Information on the payment of bonus act, 1965

What is the bonus act?

The payment of bonus act is implemented to provide minimum guaranteed bonus for employees whose salary below certain limits. From the enactment of Bonus Act, 1965, bonus has become mandatory obligations for all establishments to whom it is applicable.

The bonus paid under bonus act is also called statutory bonus since this bonus is paid as per law.

Application of The Act:

The Bonus Act applies to every factory and every establishment that employs 20 or more persons, and unlike other performance linked incentives offered by companies, the bonus payable under this law is not linked to the performance of the employee. All employees earning up to the wage threshold and who have worked in the establishment for not less than 30 working days in the year are eligible to receive this statutory bonus.

Rate of Bonus: Minimum 8.33 % and maximum 20% of basic wages, maximum 7000/- or minimum wages can be considered for bonus calculation.

Definition of Employee: any person other than apprentice employed on salary or wages not exceeding Rs. 21000/- per month in any industry to do any skilled, unskilled, supervisory manual managerial work for hire or reward as per the terms of employment. 

Wage ceiling: bonus in respect of employee whose salary as payable to an employee exceeds Rs. 7000/- per month. If an employee salary / wage exceeded Rs. 7000/- per month or the minimum wage notification for the concerned employment as fixed by the Government (as per the minimum wages Act, 1948), whichever is higher.

Benefit for new establishments?

For the first 5 accounting year following the accounting year in which the employers sells goods/render services, bonus is payable only in respect of the accounting year, in which profit is made.

Employee eligible and disqualification for the bonus?

Eligibility:

• Employee must complete 30 days in that financial year.
• Employee must have a salary of INR 21,000 or below per month.
• Apprentices are not eligible.

Disqualification of bonus:

Employees can be disqualified from bonus payments if they are dismissed on the basis of fraud, misconduct, or even absenteeism. Employer has to maintain proper documentations on dismissal like: 

• Domestic enquiry,
• Proper documentation and
• Employee acceptance of the misconduct is all carried out as per the standing orders before disqualifying the bonus payment.

When is the bonus to be paid?

Bonus is paid within 8 months from the end of every financial year. So, in India, where the financial year ends in March, bonuses are usually due around October-November.

What the statutory forms & registers to be maintained in Bonus Act?

Employer is required to maintain the following registers and submit returns in the prescribed form

Registers

Form A - showing the computation of allocable surplus

Form B –showing the set-on and set-off of the allocable surplus

Form C – showing the details of the amount of bonus to each of employees, the amount of deductions if any, and the amount actually paid.

Returns:

Form D - annual return to the Inspector appointed under the Act within 30 days from the expiry of time limit specified in Section 19 for payment of bonus.

Penalty: Any violation can lead to imprisonment for up to 6 months and may (or may not) include a fine amount.

Bonus act abstract, registers and returns copies

Also read related blogs on statutory compliance.