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.

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:

i. Employees employed in:

a. Life Insurance Corporation of India

b. Industry carried on or under the authority of any department of Central
Government or a State Government or a Local Authority.
c. Indian Red Cross Society or any other institution of like nature including
its branches;
d. Universities and other educational institutions;
e. Hospital, Chambers of Commerce and Social Welfare Institutions
established not for purposes of profits;
f. employed through contractors on building operations;
g. Reserve Bank of India;
h. 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,
i. Seamen as defined in Sec. 3(42) of the Merchant Shipping Act, 1958;
j. 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.

The appellant, a bus conductor working for a government of Tamil Nadu undertaking,
was dismissed from service in Pandian Roadways Corporation Ltd. vs. Presiding
Officer 5. Following that, the petitioner and management reached an agreement, and
the petitioner as appointed as a new entrant. Following that, the petitioner claimed an
bonus of rs 1,842 for the duration after his re-appointment. the court ruled in the case
that " If an employee is dismissed from service, he is disqualified from receiving any
bonus under the said Act, not just the bonus for the accounting year," the court ruled.
In Gammon India Ltd Vs Niranjan Das 6, the court held that an employee who is
dismissed from service for fraud, riotous or aggressive behaviour on the premises of the
company, or who is guilty of theft, misappropriation, or sabotage of any establishment's
property is disqualified from receiving bonus for the accounting year under section 9 of
the Payment of Bonus Act, 1965. A dismissed employee who has been reinstated with
back pay has evidently not committed the above crimes and has not been fired. As a
result, he is entitled to a bonus.

Rights Of Employer And Employee

The Said act defines the rights available to the employees as defined below:

1. 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
2. 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.
3. 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.

The rights available to the Employer against any exploitation or the

protection of their business are given as below:

1. Rights to bring any dispute to the Labour Court or the Tribunal over a request for
an interpretation of any clause of the Act.
2. Right to deduct a fair amount from an employee's bonus on account of a bonus
already paid as a festival bonus or in the event of a monetary loss caused by the
employee's misbehaviour.
3. Right to deduct the value of a bonus paid to an employee who has been fired for
misbehaviour, offensive behaviour, or obstructing the establishment's land.

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.

In J.K. Chemicals Ltd. vs. Govt. of Maharashtra7 the court held that the company
would not be relieved from its liability to pay minimum bonus, if the bonus liability is
negligible in comparison to the loss incurred. If the employer's damages were not
caused by employee wrongdoing, the employer must pay the statutory minimum bonus.

Payment Of Maximum Bonus

If the allocable surplus for any accounting year referred to in Section 10 exceeds the
amount of the minimum bonus available to workers under that Section, the employer is
allowed to pay a bonus equal to each employee's salary or wage received during that
accounting year. In determining the allocable surplus under this Section, the amount
set on or set off under the provisions of Section 15 must be taken into account in
accordance with those provisions.

Conclusion
The Payment of Bonus Act of 1965 aims to legalise the practise of various
establishments paying bonuses. It provides a mechanism for calculating bonus based
on profit and performance. It allows workers to make more money than the minimum
wage or salary. This Act establishes various procedures for different types of
businesses, such as banks and government agencies, as well as businesses that are not
corporations or firms. This Act also establishes a rigorous redress process in addition to
the procedure.