Sharp Institute Of Individual & Organizational Development (SIIOD)

The Payment of Bonus

Act, 1965
(The Payment of Bonus
Rules ,1966)

D. R. Haibat
M.Com. LL.B., DPM & IR, DAM
Corporate Consultant and Consulting Lawyer
NGO Member
 Sharp Institute Of Individual & Organizational Development (SIIOD)

PREAMBLE OF THE ACT:

• An Act to provide for the payment of bonus to persons employed in

certain establishments on the basis of profits or on the basis of production
or productivity and for matters connected therewith.
• The Act was promulgated by Parliament on 25/9/1965 and extends to
whole of India.
INTRODUCTION:
• The Act gives the employees a statutory right to a share in the profits of
the employer.
• The Act enables the employees to get a minimum bonus equivalent to
one month’s salary or wages (8.33 % of the annual salary/wages, whether
the employer makes any profit or not.
• The Act also puts a ceiling on the bonus and the maximum bonus payable
under the Act is equivalent to about 2 ½ months’ salary/wages (20% of the
annual salary/wages)
 Sharp Institute Of Individual & Organizational Development (SIIOD)
The object of the Act:

• The object of the Act to maintain peace , harmony& cordial industrial

relations between employer and employees by allowing the employees to
share the prosperity of the establishment reflected by the profits earned
by the contributions made by capital ,management and labour .
 Sharp Institute Of Individual & Organizational Development (SIIOD)
Applicability of the Act:
This Act applies to:

a) Every factory
b) Every other establishment employing 20 or more persons
The Govt. can , however, apply the Act to any establishment employing less
than 20 but not less than 10 persons.(The GOM by notification dated
1/4/1984 has applied the Act to factories and other establishments
employing 10 or more but less than 20 persons )
An establishment to which the Act applies shall continue to be governed by
the Act irrespective of any fall in the number of persons employed therein.
The Act shall not apply to the employees employed by any establishment in
public sector.
However, the provisions of this Act are made available to establishments in
public sector which sells any goods produced /manufactured by it or renders
any services in competition with an establishment in private sector and earns
income from such sale or services or both and quantified in the said sub
section.
Govt. can exempt any establishment from all or some of the provisions of the
Act for a specified period and subject to specified conditions only.
 Sharp Institute Of Individual & Organizational Development (SIIOD)
FREE DEFINITIONS:
1. Accounting year
2. Appropriate Government
3. Allocable surplus / available surplus
4. Award
5. Company/corporation
6. Employee means any person (other than an employee) employed on
salary/wages not exceeding Rs.21,000/- p.m.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
7. Employer includes in relation to a factory, the owner or occupier of the
factory including the agent of such owner or occupier and the person
who has been named as a manager of the factory.
8. Establishment in private sector/establishment in public sector
9. Factory
10. Gross profit
 Sharp Institute Of Individual & Organizational Development (SIIOD)
FREE DEFINITIONS:
11..Salary/wages means all remuneration (except overtime )payable to
an employee and includes dearness allowance but does not include :
• Any other allowances/ bonus , travelling concession and overtime
• Any value of house accommodation/supply of light, water etc. or any
other amenities at concessional rates i.e. any perquisites/fringe
benefits
• Any contribution to provident fund/pension fund
• Any retrenchment compensation/any commission
NOTE:
1. Where an establishment consists of different departments/
undertakings/ branches etc. situated at same or different places, all
such departments / undertakings/branches etc. shall be treated as
parts of the same establishment for the purpose of computation of
bonus under this Act.
2. Employees employed through contractors on building operations
entitled to get bonus.
 Sharp Institute Of Individual & Organizational Development (SIIOD)

1. ELIGIBILITY FOR BONUS:

Every employee , who is drawing salary/wages up to Rs.21,000/- p.m.,
provided he has worked for minimum thirty days in that accounting year ,shall be entitled
to bonus as per the Act .
a)Every employee, irrespective of whether he is in supervisory/managerial category,
subject to the salary limit mentioned above , will be eligible for bonus.
b)A seasonal worker provided he has worked for a period of thirty days , will be eligible for
bonus.
2. PAYMENT OF MINIMUM /MAXIMUM BONUS:
Every employer shall be bound to pay to every employee , a minimum bonus of 8.33% of
his salary/wages earned during the respective accounting year or Rs. 100/- ,whichever is
higher, whether or not the employer has any allocable surplus in that accounting year.
The maximum bonus payable is 20% of his salary/wages earned during the respective
accounting year.
The principle behind fixing a minimum and maximum limit for payment of bonus is that
the rte of bonus should not fluctuate widely from year to year.
NOTE: Employer can enter in to an agreement /settlement with his employees for granting
them bonus under a different formula than under the Act ,provided the same is
higher/better than payable under the Act.
 Sharp Institute Of Individual & Organizational Development (SIIOD)

3. CALCULATION OF BONUS:
a)where the salary/wages of an employee is less than Rs. 7,000/- p.m., the annual
minimum bonus payable will be equivalent to his monthly salary/wages.
b) where the salary/wages of an employee is more than Rs. 7,000/- p.m. the annual
minimum bonus payable will be equivalent to his Rs.7,000/- or the monthly minimum
wages for the scheduled employment as fixed by the appropriate Govt., whichever is
higher.
c) where the salary/wages of an employee is more than Rs.21,000/- p.m., no bonus
shall be paid.
This amendment was made effective from 1/4/2014)
4. MODE OF PAYMENT OF BONUS:
The bonus shall be paid either by an account payee cheque in favour of the employee
or by crediting the same directly in the bank account of the employee.
5. TIME LIMIT FOR PAYMENT OF BONUS:
The bonus payable under this Act shall be paid:
a)within a period of eight months from the close of the accounting year
b) in case of dispute is pending ,within a period of one month from the date of
settlement of the dispute.
 Sharp Institute Of Individual & Organizational Development (SIIOD)
6. COMPUTATION OF NUMBER OF WORKING DAYS:
An employee shall be deemed to have worked in the establishment in any accounting year also
during the following period:
a)Lay off
b)Authorised Leave with salary/wages /Maternity Leave
c) Absence due to temporary disablement caused by an accident arising out of and in the course
of his employment
7. SPECIAL PROVISIONS FOR NEW ESTABLISHMENTS :
In case of new establishments , for the first five accounting years ,bonus shall be payable only in
respect of the accounting year in which the employer derives profit from such establishment .
However ,when the ownership of the establishment is transferred from one person to another
or if the location and /or the Management is changed, such an establishment cannot be said to be a
new establishment .
8. DEDUCTIONS OF AMOUNTS FROM BONUS:
An employer can deduct from the bonus , the financial loss caused to him due any misconduct of
the employee.
9. DISQUALIFICATION FOR BONUS:
An employee shall be disqualified from receiving bonus ,if he is terminated/dismissed from the
services for :
*Fraud * Riotous or violent behaviour while in premises * theft ,misappropriation or
sabotage/damage to the property of the establishment
 Sharp Institute Of Individual & Organizational Development (SIIOD)
THE POWER/AUTHORITY OF THE INSPECTORS APPOINTED BY THE
APPROPRIATE GOVT.:
a) To enter any premises of the establishment
b) To ask for examination any details ,records, registers, records ,books of accounts related
to the employees & their salary/wages etc.
c) To make copies of or take any extracts from books of accounts ,registers/records /
documents etc.
MAINTENANCE OF REGISTERS:
• Form A: A register showing computation of allocable Surplus
• Form B: A register showing set on and set off of the allocable surplus
• Form C: A register showing the details of bonus due to each employee ,the deductions
there from and the net amount disbursed
• Annual Returns in Form D :
a) This Form D is to be up loaded on the web portal of the Ministry of Labour and
Employment on or before 1st February
b) This Form D is also be filed to the inspector under the Act
• OFFENCES AND PUNISHMENT:
If any person, who is responsible for compliance under the Act contravenes any
provisions under the Act/Rules ,will be punishable with imprisonment for six months or
with fine of Rs.1,000/- or both.
 Sharp Institute Of Individual & Organizational Development (SIIOD)
CLASSES OF EMPLOYEES NOT COVERED UNDER THE ACT :
• Employees of LIC/General Insurance Corporation
• Seamen covered under the Merchant Shipping Act,1958
• Dock Workers
• Central/State Govts. /Local Authorities and Reserve Bank of India
• Indian Red Cross, IFCI,DIC,UTI,NABARD,SIDBI NH Bank etc.

a) Appropriate Government eans ,in relation to an establishment being a mine or an establishment

wherein persons are employed for the exhibition of equestrian, acrobatic and other
performances , the Central Government and in relation to any other establishment ,the State
Government
b) Delivery means, the birth of a child
c) Employer means :
i. in relation to an establishment which is under the control of the Government ,a person or
authority appointed by the Government for the supervision and control of employees or where
no person or authority is so appointed ,the head of the department
ii. in relation to an establishment under any local authority ,the person appointed by such
authority for the supervision and control of employees or where no person is so appointed , the
chief executive officer of the local authority
iii. in any other case, the person who, or the authority which has the ultimate control over the
affairs of the establishment and where the said affairs are entrusted to any other person
whether called a manager, managing director ,managing agent or by any other name
 Sharp Institute Of Individual & Organizational Development (SIIOD)
CLASSES OF EMPLOYEES NOT COVERED UNDER THE ACT Contd.
d) Establishment means ,
i. A factory, a mine, a plantation
ii. An establishment wherein persons are employed for the exhibition of equestrian, acrobatic and other
performances
iii. A shop or establishment
iv. An establishment to which the provisions of this Act have been declared under sub section (1) of section 2
f) Factory means a factory as defined in clause (m) of section 2 of the Factories Act,1948
inspector means an inspector appointed under section 14
f) Maternity benefit means the payment referred to in sub section (1) of section 5
g) Medical termination of pregnancy means the termination of pregnancy permissible under the provisions of
the Medical Termination of Pregnancy Act,1971
h) Wages means all remuneration paid or payable in cash to a woman and includes :
i. All cash allowances including dearness allowance and house rent allowance
ii. Incentive bonus
iii. The money value of the concessional supply of foodgrains and other articles
iv. But does not include:
I. Any bonus other than incentive bonus
II. Overtime earnings and any deduction or payment made on account of fines
III. Any contribution to any provident fund /pension fund or for the benefit of the woman under any law
IV. Gratuity payable on termination of service
j) Woman means a woman employed whether directly or through any agency for wages in any
establishment
 Sharp Institute Of Individual & Organizational Development (SIIOD)

RESTRICTIONS PLACED BY THE ACT ON THE EMPLOYMENT OF THE

PREGNANT WOMEN :

• The employer can not employ a woman during the six weeks immediately following
the day of her delivery or her miscarriage or medical termination of pregnancy.
• A woman is also required to abstain from working in any establishment during the
six weeks immediately following the day of her delivery or her miscarriage or
medical termination of pregnancy.
• A pregnant woman can also request her employer not to give her any work which is
of arduous (tough/difficult) nature or which involves long hours of standing or
which in any way is likely to interfere with her pregnancy or the normal
development of the foetus or is likely to cause her miscarriage or otherwise to
adversely affect her health etc. during the month immediately preceding the
period of six weeks ,before the date of her expected delivery or any period during
the said period of six weeks for which the pregnant woman does not avail of leave
of leave of absence under the Act.
• On such a request being made by her ,the employer shall not give her such work
during such period.
•
 Sharp Institute Of Individual & Organizational Development (SIIOD)

RESTRICTIONS PLACED BY THE ACT ON THE EMPLOYMENT OF

THE PREGNANT WOMEN : contd.
• When a woman remains absent from work in accordance with the
provisions of the Act ,it shall be unlawful for the employer to
terminate/discharge/dismiss her during or on account of such
absence or to vary to her disadvantage any of the conditions of her
service .
• However, where the termination/discharge /dismissal is for any
prescribed gross misconduct ,the employer shall ,through a
communication in writing to that woman ,deprive her of the
maternity benefit or medical bonus or both.
• Any woman deprived of medical benefit and /or medical bonus or
terminated/discharges/dismissed during or on account of her
absence from work as per the Act ,may make an appeal to the
Authority within a period of sixty days.
 Sharp Institute Of Individual & Organizational Development (SIIOD)
MEDICAL BONUS

• Every woman , who is entitled to maternity benefit shall also be entitled to

receive, medical bonus of Rs. 2,500/- to Rs.3,500/- ,if no pre-natal
confinement and post – natal confinement care is provided for by the
employer free of charge.
• The medical bonus shall be paid along with the second instalment of the
maternity benefit.
 Sharp Institute Of Individual & Organizational Development (SIIOD)
NOTICE BY THE WOMAN TO THE EMPLOYER

1. Any woman entitled to maternity benefit under the Act shall give notice in
writing to her employer ,in the prescribed form(Form No.1) ,stating that her
maternity benefit and other amounts to which she is entitled under the Act may
be paid to her and also that she will not work in any establishment during the
period for which she receives maternity benefit.
In this notice, she will also state the date from which she will be absent from
work, not being a date earlier than eight weeks from the date of her expected
delivery.(However, failure to give notice shall not disentitle a woman to
maternity benefits or any other amount under the Act)
2. On receipt of the notice ,the employer shall permit such woman to absent
herself from the establishment during the period for which she receives the
maternity benefit.
3. The amount of maternity benefit for the period preceding the date of her
expected delivery shall be paid in advance by the employer to the woman on
production of necessary proof that the woman is pregnant and the amount
due for the subsequent period shall be paid by the employer to the woman
within forty eight hours of production of the necessary proof of the delivery of
the child.
 Sharp Institute Of Individual & Organizational Development (SIIOD)

NOTICE BY THE WOMAN TO THE EMPLOYER Contd.

PERIOD OF ENTITLEMENT FOR MATERNITY BENEFITS :
• The maximum period of maternity benefits shall be 26 weeks of which not more than 8
weeks shall precede the date of her expected delivery.
However, the woman shall be entitled to the maternity benefits only if she has actually
worked in the establishment for a period of not less than 80 days in the 12 months
immediately preceding the date of her expected delivery.
For this purpose, the days of lay off or the normal holidays shall be taken in to account.
• A woman shall be entitled to and her employer shall be liable for the payment of maternity
benefit for a period of 26 weeks of which not more than eight weeks shall precede the date
of her expected delivery ,at the rate of average daily wages (means average of the woman’s
wages payable to her for the days on which she has worked during 3 calendar months
immediately preceding the date from which she remains absent on account of maternity or
the minimum wages under the MW Act,1948 ,whichever is higher) for the period of her
actual absence i.e. the period immediately preceding the day of her delivery ,the actual day
of her delivery and any period following that day.
• A woman suffering from illness arising out of pregnancy ,delivery ,premature birth of child ,
miscarriage or medical termination of pregnancy or tubectomy operation ,on production of
necessary proof ,shall be entitled ,to additional leave with wages at the rate of maternity
benefit ,for a period of maximum one month.
 Sharp Institute Of Individual & Organizational Development (SIIOD)

NOTICE BY THE WOMAN TO THE EMPLOYER Contd.

• Nursing Breaks : Every woman ,who returns to duty after such delivery shall be
allowed two breaks of prescribed duration for nursing the child until the child
attains the age of fifteen months.
• Leave with wages for miscarriage or medical termination of pregnancy : In
case of miscarriage or medical termination of pregnancy , a woman shall ,on
production of necessary proof , be entitled to leave with wages at the rate of
maternity benefit for a period of 6 weeks immediately following the day of her
miscarriage or medical termination of pregnancy .
(For claiming benefit of leave , due to miscarriage or medical termination of
pregnancy , no conditions of prior period of employment is laid down)
• Leave with wages for tubectomy operation: In case tubectomy operation , a
woman shall ,on production of necessary proof , be entitled to leave with
wages at the rate of maternity benefit for a period of 2 weeks immediately
following the day of her tubectomy operation.
• However, if a woman works in any other establishment during her maternity
leave, she shall forfeit her claim to maternity benefit for such period.
 Sharp Institute Of Individual & Organizational Development (SIIOD)

CRECH FACILITY FOR SMALL CHILDREN :

• As per the recent amendments in the Act, vide Gazette of India
dated 28/3/2017 ,a new Section 11 A is inserted which has
specified that :
• All the establishments employing 50 or more employees must
provide crech facility.
• The women employee shall be allowed to make four visits
9including interval for rest) to look after her child
• The employer must intimate about these benefits to the woman
employee at the time of her appointment .
• The specific guidelines about this facilities have not yet been
received , however, it is learnt that the crech facility should be
arranged within a radius of one KM from the establishment and the
expenses for the same are to be borne by the employer.
 Sharp Institute Of Individual & Organizational Development (SIIOD)
EXEMPTION FROM THE PROVISIONS OF THE ACT:

• The appropriate Government can exempt any establishment from the

operation of all or any of the provisions of the Act/Rules, if the benefits
provided by the establishment are not favourable than those provided in
the Act.
 Sharp Institute Of Individual & Organizational Development (SIIOD)

OBLIGATIONS OF THE EMPLOYER UNDER THE ACT:

• Under the Act ,the employer is required to :

a) Exhibit the abstracts of the provisions of the Act / Rules
made there under in a conspicuous place in establishment
b) Maintain a Muster Roll in the prescribed form
c) Submit Annual Return in prescribed forms
• PENALTY FOR CONTRAVENTION OF ACT BY THE
EMPLOYER:
If any employer fails to comply with the provisions of the
Act/Rules, he shall be punishable with the imprisonment
for three months up toone year and fine from Rs. 2,000/- to
Rs.5,000/-
 Sharp Institute Of Individual & Organizational Development (SIIOD)

APPOINTMENT OF INSPECTORS AND THEIR POWERS & DUTIES

• The appropriate Government may appoint such officers as Inspectors,

who are allowed to exercise any of the following powers:
a) To enter any premises where women are employed for examining any
registers, records and notices required to be kept or exhibited by or
under this Act and ask the Officials to produce the same for inspection.
b) Examine any person in the premises ,who is employed in the
establishment
c) Require the employer to give information regarding names /addresses of
women employed ,payment made to them and applications or notices
received from them under the Act
d) Take copies of any relevant registers, records or notices etc.
• Any woman who has not received the maternity benefit as provided
under the Act can make a complaint to the Inspector in Form No. 6 .
• The Inspector ,thereafter, shall make an enquiry in to the complaint and if
satisfied that any payment is wrongfully withheld, may direct the
payment to be made.
 Sharp Institute Of Individual & Organizational Development (SIIOD)
FORMS UNDER THE ACT :
• Form 1:Notice by the woman employee to the employer about the fact of
her pregnancy and the probable date of leave under the Act
• Form 2:Medical Certificate from the Medical practitioner confirming
woman’s pregnancy and expected date of delivery
• Form 3:Medical Certificate from the Medical practitioner confirming the
birth of the child
• Form 4:
• Form 5: Appeal to the Competent Authority by the woman for depriving
the medical benefit by the employer
• Form 6: Complaint to the Inspector by the woman for withholding the
medical benefits by the employer
• Form 7: Complaint to the Inspector by any person /legal representative of
the woman for withholding the medical benefits by the employer
• Form 8:Appeal to the Competent Authority by the aggrieved person
against the decision of the Inspector.
• Form 9 : Abstracts of the Act/Rules
• Form 10: Maternity Benefit Register
• Form 11: Annual Return
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PUNISHMENT FOR THE CONTRAVENTION OF THE PROVISIONS OF THE ACT:

1. If any employer fails to pay maternity benefits to a woman entitled

under the Act or terminates/discharges/ dismisses such a woman during
or on account of her absence from work ,he shall be punishable with
imprisonment which shall be from three months (minimum ) to one
year (maximum) and with fine which shall be from Rs. 2,000/-
(minimum) to Rs.5,000/- (maximum) .
2. If any employer contravenes the provisions of the Act /Rules,

he shall be punishable with imprisonment which may extend to one

year or with fine which may extend to Rs.5,000/- or with both.

Where the contravention is of any provision regarding maternity benefit

or regarding payment of any other amount and such maternity benefit
or amount has not already been recovered ,the Court shall ,in addition,
recover such maternity benefit or amount as if it were a fine and pay
the same to the person entitled thereto.
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