Hello, in this post we have discussed the payment of bonuses under the Bonus Act.
- During the festive season, the labour department of the Delhi government has issued an advisory to all departments and contractors, arranging manpower, to pay bonuses to outsourced workers.
- As per the act, the minimum bonus is 8.33% of the basic and dearness allowance i.e. around one month’s salary is to be paid to the employee.
- In case of defiance, the establishment /contractor is liable to face legal action. It is mandatory for an establishment with 20 or more workers on any day during the accounting year, to pay a bonus under the Payment of Bonus Act 1965.
In this post, we will cover the following:
- What is a bonus?
- Payment of Bonus Act
- Payment of bonus act applicability.
- Employee statutory bonus eligibility
- Calculation of bonus as per bonus act.
- Duties and rights of employer and employee
- Exempted establishments
- Offences and penalties
The Payment of Bonus Act provides for the payment of bonuses to persons employed in certain established organizations, based on profits, production and productivity and matters related thereto. Below, there we look into the various aspects of the Payment of Bonus Act.
What is a bonus?
The bonus is a reward that is paid to an employee for his work dedication towards the organization. The basic objective to give the bonus is to share the profit earned by the organization amongst the employees and staff members.
What is Payment of Bonus Act?
In India, there is a principle law relating to the procedure of payment of bonus to the employees and that law is named as Payment of Bonus Act, 1965.
The Payment of Bonus Act applies to every factory and establishment which employs not less than 20 persons on any day during the accounting year. The establishments covered under the Act shall continue to pay the bonus even if the no of employees falls below 20 subsequently.
Note: Bonus is to be paid within 8 months of closing the book of accounts.
Payment of bonus act applicability
The payment of the bonus act applies to the whole of India. The Provision of this act applies to the following factories/establishments/companies:-
- The factory is defined under clause section 2 of the factories act 1948.
- Every establishment in which 20 or more persons are employed on any day during an accounting year.
- The act also applies to public sectors in some cases.
- Part-time employees are also included.
When is the employee eligible for the bonus?
Every employee drawing not less than Rs. 21,000/- per month and who has worked for not less than 30 days in an accounting year shall be eligible for the Bonus. Every employee will 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 30 working days in that year.
When an employee is not eligible for the statutory bonus, but the company wants to share the bonus, it can be given as ex-gratia.
Previously, the maximum bonus payable was 20% of Rs 3500 per month. The minimum bonus payment was capped at 8.33% of Rs 3500 per month or Rs 100, whichever is higher. The calculation ceiling of Rs 3500 is currently doubled to Rs 7000 per month “or the minimum wage for the scheduled employment, as fixed by the appropriate Government” (whichever is higher). Therefore, the cost associated with bonus payments could be double, based on the organization’s performance.
Calculation of Bonus as per Bonus Act (Amendment of 2015)
If the gross earning of your employees is below Rs.21000 you are eligible to pay a bonus. Calculation of bonus will be as follows:
- If Basic+DA is below Rs.7000 then the bonus will be calculated on the actual amount.
- If Basic+DA is above Rs.7000 then the bonus will be calculated on Rs.7000.
Examples of calculation of bonus
- If the Basic salary of the employee is less than or equal to Rs 7,000
Rahul is working as an engineer in a Company in Bangalore. His basic salary is Rs. 6,500 per month.
Formula: Basic Salary*8.33% = Bonus per month
6500*8.33% = 541.45 (6497.4 per annum)
- If the Basic salary of the employee is higher than Rs 7,000
Siddharth is working as a Sales officer in one of the shops in Delhi. His basic salary is Rs. 18,000 per month.
Formula: Basic Salary*20% = Bonus per month
7,000*20% = 1400 per month
- If the Basic salary of the employee is higher than Rs 21,000
There is no bonus applicable to employees having a basic salary of more than Rs 21,000.
Under the Payment of Bonus Act, there are some duties and rights for employer and employee –
Duties of employer
There are some duties of the employer, such as
- To pay the annual bonus as needed under the Payment of Bonus Act.
- Maintain the registers to show the computation of allocating surplus in the respective form.
- Must maintain the register with the payment of the bonus to the employees.
- All other data should be maintained before the inspection.
Rights of employer
The following rights of employers –
- Right to make a valid deduction from the bonus due to an employee, such as financial loss, which was created by the misbehavior of the employee and paid the festival bonus.
- Right to notice in the labour court or tribunal about any disputes relating to the application or interpretation of any provision of the Act.
- Employers have the right to take the bonus of an employee because of misappropriation, misbehavior, fraud or who has been dismissed from the service for misbehavior or violence.
Rights of employee
The following rights of the employees –
- Right to notice in the labour court or tribunal about any disputes, but employees who are not eligible for the Payment of Bonus Act, can’t raise a dispute related to the bonus.
- Right to claim bonus due under the Payment Bonus Act and to request an application to the Government for the redemption of bonus, which is unpaid, within one year of its being due.
- Employees have the right to seek clarification and obtain information on any item in the account of the establishment.
The payment of bonus act will not apply to the following section of employees:
- The employees of Life Insurance company
- Seamen are defined under clause 42 of the merchant shipping act 1958.
- Employees who are registered or listed under the dock workers Act 1948 and employed by the registered or listed employers.
- The employees of any industry are controlled by the central or state government.
- Employees from Indian red cross society or education institutions, institutions not for profit.
- Employees employed by the contractor on building operations
- Reserve Bank Of India(RBI) employees
- Employees of any financial corporation under the Section 3 or Section 3a of the State Financial Corporation act (SFC) 1951
- Employees of IFCI, Deposit Insurance Corporation, agriculture Refinance Corporation.
- Any financial institution is an establishment in the public sector which the central government notifies.
- The employees of inland water transport establishment
Offences and penalties
- In case of failure to comply with the rule and order, then the penalties will be imprisonment for six months with a fine of Rs.1000.
- In case of any offences by the organisation, its partner, director or any other officer responsible for the conduct of its business, must be considered to be guilty of those offences, unless the person proves that the crime was committed out of his/her knowledge.
- In case of a violation of the provision under the Act, Then the penalties will be imprisonment for six months with a fine of Rs. 1000.
This ends our post on Payment of bonus act applicability and calculations. If you have any doubts or questions, kindly drop them in the comment section below.
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