23. Payment of Bonus Act 1965 – Business Law

23

Payment of Bonus Act 1965

Learning Objectives

In this chapter, the students are exposed to the basic knowledge on the Payment of Bonus Act, 1965 covering the following aspects:

  • Application of Bonus Act.

  • Allocable surplus and available surplus.

  • Eligibility for bonus and calculation of days.

  • Minimum and maximum bonus.

  • Set on and set off of allocable surplus.

23.1 INTRODUCTION

The practice of paying bonus in India appears to have originated during the First World War when certain textile mills granted 10% of the wages as war bonus to their workers in 1917.

In 1950, the Full Bench of the Labour Appellate evolved a formula for the determination of the bonus. A plea was made to raise that formula in 1959. At the second and the third meetings of the Eighteenth Session of the Standing Labour Committee held in New Delhi in March/April 1960, it was agreed that a Commission be appointed to go into the question of bonus and evolve suitable norms. A Tripartite Commission was set up by the Government of India to consider in a comprehensive manner the question of the payment of bonus based on the profits to the employees employed in establishments and to make recommendations to the Government. The Government of India accepted the recommendations of the Commission subject to certain modifications. To implement these recommendations, the Payment of Bonus Bill was introduced in the Parliament.

In Jalan Trading Co. (P) Ltd vs. Mills Mazdoor Union, Honourable Supreme Court has held that the object of the Payment of Bonus Act is to maintain peace and harmony between the labour and the management by allowing the employees to share the prosperity of the establishment.

23.2 APPLICATION OF THE ACT

The Payment of Bonus Act is applicable to:

  1. Every factory.
  2. Every establishment in which 20 or more persons are employed on any day during an accounting year.

The Payment of Bonus Act is applicable to the whole of India. A factory or establishment located anywhere in India is subject to the provisions of Bonus Act. An establishment to which this Act applies shall continue to be governed by this Act, notwithstanding that the number of persons employed therein falls below 20.

The appropriate government may, by notification in the Official Gazette, apply the provisions of this act to any establishment, employing less than 20 but not less than 10 persons. The appropriate government can do so after giving notice of two months in advance.

Case Study

Examine whether the Payment of Bonus Act, 1965 will be applicable to the following cases:

  1. J who is working in a social welfare organization.

  2. D, an employee, employed by an establishment, engaged in an industry carried on by a department of the Central Government.

Case Study

A workshop is employing 50 workmen. A shop-supervisor is drawing monthly wages of 9000. The HRD paid annual bonus to all the employees except the supervisor. The supervisor contends that he is also entitled to the bonus. Referring to the provisions of the Payment of Bonus Act, 1965 decide whether the HRD's action is correct.

23.3 ACT NOT TO APPLY TO CERTAIN CLASSES OF EMPLOYEES—SECTION 32

The Payment of Bonus Act shall not apply to the following categories of persons:

  1. The employees of Life Insurance Company (LIC), Reserve Bank of India (RBI), Red Cross Society, universities and other educational institutions, institutions including hospitals, chambers of commerce and social welfare institutions established not for the purposes of profit.
  2. The seamen.
  3. The employees registered or listed under any scheme, made under the Dock Workers (Regulation of Employment) Act, 1948 and employed by the registered or listed employees.
  4. The employees employed by an establishment engaged in industry carried on by or under the authority of any department of the Central Government or a State Government or a local authority.
  5. The employees employed through the contractors on building operations.
  6. The employees employed by the Industrial Finance Corporation of India (IFCI), any financial corporation established under Section 3 or any joint financial corporation established under Section 3(A) of the State Financial Corporations Act, 1951, The Deposit Insurance Corporation, The Agricultural Refinance Corporation, UTI and IDBI.
  7. Any other financial institution (other than a banking company) being an establishment in a public sector which the Central Government may by notification in the Official Gazette specify having regard to:
    1. Its capital structure.
    2. Its objective and nature of its activities.
    3. The nature and extent of financial assistance or any concession given to it by the government.
    4. Any other relevant factor.
  8. The employees employed by the inland water transport establishments, operating on routes passing through any other country.

Case Study

Decide with reasons in the light of the Payment of Bonus Act, 1965 whether the following persons are entitled for bonus:

  1. A University teacher.

  2. An employee of the ‘NABARD’.

  3. A reinstated employee without wages for the period of dismissal.

  4. A retrenched employee who worked for 45 days in a year on a salary of 4000 per month.

  5. An apprentice.

23.4 DEFINITION

23.4.1 Accounting Year—Section 2(1)

The accounting year means in relation to a corporation, the year ending on the day on which the books of the account of the corporation are closed and balanced.

In relation to a company, this term means a period in respect of which any profit or loss account of the company, laid before it in an annual general meeting (AGM) is made up whether that period is a year or not.

In any other case, the term ‘accounting year’ means either the year commencing on the first day of April or if the accounts of an establishment maintained by the employer thereof are closed and balanced on any other day other than the 31st day of March, then at the option of the employer the year ending on the day on which its accounts are so closed and balanced. If however, the said option is once exercised by the employer, it cannot be exercised once again except with the permission in writing of the prescribed authority and upon such conditions as that authority may think fit. In other words, the exercise of the said option can only take place on obtaining the previous written permission of the prescribed authority and the prescribed authority may impose such conditions as it may think fit.

23.4.2 Establishment in a Private Section—Section 2(15)

The establishment may be in a private sector or public sector. When it is in the private sector, it means any establishment other than the establishment in the public sector.

23.4.3 Establishment in a Public Section—Section 2(16)

The establishment in the public sector means an establishment owned, controlled or managed by:

  1. A government company.
  2. A corporation in which not less than 40% of its capital is held whether singly or taken together by the government or the RBI or a corporation owned by the government or the RBI.

23.4.4 Employer—Section 2(14)

In relation to the establishment which is a factory employer means the following persons:

  1. The owner or occupier of the factory.
  2. The agent of such owner or such occupier.
  3. The legal representative of a deceased owner or occupier of factory.
  4. Where a person has been named as a manager of a factory under the Factories Act, 1948.

In relation to any other establishment which is not a factory employer means the following persons:

  1. The person who has the ultimate control over the affairs of the establishment.
  2. If the said affairs are entrusted to a managing director then such manager or managing director.

23.4.5 Employee—Section 2(13)

An employee means any person, other than an apprentice employed on a salary or wages not exceeding 10,000 per month 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 are express or implied.

23.4.6 Available Surplus

The available surplus under the Payment of Bonus Act, 1965 means the available surplus computed under Section 5 after deducting certain prior charges from the ‘gross profits’.

23.4.7 Allocable Surplus—Section 2(4)

Allocable surplus means:

  1. 67% of the available surplus for companies other than the banking companies which comply with Section 194 of the Income Tax Act.
  2. 60% of the available surplus in all the other cases.

Thus, the allocable surplus is in fact an appropriation out of the ‘Available surplus’ for the payment of bonus to the employees subject to the maximum and minimum bonus limits.

23.4.8 Salary or wages—Section 2(21)

The salary or wages means all remuneration payable to an employee in respect of his employment or work done in such employment. It includes the dearness allowance and free food allowance. However, the allowances not included in the salary or wages are following:

  1. Over time allowance.
  2. Value of any house accommodation or supply of water, medical attendance or any concessional supply of food.
  3. Travelling concession.
  4. Bonus.
  5. Contribution paid or payable to provident fund.
  6. Any retrenchment, compensation or gratuity or any retirement benefits.
  7. Any commission.

Case Study

Prakash Chandra is working as a salesman in a company on salary basis. The following payments were made to him by the company during the previous financial year:

  1. Overtime allowance.

  2. Dearness allowance.

  3. Commission on sales.

  4. Employer's contribution towards the pension fund.

  5. Value of food.

Examine, as to which of the above payments form a part of the ‘salary’ of Prakash Chandra under the provisions of the Payment of Bonus Act, 1965.

23.5 WHO IS ENTITLED TO BONUS?

As per Section 8 of the Payment of Bonus Act, every employee of an establishment is entitled to bonus in an accounting year, provided he has worked in that establishment, for not less than 30 working days in the year on a salary less than 10,000 per month.

An employee is entitled to bonus in the following cases:

  1. A temporary workman is entitled to bonus on the basis of the total number of days worked by him.
  2. An employee of a seasonal factory is entitled to proportionate bonus and not the minimum bonus as prescribed under Section 10 of the Act.
  3. A part-time employee as a sweeper engaged on a regular basis is entitled to bonus.
  4. A retrenched employee is eligible to get bonus, provided he has worked for a minimum qualifying period.
  5. A probationer is an employee and as such is entitled to bonus.
  6. A dismissed employee, reinstated with back wages, is entitled to bonus.
  7. A piece-rated worker is entitled to bonus.

It may be noted that if an employee is prevented from working by an act of the employer, which is declared illegal by a competent court then the employee's statutory eligibility for bonus within the meaning of Section 8 cannot be lost. The word ‘worked’ in the section means ready and willing to work.

Case Study

Referring to the provisions of the Payment of Bonus Act, 1965 state, whether the persons entitled to bonus under the Act are following:

  1. An apprentice.

  2. An employee, dismissed on the ground of misconduct.

  3. A temporary workman.

  4. A piece-rated worker.

23.6 DISQUALIFICATION FOR BONUS—SECTION 9

An employee shall be disqualified from receiving bonus under the Act, if he is dismissed from service for

  1. Fraud.
  2. Riotous or violent behaviour while on the premises of the establishment.
  3. Theft, misappropriation or sabotage of any property of the establishment.

In any of above circumstances, the employee's right to bonus shall lapse. The Madras High Court has held in the case of Pandian Roadways Corporation Ltd vs. Presiding officer that an employee who is dismissed from service on the ground of misconduct is disqualified from any bonus and not merely for the bonus of the accounting year in which he is dismissed.

In the following cases, an employee is not entitled to bonus:

  1. An apprentice is not entitled to bonus.
  2. An employee employed through contractors on the building operation.
  3. An employee, employed by the inland water transport establishment, operating on routers passing through any other country.

Case Study

A is an employee of a company. The amount of the bonus, payable to A during the year 2006–07 is 10,000 but the company paid him 7000 only and a sum of 3000 was deducted from the bonus, against the loss suffered by the company due to misconduct of A during the same accounting year. A files a suit against the company for the recovery of the deducted amount. Decide whether A would be given any relief by the court under the provisions of the Payment of Bonus Act, 1956? What will be your answer, if the losses are related to the accounting year 2005–06?

23.7 COMPUTATION OF THE NUMBER OF WORKING DAYS

The qualifying period of service which entitles an employee to claim the minimum bonus is 30 working days. Section 13 authorizes the employer to proportionately reduce the bonus if the employee has not worked for all the working days in an ‘accounting year’.

Section 14 provides that the following days shall be deemed to be the working days of an employee and shall be counted while calculating the total working days for the purpose of a bonus:

  1. The days when he has been laid off under an agreement or as permitted by standing orders under the Industrial Disputes Act, 1947 or the Industrial Employment Standing Orders Act or under any other law applicable to the establishment.
  2. The days when he has been on leave with salary or wage.
  3. The days when he has been absent due to a temporary disablement caused by an accident arising out of and in the course of his employment.
  4. The days on which the employee has been on maternity leave with salary or wage (i.e., maternity leaves allowed as per the law) during the accounting year.

Case Study

X, a temporary employee drawing a salary of 3000 per month in an establishment to which the Payment of Bonus Act, 1965 applies was prevented by the employers from working in the establishment for 2 months during the financial year 2001–02, pending certain inquiry. Since there were no adverse findings, ‘X’ was re-instated in service later, when the bonus was to be paid to other employees, the employers refuse to pay bonus to ‘X’ even though he has worked for the remaining 10 months in the year. Referring to the provisions of the Payment of Bonus Act, 1965 examine the validity of the employer's refusal to pay bonus to ‘X’.

Case Study

ABC Textiles Ltd employed 20 full-time and five part-time employees who were drawing a salary of less than 10,000 per month. After completing service of 28 days in an accounting year, 10 full-time employees submitted their resignations and left the service of the company. The Board of Directors of this company decided not to give the bonus to the employees who resigned to the remaining full-time employees and to the part-time employees. Against the decision, all the employees applied to the authorities for relief.

Decide, stating the provisions of the Payment of Bonus Act, 1956 whether the employees who resigned the remaining full-time employees and part-time employees will get relief.

Case Study

Mr. ‘E’ joined as a supervisor on a monthly salary of 3400 on 1 February 2007 and resigned from his job on 28 February 2007. The company declared a bonus of 20% to all the eligible employees and paid it on time. Mr. ‘E’, knowing the facts, made a claim to the HRD, which in turn rejected the claim. Examine the validity in the light of the provisions of the Payment of Bonus Act, 1965.

23.8 WHO IS LIABLE TO PAY BONUS?

An owner, occupier or controller of every factory or establishment in which 20 or more persons are employed on any day during an accounting year is liable to pay bonus.

The controller of public sector establishments is also liable to pay bonus if the establishment is selling any goods in competition with an establishment in the private sector and the income from such sale is not less than 20% of its gross income.

23.9 PAYMENT OF MINIMUM BONUS—SECTION 10

The employer is bound to pay every employee in respect of every accounting year, a minimum bonus which shall be 8.33% of the salary or wage earned by the employee during the accounting year or 100 whichever is higher, whether or not the employer has any allocable surplus in the accounting year.

But if the employee has not completed 15 years of age at the beginning of the accounting year, he will be entitled to the minimum bonus which shall be 8.33% of the salary or wage during the accounting year or 60 whichever is higher. The minimum bonus is payable even in case of loss.

23.10 PAYMENT OF MAXIMUM BONUS—SECTION 11

The bonus at higher rate than the minimum is payable only when allocable surplus in any accounting year exceeds the amount of the minimum bonus, payable to the employees. The maximum limit of the bonus payable to an employee is 20% of the salary or wages earned by the employee during that year.

While calculating the allocable surplus, the amount set on or the amount set off shall be taken into account as per the provisions of set on and set off.

23.11 CALCULATION OF BONUS WITH RESPECT TO CERTAIN EMPLOYEES—SECTION 12

The employee drawing a salary up to 10,000 per month is eligible for bonus. Where the salary or wage of an employee exceeds 3500 per month, the bonus shall be calculated as if his salary or wage were 3500.

Example

 

 

Section 13 suggests that the bonus where the employee has not worked for all working days in an accounting year then the minimum bonus if higher than 8.33% can be reduced proportionately.

23.12 ADJUSTMENT OF CUSTOMARY OR INTERIM BONUS—SECTION 17

In any accounting year, an employer has paid any Puja bonus or other customary bonus to an employee, than the former shall be entitled to deduct the amount of bonus so paid from the amount of bonus payable by him to the employee under this Act in respect of that accounting year. The employee shall be entitled to receive only the balance.

The employer can do the same thing where he has paid a part of the bonus payable under this Act, to an employee in advance.

As per Section 18 if in any accounting year, an employee is found guilty of misconduct, creating a financial loss to the employer then the employer can lawfully deduct the amount of loss from the amount of bonus payable by him to the employee in respect of that accounting year only. In this case, the employee shall get only the balance if there be any.

Case Study

X is an employee in a company. The amount of bonus payable to him during the year 2007–08 is 14,000. The company deducted a sum of 4000 against the ‘Puja Bonus’ already paid to him during the said year and paid the remaining amount. X files a suit against the company for the recovery of the deducted amount. Decide under the Payment of Bonus Act, 1965 whether X would be given any relief by the court?

Case Study

Skypark Wooden Toys Limited was established at Kolkata in the year 2005, employing 100 workmen. Since then, the company suffered losses but the minimum bonus was paid in the accounting years of 2006 and 2007. In the accounting year 2008, the company earned huge profits. After mitigating the previous losses, the company is having surplus profits and wants to pay the bonus to its workmen. Skypark Wooden Toys Limited wants legal advice on the following issues:

  1. How much minimum and maximum bonus may be paid to the workmen?

  2. Whether the company may adjust the Puja bonus already paid to the workmen while calculating the amount of the bonus payable to the workmen for that accounting year or

  3. The company wants to give wooden toys as bonus, instead of cash. Whether the company can do so?

Advise Skypark Wooden Toys Limited, stating the provisions of the Payment of Bonus Act, 1965.

23.13 SET ON AND SET OFF OF ALLOCABLE SURPLUS—SECTION 15

The provisions relating to ‘set on’ and ‘set off ’ of the allocable surplus are stated as under:

23.13.1 Set On of Allocable Surplus

Where for any accounting year, the allocable surplus exceeds the amount of the maximum bonus payable to the employees in the establishment under Section 11 then the excess shall subject to a limit of 20% of the total salary or wage of the employees employed in the establishment in that accounting year be carried forward for being set on in the succeeding accounting year and so on up and inclusive of the fourth Accounting Year. This excess amount can be utilized for the payment of bonus for the forthcoming years.

23.13.2 Set Off of Allocable Surplus

In cases where there is no allocable surplus or where the allocable surplus falls short of the amount of the minimum bonus payable to the employees under Section 10 and there is no amount or sufficient amount carried forward and set on under the aforesaid provisions which could be utilized for paying minimum bonus minimum amount of bonus or deficiency in bonus shall be carried forward for being set off in the succeeding accounting year and so on upto and inclusive of the Fourth Accounting Year.

23.13.3 Utilization of Carried Forward Amount

Where in any accounting year, any amount has been carried forward and set on or set off under this Section 15 then in the calculating bonus for the succeeding accounting year, the amount of set on or set off, carried forward from the earliest accounting year shall first be taken into account.

23.14 LIABILITY OF THE NEW FIRM TO PAY BONUS—SECTION 16

The new establishment is exempted from the liability to pay bonus for the initial five accounting years. However, if the employer earns profits in any accounting year during this period of five years then the bonus shall be payable in respect of that accounting year. It may be noted, that an establishment shall not be deemed to be newly set up merely by reason of a change in its location, management, name or ownership.

23.14.1 First Five Accounting Years

In case of a new establishment in the first five accounting years following the accounting year in which the employer sells the goods produced or manufactured by him or renders services as the case may be the bonus shall be payable only in respect of the accounting year in which the employer derives profits from such an establishment. Such bonus shall be calculated in accordance with the provisions of the Act relating to that year but without applying the provisions for set on and set off.

It may be noted that an employer shall not be deemed to have derived profit in the accounting year unless:

  1. He has made a provision for the depreciation under the Income Tax Act.
  2. The arrears of such depreciation and losses for the previous accounting years have been fully set off against his profits.

23.14.2 Sixth and Seventh Accounting Year

But in the sixth and seventh accounting years, the provisions of Section 15 shall apply subject to the following modifications, viz.,

  1. For the sixth accounting year, set on or set off shall be made in the manner illustrated in the fourth schedule, taking into account the excess or deficiency if any, as the case may be of the allocable surplus set on or set off in respect of the fifth and sixth accounting years.
  2. For the seventh accounting year, the same principle is to be followed but the excess or deficiency of the allocable surplus set on or set off in respect of the fifth and sixth and seventh accounting year has to be taken into account.

23.14.3 From the Eighth Accounting Year

From the eighth accounting year, following the accounting year in which the employer sells the goods, produced or manufactured by him or renders services, the provisions of Section 15 shall apply in relation to such an establishment as they apply in relation to any other establishment.

23.15 PRESUMPTIONS ABOUT THE ACCURACY OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT OF THE COMPANY—SECTION 23

When a dispute arises before any arbitrator or industrial tribunal between an employer and his employees regarding the bonus payable under the Payment of Bonus Act and the pending amount.

During the course of such a proceeding, the balance sheet and the profit and loss account of an employer being a corporation or a company other than a banking company may be produced. If these statements of accounts are audited by the Comptroller and Auditor General of India or by the auditors qualified under Section 226 of the Companies Act then as specifically provided in Section 23 of the Payment of Bonus Act the said authority may presume that those are accurate. In view of this presumption, the corporation or company need not prove the accuracy of such statements by affidavit or any other mode.

But if the said authority is satisfied that those statements are not accurate it may take such steps as it thinks necessary to find out the accuracy thereof. Further the trade union and if there is no trade union, the employees being a party to the dispute may apply to the specified authority, seeking a clarification relating to any item in the balance sheet or profit and loss account. On the receipt of such an application the specified authority is to satisfy itself as to the necessity of such clarification. On being thus satisfied the specified authority may direct the corporation or the company to furnish to the trade union or the employees such clarifications within such time as may be specified in the direction.

23.16 PROCEDURE AS REGARDS THE RECOVERY OF BONUS—SECTION 21

Section 21 of the payment of Bonus Act, 1965 lays down one of the modes for the recovery of money due as bonus under a settlement or agreement or an award.

  1. The employee makes an application for the recovery of the amount to the appropriate government.
  2. Application is to be made within one year from the date on which the money is due but it may be entertained even after the expiry of the said period of one year if the appropriate government is satisfied, that the applicant had sufficient cause for not making the application within the said period.
  3. The application can be made by an employee or any person authorized on his death assignee or heir(s).
  4. The appropriate government on being satisfied, issues a certificate to the collector for the amount so due. Thereupon the collector shall proceed to recover the same in the same manner as an arrear of the land revenue.
23.17 TIME LIMIT FOR THE PAYMENT OF BONUS—SECTION 22

All amounts payable to an employee by way of bonus under the Payment of Bonus Act shall be paid in cash by his employer:

  1. 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.
  2. In any other case, within a period of eight months from the close of the accounting year. But this period of eight months may be extended up to a maximum of two years by the appropriate government. This extension is to be granted on the application of the employer and only for sufficient reasons (Section 19).
23.18 POWERS OF INSPECTORS—SECTION 27

The appropriate government may by a notification in the Official Gazette appoints such persons as it thinks fit to be the inspectors for the purposes of the Payment of Bonus Act and may define the limits, within which they shall exercise jurisdiction.

An inspector thus appointed has to ascertain whether any of the provisions of this Act has been complied with and for this purpose he may:

  1. Require an employer to furnish such information as he may consider necessary.
  2. At any reasonable time, enter into any establishment connected therewith and require anyone found in charge thereof to produce before him for examination any account books, registers and other documents relating to the employment of persons or the payment of salary or wage or bonus in the establishment.
  3. Examine, with respect to any matter relevant to any of the purpose aforesaid, the employer, his agent or servant or any other person when the inspector has a reasonable cause to believe to be or have been an employee in the establishment.
  4. Make copies of or take extracts from any books register or other document maintained in relation to the establishment.
  5. Exercise such other powers as may be prescribed (Section 27).

The inspector appointed as aforesaid is deemed to be a public servant under the Indian Penal Code. Any person whom the Inspector calls upon to produce any account book, register or other document or to give information shall be legally bound to do so.

The provisions of Section 27 do not empower the inspector to require a banking company to furnish or disclose any statement or information or to produce or give inspection of any of its books of account or other documents which a banking company cannot be compelled to furnish or disclose.

23.19 APPLICATION OF THE ACT TO ESTABLISHMENT IN PUBLIC SECTOR—SECTION 20

The provision of the Payment of Bonus Act shall also apply to the establishment in a public sector if the following conditions are satisfied:

  1. An establishment in the public sector sells any goods produced or manufactured by it or render any services in competition with the establishment in the private sector.
  2. And income from such sale or service or both is not less than 20% of the gross income of the establishment in the public sector.
23.20 BONUS LINKED WITH PRODUCTION OR PRODUCTIVITY—SECTION 31 A

There may be an agreement or settlement by the employees with their employer for the payment of an annual bonus, linked with production or productivity in lieu of the bonus paid on profit as is payable under Section 31 A, of the Payment of Bonus Act.

Accordingly, when such an agreement has been entered into, the employees are entitled to receive bonus, as per the terms of the agreement or settlement subject to the following restrictions imposed by Section 31 A, which are as follows:

  1. Any such agreement or settlement whereby the employees extinguish their right to receive the minimum bonus, under Section 10 shall be null and void in so far as it purports to deprive the employees the right of receiving the minimum bonus.
  2. If the bonus payable under such an agreement exceeds 20% of the salary or wages earned by the employees during the relevant accounting year such employees are not entitled to the excess over 20% of salary or wages.

Case Study

The management of Shakthi Mills Ltd, entered into an agreement with their employees to pay them a bonus based on the production in lieu of the bonus based on the profits from the Accounting Year 2007. The employees further agreed to forego their right to receive the minimum bonus and instead accept 25% of their salary/wage as the bonus based on productivity. Is such an agreement valid? Examine in the light of the provisions of the Payment of Bonus Act, 1965.

Case Study

On 1 January 2002, the Aryan Textiles Ltd agreed with the employees for the payment of an annual bonus, linked with the production or productivity instead of the bonus based on profits subject to the limit of 30% of their salary wages during the relevant accounting year. It was also agreed by the employees that they will not claim the minimum bonus stated under Section 10 of the Payment of Bonus Act, 1965. As per the agreement, the employees of the Aryan Textiles Ltd claimed the annual bonus, linked with the production or productivity in the relevant accounting year. On the refusal of the company the employees of the company moved to the court for relief.

Decide in reference to the provisions of the Payment of Bonus Act, 1965 whether the employees will get the relief? In spite of the aforesaid agreement whether the employees are still entitled to receive the minimum bonus.

23.21 POWER OF EXEMPTION—SECTION 36

Section 36 lays down that the appropriate government by notification in the Official Gazette, exempt for such period as may be specified therein and subject to such conditions as may think fit to impose, such establishment or class of establishments from all or any of the provisions of this Act. To provide such exemptions the following aspects must be considered:

  1. The appropriate government shall consider, the financial position and other relevant circumstances of an establishment or class of establishment.
  2. It should be of the opinion that it would not be in the public interest to apply all or any of the provisions of the Act.
  3. If the bonus liability is negligible compared to the loss suffered, a company should not be relieved of the liability to pay the minimum bonus.
  4. If the losses sustained by the employer are not due to any misconduct on the part of the employees, the employer is liable to pay statutory minimum bonus.

Case Study

In an accounting year, a company to which the Payment of Bonus Act, 1965 applies suffered heavy losses. The Board of Directors of the said company decided not to give bonus to the employees. The employees of the company moved to the court for relief. Decide in the light of the provisions of the said Act whether the employees will get relief?

LIST OF LANDMARK JUDGEMENTS
  1. ONGC vs. Shyam Kumar Sahegal (1995)

    Every employee reinstated in service and otherwise qualified is eligible for bonus. The employers’ statutory liability for bonus cannot be said to have been lost and the employees concerned shall be entitled to the bonus if he is reinstated in service.

  2. Upendra Chandra vs. United Bank of India

    If the customary bonus does not relate to profits but is merely an outcome of negotiations between the employers and employees. It is not deductible.

  3. Gopalan vs. Angamali Chit Fund (1977)

    The statutory bonus of 8.33% shall be payable, whether there are profits in the accounting year or not. The bonus is implied term of employment and does not depend upon the projects.

  4. Workman of Associated Rubber Industries Ltd vs. Associated Rubber Industries Ltd (1986)

    Where a subsidiary company, wholly owned by the principal company, is amalgamated with the principal company, the workmen of the principal company are entitled to the bonus by including the income of the subsidiary company, along with the gross profits of the principal company.

  5. Binny Ltd vs. Workman (1973)

    The claim for bonus can be made only after the close of the accounting year, the gross profit is calculated only at the end of accounting year and the available and allocable surplus can also be worked out only at the end of the accounting year.

  6. Bank of Madura Ltd vs. Employee's Union (1970)

    The probationer is an employee and as such is entitled to bonus.

  7. Automobile Karmchari Sangh vs. Industrial Tribunal (1970)

    The part time employee as a sweeper engaged on regular basis is entitled to bonus.

  8. Mathuradas Kani vs. Labour appallent Tribunal (1958)

    The piece rated worker is entitled to bonus.

  9. East Asiatic Co. (P) Ltd vs. Industrial Tribunal (1961)

    The retrenched employee is eligible to get bonus, provided he has worked for the minimum qualifying period.

  10. UOI vs. R. C. Jain (1981)

    The Delhi Development Authority is a local authority and hence its employees are not entitled to the payment of bonus.

  11. KLJ Plastics vs. Labour Court (2002)

    If an employee is guilty of riotous and disorderly behaviour for assaulting the managers and is dismissed, he is disqualified for bonus.

  12. State of Tamil Nadu vs. K. Subansyamam (1989)

    The employees should be heard before granting exemption. The exemption cannot be granted retrospectively.

  13. 13.Associated Publishers Madras vs. Govt. of Tamil Nadu (1985)

    If the bonus liability is negligible, compared to the total loss granting exemption may not be advisable.

TEST YOUR KNOWLEDGE
1. Discuss the categories of employees who are not entitled to claim bonus, under the Payment of Bonus Act. (Ref. Para-23.3)
2. What do you understand by the term ‘allocable surplus’? (Ref. Para-23.4)
3. What do you understand by the term ‘available surplus’? (Ref. Para-23.4)
4. Specify the any five kinds of establishments which are not covered under the Payment of Bonus Act. (Ref. Para-23.3)
5. Explain the meaning of salary and wages under the Payment of Bonus Act, 1965. (Ref. Para-23.4)
6. Explain the meaning of employer and employee under the Payment of Bonus Act. (Ref. Para-23.4)
7. Explain the meaning of accounting year under the Payment of Bonus Act, 1965. (Ref. Para-23.4)
8. Who is entitled to bonus? (Ref. Para-23.5)
9. An employee found guilty of misconduct, causing a financial loss to the employer is entitled for bonus. Decide. (Ref. Para-23.6)
10. Explain the procedure relating to the computation of working days for the purpose of payment of bonus under the Payment of Bonus Act. (Ref. Para-23.7)
11. Can there be a deduction in the amount of bonus, on the ground that the employee has not worked for all working days in an accounting year? (Ref. Para-23.7)
12. Who is liable to pay bonus? (Ref. Para-23.8)
13. Explain the provisions relating to the minimum and maximum amount of bonus payment to an employee for an accounting year. (Ref. Para-23.9)
14. Explain the provisions of the Payment of Bonus Act, 1965 relating to the adjustment of customary bonus against the bonus payable under act. (Ref. Para-12)
15. Explain the rules of set on and set off of allocable surplus under the Payment of Bonus Act. (Ref. Para-23.13)
16. Explain the provisions of the Payment of Bonus Act, 1965 regulating the payment of bonus by new establishment. (Ref. Para-23.14)
17. A company calculates the bonus from the accounting position, as per the balance sheet and profit and loss account. Can a worker rely on the correctness of the balance sheet and profit and loss account? (Ref. Para-23.15)
18. Explain the procedure to recover the bonus. (Ref. Para-23.16)
19. What is the time limit within which the payment of bonus due to an employee under the act be paid? (Ref. Para-23.17)
20. What are the powers of an inspector under the Payment of Bonus Act? (Ref. Para-23.18)
21. Is the provision of act applicable to public sector undertaking? (Ref. Para-23.19)
22. Explain the special provisions with respect to bonus linked with production. (Ref. Para-23.20)
23. Examine the power of the government to grant exemption to an establishment from the Payment of Bonus Act, 1965. (Ref. Para-23.21)
MULTIPLE CHOICE QUESTIONS
  1. Employees of LIC will not cover under the Payment of Bonus Act, 1965.
    1. Yes
    2. No
  2. Employees of the RBI will not cover under the Payment of Bonus Act, 1965.
    1. Yes
    2. No
  3. Employees employed through contractors on building operations, will cover under Payment of Bonus Act, 1956.
    1. Yes
    2. No
  4. Employees employed under the Indian Red Cross Society will cover under the Payment of Bonus Act, 1956.
    1. Yes
    2. No
  5. Employees employed under the educational institutions, will cover under the Payment of Bonus Act.
    1. Yes
    2. No
  6. Employees employed under any financial corporation established under the state financial corporation Act, will not cover under the Payment of Bonus Act.
    1. Yes
    2. No
  7. Every other establishment, other than the factory in which there are more than________________employees, must be to come under the Payment of Bonus Act.
    1. 15
    2. 20
    3. 25
    4. 30
  8. In an establishment 15 employees were working with a salary below than 3500 and seven employees, working with a salary more than 3500. Is the establishment covered under the Payment of Bonus Act, 1956?
    1. Covered
    2. Not Covered
  9. If an establishment in the previous year, was covered under the Payment of Bonus Act. But in this year the employees had reduced to below 20. Is that establishment covered under the Payment of Bonus Act.
    1. Covered
    2. Not Covered
  10. Where any employee, committed any fraud, in that accounting year. Mention whether he is eligible for bonus. Who has been dismissed from service?
    1. Yes
    2. No
  11. Where any employee was dismissed because of Riotous/Violent behaviour in the premises, whether he is eligible for bonus.
    1. Yes
    2. No
  12. Where an employee dismissed but reinstated with back wages, will be entitled to bonus.
    1. Yes
    2. No
  13. A temporary workman is entitled to bonus on the basis of
    1. total no. of days worked.
    2. all working days.
    3. no bonus will be allowable.
    4. none of the above.
  14. An employee of a seasonal factory will be given minimum bonus, if he had not worked for sufficient days.
    1. Yes
    2. No
  15. Gross profit of an employer, in the case of banking company, will be calculated as per under the Payment of Bonus Act.
    1. Schedule I
    2. Schedule IV
    3. Schedule III
    4. none of these
  16. Gross profit of an employer in case of any other company other than the banking company will be calculated as per under Payment of Bonus Act.
    1. Schedule I
    2. Schedule II
    3. Schedule III
    4. none of these
  17. The allocable surplus in case of the employer is company other than banking company of available surplus.
    1. 60 per cent
    2. 67 per cent
    3. 20 per cent
    4. 8.33 per cent
  18. The allocable surplus, in case of the employer is a banking company of available surplus.
    1. 60 per cent
    2. 67 per cent
    3. 20 per cent
    4. 8.33 per cent
  19. While calculating the direct tax payable u/s 7 of the Payment of Bonus Act which of the following should not be considered?
    1. Profits
    2. Capital Gains
    3. Speculation Loss
    4. Unabsorbed depreciation
  20. What is the minimum bonus u/s 10 of the Payment of Bonus Act.
    1. 8.3% or 100↑
    2. 8.33% or 100↓
    3. 8.33% or 60↓
    4. none of the above
  21. What is the minimum bonus u/s 10 of the Payment of Bonus Act if employee has not completed 15 years of age?
    1. 8.33% or 60↑
    2. 8.33% or 60↓
    3. 8.33% or 100↓
    4. 8.33% or 100↓
  22. What is the maximum bonus u/s 11 of the Payment of Bonus Act.
    1. 20% of wages
    2. 15% of wages
    3. 17.5% of wages
    4. None of the Above
  23. Set on can be done for the next accounting years.
    1. 5
    2. 6
    3. 4
    4. None of these
  24. The bonus shall be paid by the employer in cash. If there is any dispute and settlement has been done, then the employer should pay bonus within
    1. Two months.
    2. One month.
    3. Three months.
    4. None of these.
  25. In general cases, bonus shall be paid within
    1. Six months.
    2. Seven months.
    3. Eight months.
    4. None of these.
ANSWERS—MULTIPLE CHOICE QUESTIONS
1 (i) 2 (i) 3 (ii) 4 (ii) 5 (ii)
6 (i) 7 (ii) 8 (i) 9 (i) 10 (ii)
11 (ii) 12 (i) 13 (i) 14 (ii) 15 (i)
16 (ii) 17 (ii) 18 (i) 19 (iv) 20 (i)
21 (i) 22 (i) 23 (iii) 24 (ii) 25 (iii)