and (d) the employee has been on maternity leave with salary or wage during the accounting year. . Set on and Set off of Allocable Surplus (Sec. 15) ‘Set on: Where for any accounting year, the allocable surplus exceeds the amount of maximum bonus payable to the employees, then the excess shall subject to a limit of twenty percent of the total salary or wage of the employee employed in the establishment in that accounting year be carried forward for being set on in the eueceeding accounting year upto an inclusive of the fourth accounting year to be utilised for the purpose of ‘payment of bonus.INDUSTRIAL RELATIONs 406 ‘ ilable surplus . there is no avai or Set off. Where for any accounting year, falls short of the amount of i ct of that year ‘ ; ca a ns PI ne to the employees In establishment, there is no minimum bonu: ich could be utili ficient amount carried forward as set on ae ee vil td receipe f payment of minimum bonus, then suc! ebetainte ce ioe may be shall be carried forward for being wrth 2 wn Seen ancountiNe year upto and inclusive of the fourth accou! fg year, > i ting year if an employee is found guilty of misconduct nancial ss tot then it shall be lawful for the employer, ing financial loss to the employer, todeduct ay amount of loss from the amount ofbonus payable to the employee in respect of that accounting year. Bonus linked with Production or Productivity (Sec. 31A) In lieu of bonus under this Act, the Act also provides for the payment of bonus linked with production or productivity based on agreements. Any such agreement whereby the employees relinquish their right to receive the minimum bonus shall be null and void. However such employees shall not be entitled to be paid bonus less than. 8.33 percent of the salary or wages, and more than 20 percent of the salary or wages earned during that accounting year. Penalties (Sec. 28) If any person, contravenes any of the provisions of this Act or any rule made thereunder or fails to comply with the given direction or requisition made under the Act shall be punishable with imprisonment for a term which may extend to six months or with fine which may extend to one thousand rupees or with both. 22.4 PAYMENT AND RECOVERY OF BONUS Adjustment of Customary Bonus [Sec. 17]. Wherein any accounting year: z (a) an employer has paid any Puja Bonus or other customary bonus to an employee ; or (b) an employer has paid a part of the bonus payable under this Act to an employee before the date on which such Bonus becomes payable ; then, the employer shall be entitled to deduct amount of bonus a paid from the amount of bonus payable by him to the employee under this Act in respect of that accounting year and the employee shall be entitled to receive only the balance. Deduction of Amounts from Bonus [Sec. d t 18]. Wherein accounting year, an employee is found guilty of misconduct causing financial‘THE PAYMENT OF BONUS ACT, 1965 aa Time Limit for Payment of Bonus [Sec, 19] 1. All amounts payable to an employee by way of bonus under this Act shall be paid in cash by his employer. 2. Where there is a dispute regarding payment of bonus pending before any authority under Sec. 22, payment shall be made within a month from the date on which the award becomes enforceable or the settlement comes inte operation, in respect of such dispute. 3. In any other case, the payment shall be made within eight months from the close of the accounting year. 4. The appropriate Government may, upon an application made to it by the employee and for sufficient reasons, extend the said period. Recovery of Bonus [Sec. 21] 1. Where any money is due to an employee by way of bonus from his employer under a settlement or an award or agreement, the employee himself or any other person authorised by him in writing in this behalf, or in the case of the death of the employee, his assignee or heirs may, without prejudice to any other mode of recovery, make an application to the appropriate Government for the recovery of the money due to him. 2. If the appropriate government, or such authority as the appropriate Government may specify in this behalf, is satisfied that any money is so due, it shall issue a certificate for that amount to the collector who shall proceed to recover the same in the same manner as an arrears of land revenue. 3, Every such application shall be made within one year from the date on which the money became due to the employee from the employer. 4. However, any such application may be entertained after the expiry of the said period of one year if the appropriate Government is satisfied that the applicant had sufficient cause for not making the application within said period.