Payment of Bonus Act, 1965 – Compliance Information
Payment of Bonus Act, 1965 – Compliance Information
Payment of Bonus Act, 1965
As per statutory laws, the Government of India mandates organizations to pay yearly bonuses to their employees. This document outlines the applicability, eligibility, and compliance requirements of the Payment of Bonus Act, 1965.
Summary of the Act
Applicable to any establishment with 20 or more employees or any factory with 10 or more employees.
Eligible for employees drawing ₹21,000 per month or less (basic + DA, excluding other allowances).
Bonus payable will be at a minimum rate of 8.33% and a maximum of 20%.
Bonus must be paid within 8 months from the close of the accounting year.
History of Payment of Bonus Act
The objective of the Payment of Bonus Act is to reward employees by sharing the profits earned and is linked to productivity.
Compliance Required by Employers
A register showing the computation of allocable surplus is maintained in Form A.
A register showing the set-on and set-off of the allocable surplus is maintained in Form B.
Details showing the amount of bonus due, deductions, and actual bonus amount disbursed are maintained in Form C.
Annual returns to be filed in Form D before February 1st.
Penalty
Any violation can lead to imprisonment for up to 6 months and may (or may not) include a fine amount.
Frequently Asked Questions (FAQ)
No, it is not the prerogative of the employer to pay bonus to the contractors working under him. The bonus liability lies with the vendor who has contracted out the employees. Some employers pay out bonus to their contractors for their welfare on goodwill when the vendor is unable to pay out the bonus. This is considered ex-gratia and not bonus and is the discretion of the employer in this case and he is not legally bound to pay bonus to his contractors.
For the first 5 years, organizations need not pay bonus if they have made losses. If they have made profits in any year in the first 5-year period, they will have to pay out bonus for that particular year. After the completion of 5 years, organizations are required to pay bonus as per Sec 16-1b, irrespective of whether they are making a profit or loss. Refer to section 16-1b for detailed clarifications on the calculation of bonus in the 6th accounting year and the 10th accounting year.
Bonus needs to be paid as part of the settlement to the employee, when he exits, on a pro-rata basis. If the bonus percentage is later increased due to an increase in profits, then the difference in the bonus amount needs to be transferred to the employee or a cheque sent before November 30th of that year. It is important to ensure that this is done as any amount due to be paid to any employee and not paid will appear on the liability side of the balance sheet of the employer and will be considered as non-compliance.
This will be deemed non-compliance and will be checked during labor inspection. It is mandatory to maintain Forms A, B, C, and D as required.