Payment of Bonus Act, 1965

Payment of Bonus Act, 1965 (hereby referred to as ‘the Act’), extends to the entire country of India
including Jammu and Kashmir. It applies to every factory, and every establishment in which 20 or more
persons are employed during an accounting year. If the number of persons in an establishment covered
under the Act falls below 20, the Act still applies to the establishment, as specified in Section 1.
Section 2 defines the terms under the Act, most important being ‘Employee’ and ‘Employer’. Employee
(Section 2(2)) includes all employees of an establishment covered under the Act drawing a salary or wage
not exceeding Rs. 21000 per month. It excludes apprentices. Employer (Section 2(14)) includes owner
and occupier of a factory, including their agents and legal representatives if deceased, as well as the
person who has ultimate control in case of an establishment.
Every employee is entitled to be paid bonus by his employer, under the provisions of the Act, provided
that he has worked for a minimum of 30 working days in the accounting year as per Section 8. Section 9
states that an employee is disqualified from receiving the bonus if he has been dismissed from services on
the grounds of:

 Fraud
 Riotous or violent behavior on the premises of the establishment
 Theft, misappropriation or sabotage of any property of the establishment
Minimum bonus payable depends on the age of the employee. If the employee is above 15 years of age,
he is entitled to 8.33% of his salary or wage, or Rs.100, whichever is higher. If the employee is under 15
years of age, then he is entitled to 8.33% of his salary or wage, or Rs.60, whichever is higher, as per
Section 10. Section 11 sets the maximum bonus at 20% of the employee’s salary or wage.
Bonus payable by the employer is calculated with a ceiling at Rs.7000. i.e. if an employee draws a wage
of more than Rs.7000, only Rs.7000 would be considered for calculation. Sections 12 to 15 deal with
calculation of bonus, including calculation of working days (which excludes layoff, paid leave, maternity
leave and absence due to temporary disablement) under Section 14 and a provision for set on and set off
of allocable surplus under Section 15. If an employee has caused financial loss to the employer, due to
misconduct, the employer has the power to deduct from the employee’s bonus the amount of loss caused
in that financial year.
Employer must pay bonus within 8 months before the end of the accounting year. If not paid within the
stipulated time, the employee may make an application to the appropriate government for recovery. The
government then issues a certificate for the amount to the Collector, who will recover the same as arrears
of land.
Inspectors are appointed by the appropriate government under Section 27 to check compliance of
factories and establishments with the Act. An inspector is a deemed public servant under the Indian Penal
Code, and is given powers and jurisdiction to fulfill his duties, including the power to enter premises,
examine books of accounts and question the employer and employees about compliance with the Act. If
the employer fails to comply with, or contravenes any provision of the Act, he is punishable with
imprisonment for a term of up to 6 months, or a fine which may extend to one thousand rupees, or both
(Section 28).
Thus, the rights and interests of a wide net of employees and workers are protected under the Act.