Introduction to the Act
The Payment of Bonus Act 1965, often referred to simply as the Bonus Act or the Payment of Bonus Act, is an important labour law that ensures eligible employees in certain establishments share in the profits of the business. It was introduced to promote fairness, strengthen industrial peace, and guarantee that workers receive their rightful bonus payment when conditions are met.
The act applies to a wide range of workplaces. Any factory where a manufacturing process is carried out with the help of power, and where at least ten employees are working, falls under its scope. It also covers other profit-making establishments with twenty or more employees.
Coverage extends not just to permanent employees but also to contract workers. Skilled, unskilled, technical, clerical, and even supervisory staff employed under express or implied contracts are included under the bonus rules.
In simple terms, if a factory or establishment employs twenty or more workmen, the Bonus Act of 1965 applies to them. This makes the law relevant to a broad section of industries across India.
The objective is straightforward: to create legal clarity, encourage profit sharing, and build a motivated workforce. By setting clear bonus rules, the act benefits employees and helps organisational growth. The central government serves as the appropriate government for establishments under its direct jurisdiction.
Employees become entitled to a bonus once they fulfil certain conditions, such as completing the minimum period of service as stated in the act. Without meeting eligibility, bonus payable rights do not arise.
The Payment of Bonus Act also defines the minimum bonus. Every eligible employee must receive either 8.33% of their salary or one hundred rupees, whichever is higher. This ensures even those with lower earnings receive a statutory benefit.
It is worth noting that gratuity, though often discussed alongside a bonus, is different. Gratuity is a separate statutory right payable at the end of employment, generally upon retirement or termination, after completing the required service period.
The Bonus Payment Act, however, remains applicable to ongoing employment. It guarantees a bonus for completed service within an accounting year, provided the conditions under the act are met.
The scope of the act widened with the payment of bonus amendment in 2015, which brought changes to eligibility and maximum bonus limits. It continues to apply to factories and other establishments employing twenty or more persons.
For instance, take a factory worker who has completed the required service and whose work type falls within the definitions of the act. That worker is entitled to the actual amount of bonus payable under the provisions of the Payment of Bonus Act.
Key Provisions
The minimum bonus payable to eligible employees is set at 8.33% of their salary or one hundred rupees, whichever figure turns out higher. This is clearly defined in the payment of bonus rules. At the same time, the maximum bonus is capped when salaries cross ₹7,000 or the minimum wage fixed by the appropriate government.
For eligibility, the salary ceiling fixed under the act is ₹3,500 per month. Employees earning within this limit are entitled to the bonus payable under the Bonus Act 1965.
The formula for calculating the bonus is based on the allocable surplus. Employers are required to calculate this by taking into account basic salary plus dearness allowance. Over time, retirement benefits and other allowances are excluded. The actual amount of bonus payable is therefore a percentage of salary defined by the Payment of Bonus Act.
Timing also matters. The act mandates that bonus payment be made within eight months from the close of the accounting year. Employers must pay the bonus in cash within this window. Section 19 of the Payment of Bonus Act sets this requirement clearly.
Compliance does not stop at payment. Every employer must also file an annual return in Form D by February 1 each year. This filing provides details of bonus payments and ensures transparency.
To oversee compliance, the act empowers the appointment of an inspector. This official has the right to inspect records, demand production of accounts, registers, and other documents related to bonus distribution. Inspections are part of the checks under labour and employment regulations.
The payment of the bonus amendment in 2015 brought important updates. It raised the maximum bonus payable and revised the eligibility criteria for eligible employees. The changes were officially notified by the central government through gazette notifications as per guidelines from the Ministry of Labour and Employment.
By combining profit sharing with statutory oversight, these provisions ensure employees are not left out when an allocable surplus exceeds certain levels. At the same time, employers gain clarity on rules, percentages, and timelines.
Organisations that fail to comply risk penalties and damage to their reputation. That is why many now rely on automated systems to handle these calculations. Bharat Payroll’s AI-powered platform ensures that bonus payments, filings, and compliance checks are accurate, timely, and free from errors.
Stay compliant, avoid penalties, and keep employees satisfied by managing & automating the Bonus Act 1965 obligations with precision.
Frequently Asked Questions
1. What is the minimum bonus payable under the Bonus Payment Act 1965?
The Bonus Act 1965 sets the minimum bonus at 8.33% of an employee’s salary, or one hundred rupees, whichever is higher. Every eligible employee must be paid this bonus for the accounting year, even when the allocable surplus is limited.
2. Which establishments are covered under the Payment of Bonus Act 1965?
The act applies to factories with ten or more employees where processes are carried out using power. It also extends to other establishments that are profit-oriented and employ twenty or more persons.
3. How is the bonus calculated for employees earning above ₹7,000 per month?
If an employee earns above ₹7,000 per month, or more than the minimum wage set by the appropriate government, the bonus is calculated as if their salary were ₹7,000 or that minimum wage, whichever figure is higher.
4. What components of salary are considered for bonus calculation?
The calculation includes basic salary and dearness allowance. Payments like overtime, special allowances, or retirement benefits are not part of the calculation under the payment of bonus rules.
5. When must the bonus payment be made?
Employers are required to complete the payment of bonuses within eight months from the close of the accounting year. Typically, this deadline falls around November 30th each year.
6. Are employers required to file any returns related to bonus payments?
Yes. Every employer must file an annual return in Form D by February 1 each year. This filing confirms details of the bonus payable and bonus paid, ensuring compliance with the 1965 Act.
7. What changes were introduced by the Payment of Bonus Amendment Act?
The payment of bonus amendment raised the ceiling on the maximum bonus and revised the eligibility rules for employees. These updates were officially notified by the central government through gazette publications.
8. What is ‘allocable surplus’ in the context of bonus payment?
Allocable surplus is the part of an establishment’s profit that is legally available for distribution as a bonus. It is calculated after accounting for statutory deductions and is central to determining the actual amount of bonus payable.
9. Who is the appropriate authority for the enforcement of the Bonus Payment Act?
For industries and establishments under its jurisdiction, the central government is the appropriate government. For others, the state governments act as the authority responsible for enforcement.
10. Can the bonus be paid in forms other than cash?
No. Under the Payment of Bonus Act, the law makes it clear that bonuses must be paid only in cash. Payments through goods or alternatives are not permitted.
