File Copyright Online - File mutual Divorce in Delhi - Online Legal Advice - Lawyers in India

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:
  1. Employees employed in:
    1. Life Insurance Corporation of India
    2. Industry carried on or under the authority of any department of Central Government or a State Government or a Local Authority.
    3. Indian Red Cross Society or any other institution of like nature including its branches;
    4. Universities and other educational institutions;
    5. Hospital, Chambers of Commerce and Social Welfare Institutions established not for purposes of profits;
    6. employed through contractors on building operations;
    7. Reserve Bank of India;
    8. 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,
    9. Seamen as defined in Sec. 3(42) of the Merchant Shipping Act, 1958;
    10. 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.

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.

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.

  1. Jalan Trading v Mill Mazdoor Sabha [1967] AIR 691
  2. East Asiatic Co. Ltd. Vs Industrial Tribunal [1961] ILLJ 720 Cal
  3. J. K. Ginning & Pressing Factory v. Second Labour Court, Akola & Others [1991] 62 FLR 207 (Bom)
  4. Pandian Roadways Corporation Ltd. vs. Presiding Officer [1996] 2 CLR 1175 (Mad)
  5. Gammon India Ltd Vs Niranjan Das 1984 (1) S.C.C. 509
  6. State v. Sardar Singh Majithia [1979] Lab. I.C.
  7. J.K. Chemicals Ltd. vs. Govt. of Maharashtra 1996 (1) BomCR 197
  1. Payment of Bonus Act Applicability, Eligibility, Disqualification, Payment of Minimum and Maximum Bonus <,-Eligibility,-Disqualification,-Payment-of-Minimum-and-Maximum-Bonus > accessed on 20th May, 2021.
  2. Explain the eligibility and disqualification for receiving bonus under the payment of bonus act 1965.< > accessed on 20th May, 2021

Law Article in India

Ask A Lawyers

You May Like

Legal Question & Answers

Lawyers in India - Search By City

Copyright Filing
Online Copyright Registration


How To File For Mutual Divorce In Delhi


How To File For Mutual Divorce In Delhi Mutual Consent Divorce is the Simplest Way to Obtain a D...

Increased Age For Girls Marriage


It is hoped that the Prohibition of Child Marriage (Amendment) Bill, 2021, which intends to inc...

Facade of Social Media


One may very easily get absorbed in the lives of others as one scrolls through a Facebook news ...

Section 482 CrPc - Quashing Of FIR: Guid...


The Inherent power under Section 482 in The Code Of Criminal Procedure, 1973 (37th Chapter of t...

The Uniform Civil Code (UCC) in India: A...


The Uniform Civil Code (UCC) is a concept that proposes the unification of personal laws across...

Role Of Artificial Intelligence In Legal...


Artificial intelligence (AI) is revolutionizing various sectors of the economy, and the legal i...

Lawyers Registration
Lawyers Membership - Get Clients Online

File caveat In Supreme Court Instantly