P.B Act -FAQ

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FAQs under Payment of Bonus Act, 1965 Question Answer To whom are the provisions of Payment of Bonus Act, 1965 applicable? The Payment of Bonus Act, 1965 extends to the whole of India and save as otherwise provided in the Act, it shall apply to (a) every factory and (b) every other establishment in which twenty or more persons are employed on any day during an accounting year. [Section 1] To whom is the Payment of Bonus Act, 1965 not applicable? Nothing in this Act shall apply to-- (i) employees employed by the Life Insurance Corporation of India; (ii) seamen as defined in clause (42) of section 3 of the Merchant Shipping Act, 1958 (44 of 1958); (iii) employees registered or listed under any scheme made under the Dock Workers (Regulation of Employment) Act, 1948 (9 of 1948), and employed by registered or listed employers; (iv) employees employed by an establishment engaged in any industry carried on by or under the authority of any department of the Central Government or a State Government or a local authority; (v) employees employed by-- (a) the Indian Red Cross Society or any other institution of a like nature (including its branches); (b) universities and other educational institutions; (c) institutions (including hospitals, chambers of commerce and social welfare institutions) established not for purposes of profit; (viii) employees employed by the Reserve Bank of India; (ix) employees employed by-- (a) the Industrial Finance Corporation of India; (b) any Financial Corporation established under section 3, or any Joint Financial Corporation established under section 3A, of the State Financial Corporations Act, 1951 (63 of 1951); (c) the Deposit Insurance Corporation; (d) the National Bank for Agriculture and Rural Development; (e) the Unit Trust of India; (f) the Industrial Development Bank of India; (fa) the Small Industries Development Bank of India established under section 3 of the Small Industries Development Bank of India Act, 1989 (39 of 1989); (ff) the National Housing Bank; (g) any other financial institution (other than a banking company), being an establishment in public sector, which the Central Government may, by notification in the Official Gazette, specify, having regard to-- (i) its capital structure; (ii) its objectives and the nature of its activities; (iii) the nature and extent of financial assistance or any concession given to it by the Government; and (iv) any other relevant factor; (xi) employees employed by inland water transport establishments operating on routes passing through any other country. [Section 32] Authority for implementing the provisions of the Payment of Bonus Act, 1965 As per Payment of Bonus Act, 1965, the implementation/ enforcement of the said Act lies with the appropriate Government. Section 2(5) of the Payment of Bonus Act, 1965 defines “appropriate Government” means— (i) in relation to an establishment in respect of which the appropriate Government under the Industrial Disputes Act,1947 (14 of 1947), is the Central Government, the Central Government; (ii) in relation to any other establishment, the Government of the State in which that other establishment is situate; [Section 2(5)] Who are eligible to get bonus? Every employee, employed on a salary or wage not exceeding twenty-one thousand rupees per mensem in any industry to do any skilled or unskilled manual, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of employment be express or implied[Section 2(13)] Further, every employee shall be entitled to be paid by his employer in an accounting year, bonus, in accordance with the provisions of this Act, provided he has worked in the establishment for not less than thirty working days in that year.[Section 8] Method of calculation of bonus to eligible employees Calculation of bonus with respect to certain employees.-- Where the salary or wage of an employee exceeds seven thousand rupees or the minimum wage for the scheduled employment, as fixed by the appropriate Government, whichever is higher per mensem, the bonus payable to such employee under section 10 or, as the case may be, under section 11, shall be calculated as if his salary or wage were seven thousand rupees or the minimum wage for the scheduled employment, as fixed by the appropriate Government, whichever is higher per mensem. [Section 12] Explanation.--For the purposes of this section, the expression "scheduled employment" shall have the same meaning as assigned to it in clause (g) of section 2 of the Minimum Wages Act, 1948 (11 of 1948). Whether the outsourced employees drawing wages more than Rs.21,000/- (minimum wage rate + DA) are eligible for bonus under the purpose of No. Section 12 of the Payment of Bonus Act, 1965 provides the provision regarding calculation of bonus with respect to certain employees. However, the provisions mentioned in Section 12 of the Payment of Bonus Act, calculation of bonus under the Payment of Bonus Act, 1965 and Payment of Bonus (Amendment) Act, 2015. 1965 are applicable only to an “employee” as defined under Section 2(13) of the Payment of Bonus Act, 1965. As per Section 2(13) of the instant Act, "employee" means any person (other than an apprentice) employed on a salary or wage not exceeding [twenty-one thousand rupees] per mensem in any industry to do any skilled or unskilled manual, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of employment be express or implied. (p.6/cor) Which components of the salary structure [i.e. basic pay, HRA, Special Allowance] would be considered for calculating the bonus amount? For the purpose of calculation of bonus, the components of wage or salary include Basic Pay and Dearness Allowance. (p.4/cor) How much amount an employee can get as annual bonus? Subject to other provisions, Minimum Bonus: 8.33% of the salary/wages earned by the employee during the accounting year or one hundred rupees, whichever is higher, whether or not the employer has any allocable surplus in the accounting year. [Section 10] Maximum Bonus: Where in respect of any accounting year referred to in section 10, the allocable surplus exceeds the amount of minimum bonus payable to the employees under that section, the employer shall, in lieu of such minimum bonus, be bound to pay to every employee in respect of that accounting year bonus which shall be an amount in proportion to the salary or wage earned by the employee during the accounting year subject to a maximum of twenty per cent of such salary or wage. (2) In computing the allocable surplus under this section, the amount set on or the amount set off under the provisions of section 15 shall be taken into account in accordance with the provisions of that section [Section 11] Can an employee be disqualified for bonus? Yes, an employee can be disqualified from bonus if the employee is dismissed from service for fraud; riotous or violent behaviour while on the premises of the establishment; theft, misappropriation or sabotage of any property of the establishment [Section 9] Can any amount be deducted from bonus payable to an employee? Proportionate reduction in bonus in certain cases.--Where an employee has not worked for all the working days in an accounting year, the minimum bonus of one hundred rupees or, as the case may be, of sixty rupees, if such bonus is higher than 8.33 per cent. of his salary or wage for the days he has worked in that accounting year, shall be proportionately reduced. [Section 13] What is the time limit for payment of bonus? All amounts payable to an employee by way of bonus under this Act shall be paid in cash by his employer-- (a) where there is a dispute regarding payment of bonus pending before any authority under section 22, within a month from the date on which the award becomes enforceable or the settlement comes into operation, in respect of such dispute; (b) in any other case, within a period of eight months from the close of the accounting year: Provided that the appropriate Government or such authority as the appropriate Government may specify in this behalf may, upon an application made to it by the employer and for sufficient reasons, by order, extend the said period of eight months to such further period or periods as it thinks fit; so, however, that the total period so extended shall not in any case exceed two years. [Section 19] If the bonus to contractual/outsourced staff is not paid within 8 months from the end of the concerned financial year, then who is the competent authority to grant extension of period and for how much period such extension can be granted? As per Section 19 Payment of Bonus Act, 1965, all amounts payable to an employee by way of bonus under this Act shall be paid in cash by his employer, in any case, within a period of eight months from the close of the accounting year. Provided that the appropriate Govt. or such authority as the appropriate Govt. may specify in this behalf may, upon an application made to it by employer and for sufficient reasons, by order, extend the said period of eight months to such further period or periods as it thinks fit, so, however, that the total period so extended shall not in any case exceed two years. Competent authority is the appropriate Govt. (p.10- 11/cor) In case if the maximum period of extension is also over, then what is the way forward for making payment of such bonus and if not any, does that mean that the liability ceases to exist? Relaxation is required to be sought before the expiry of 8 months. Further, payment of bonus is a statutory liability which should be complied with. There is no such provision under the Payment of Bonus Act, 1965 which stipulates that bonus payment should not be made after the prescribed time limit. (p.11/cor) In case the contractors do not respond or deny to pay the bonus at all, should it be paid directly by the Department/ Ministry to the concerned staff and what action should be taken against the concerned contractors in such cases? Inspections may be conducted, and action may be taken against the employer for non-payment of bonus, with a prayer to the Court for direction to the contractor or the employer to make the payment; or to initiate revenue recovery process. Contractor, being the employer for the contract workers, is responsible for payment of bonus. But as the contract workers have been employed in the Department/ Ministry, it becomes the responsibility of the Department/ Ministry concerned to see that all the dues are paid to the contract workers within the stipulated time period. (p.11/cor) Statutory Provision Payment of bonus (minimum statutory bonus) is a statutory provision and depending upon the applicability and eligibility as per the provisions of the Payment of Bonus Act, 1965, it is mandatory for the contractor establishments to pay bonus to its employees. This requirement of payment of bonus cannot be denied/ negated even if it is not mentioned in the contract/ agreement between the two parties. The provisions of a legislative enactment / statute shall always prevail over the terms of the contract/ agreement; (ii) for computation of wage or salary for the purpose of calculation of bonus, the components of wage or salary include basic pay and Dearness Allowance(DA). (p.11-12/cor) whether the yearly bonus percentage can differ among employees within the same company and whether a company is permitted to distribute bonuses at varying rates, such as 8.33% to some employees and 20% to others. Section 10 of the Payment of Bonus Act, 1965 provides condition for Payment of Minimum Bonus as under: “Subject to the other provisions of this Act, every employer shall be bound to pay to every employee in respect of the accounting year commencing on any day in the year 1979 and in respect of every subsequent accounting year, a minimum bonus which shall be 8.33 per cent. of the salary of wage earned by the employee during the accounting year or one hundred rupees, whichever is higher, whether or not the employer has any allocable surplus in the accounting year: Provided that where an employee has not completed fifteen years of age at the beginning of the accounting year, the provisions of this section shall have effect in relation to such employees as if for the words “one hundred rupees”, the words “sixty rupees” were substituted.” 3. Hence, a minimum bonus of 8.33 percent of the salary or wage earned by the employee during the accounting year or one hundred rupees, whichever is higher, need to be paid by the employer subject to eligibility and other provisions of the Act. Therefore, the rate of bonus will be uniform among the different categories of employees/ employment. But the amount of bonus paid to employees may differ depending upon the wages paid/ received by the employee during the accounting year. (p.24/cor)