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1. PAYMENT OF BONUS ACT 1965
(STATUTORY FORMULA& AVAILABLE SURPLUS
FORMULA ) AND
EMPLOYEES ENTITLED TO BONUS
BY
MANISHA VAGHELA
B.M.S – 3RD YEAR SEM:- 6th
ROLL NO. : 34
DATE : 4-12-2012
1
ACADEMIC YEAR – 2012- 2013

2. FLOW OF PRESENTATION
1.) Introduction and Definition of Payment of bonus act 1965
2.) Aims of The payment of Bonus Act, 1965
3.) Applicability of the Act
4.) Eligibility of the Act
5.) Minimum Bonus of the Act
6.) Maximum Bonus of the Act
7.) Mode and Time for Payment of Bonus Act
8.) Employers’ Obligations of the Act
9.) Time limit for payment
10.) Offences and penalties
2
11.) Set on & Set off

3. 12.) Methods of Calculation of bonus
1.) Calculate the statutory bonus
2.) Calculate the Available Surplus
13.) Who is entitled to bonus under the Payment of
Bonus Act, 1965 ?
14.) Some Important Questions-Answers related
with the Payment of Bonus Act 1965
15.)Conclusions
16.)Review Of The Topic
17.) Bibliography
3

4. INTRODUCTION PAYMENT OF BONUS
ACT 1965
4

5. 5

6. 6

7. DEFINITION OF BONUS
 According to the definition given in the New
English Dictionary is “A boon or gift over and
above what is normally due as remuneration to
the receiver and which is, holy to the good.”
7

8. AIMS OF THE PAYMENT OF BONUS ACT, 1965
The payment of Bonus Act, 1965 aims at
providing for the payment of bonus to the
employees of certain establishments, on the basis
of profits or production or productivity and for
matters connected therewith.
8

9. APPLICABILITY
 The Act applies to every factory and every other
establishment employing not less than 20
persons on any day during an accounting year.
The Central/State Government can, however,
extend its provisions to any establishment
employing less than 20 but more than 10persons.
 The establishments covered under the Act shall
continue to pay bonus even if the number of
employees falls below 10, at a later date.
9

10. ELIGIBILITY
 Every employee (other than an apprentice)
receiving salary or wages up to Rs.3,500 per
month and engaged in any kind of work whether
skilled, unskilled, manual, managerial,
supervisory, technical, clerical , etc. is entitled to
bonus for every accounting year, if he has worked
for at least 30 working days in that year.
10

11.  Employees of the general insurance companies,
LIC, Central/State Government establishments,
Indian Red Cross Society, Universities and
Educational Institutions, Hospitals, Chambers of
Commerce, Reserve Bank of India, Industrial
Finance Corporation of India, Unit Trust of India
, Social Welfare Institutions, Local Bodies, etc.
are not entitled to bonus under the Act. What
they are paid as bonus, is ex-gratia payment.
11

12. MINIMUM BONUS
 The minimum bonus which an employer is
required to pay even if he suffers losses during
the accounting year or there is no allocable
surplus (except in case of new establishments), is
8.33% of the salary or wages of the employee
during the accounting year. {Section 10}
 Rs. 100 in case of employees above 15 years and Rs 60
in case of employees below 15 years,
whichever is higher
12

13. MAXIMUM BONUS
If in any accounting year, the allocable surplus
exceeds the amount of minimum bonus, the
employer shall pay bonus in proportion to the
salary or wages earned by the employee during
that accounting year, subject to a maximum of
20% of such salary or wages.
13

14. MODE AND TIME FOR PAYMENT OF
BONUS
Bonus should be paid in cash and within 8
months from the close of the accounting year .
Bonus is payable only annually. ( section 22 )
14

15. EMPLOYERS’ OBLIGATIONS
 To calculate and pay the annual bonus as
required under the Act.
 To maintain the prescribed registers and file
annual returns of bonus paid.
15

16. TIME LIMIT FOR PAYMENT
The bonus should be paid in cash within 8 months from
the close of the accounting year or within one month
from the date of enforcement of the award or coming
into operation of a settlement following an industrial
dispute regarding payment of bonus.
However if there is sufficient cause extension may be
applied for.
16

17. OFFENCES AND PENALTIES
 For contravention of the provisions of the Act or
rules the penalty is imprisonment up to 6
months, or fine up to Rs.1000, or both.
 For failure to comply with the directions or
requisitions made the penalty is imprisonment
up to 6 months, or fine up to Rs.1000, or both.
17

18.  In case of offences by companies, firms, body
corporate or association of individuals, its
director, partner or a principal officer responsible
for the conduct of its business, shall be deemed to
be guilty of that offence, unless the person
concerned proves that the offence was committed
without his knowledge or that he exercised all
due diligence.
18

19. CALCULATION OF
BONUS
1.) Calculate the Statutory bonus
2.) Calculate the Available Surplus.
19

20. MEANING OF STATUTORY BONUS
 Statutory Bonus means bonus payable as per
statute, i.e., the Payment of Bonus Act. As per the
Act, an amount equal to 8.33% of the
Basic + Dearness allowance
paid to an employee who is eligible for bonus is to
be paid irrespective of availability of surplus or
profit. Therefore, 8.33% is the statutory minimum
bonus payable. However, depending upon
availability of profit, the employer shall pay bonus
20
subject to a maximum of 20%.

21.  The Payment of Bonus Act, 1965, gives to the
employees a statutory right to a share in the profits
of his employer. Prior of the Act some employees
used to get bonus but that was so if their employers
were pleased to pay the same.
 payment of bonus act 1965 all the confirmed
employees whose basis is less than or equal to
10000/- per month is eligible for statutory bonus @
rate of 8.33% of Basic pay.
21

22. HOW STATUTORY BONUS CALCULATE
 The Act enables the employees to get a minimum
bonus equivalent to one month's salary or wages
(8.33% of annual earnings) whether the employer
makes any profit or not. But the Act also puts a
ceiling on the bonus and the maximum bonus
payable under the Act is equivalent to about 2 1/2
months' salary or wage (20% of annual earnings).
22

23. MEANING OF AVAILABLE SURPLUS
 Available Surplus = Gross Profit [as per section 4]
– Depreciation admissible u/s 32 of the Income
tax Act - Development allowance
 Calculate the gross profit in the manner specified
in
 First Schedule, in case of a banking company, or
 Second Schedule, in any other case.
23

24. CALCULATE THE AVAILABLE SURPLUS
 Available Surplus = Gross Profit
1.) – Depreciation admissible u/s 32 of the Income
tax Act
2.) - Development allowance
3.)- Direct taxes payable for the accounting year
4.) – Sums specified in the Third Schedule
5.)+ Direct Taxes in respect of gross profits for the
immediately preceding accounting year
6.) – Direct Taxes in respect of such gross profits as
reduced by the amount of bonus, for the
immediately preceding accounting year. 24

25. FORMULA OF AVAILABLE SURPLUS
1. Direct taxes payable for the accounting year
(calculated as per sec-7)- sums specified in the
third schedule.
2. Direct taxes (calculated as per sec-7) in respect of
gross profit for the immediately preceding
accounting year.
3. Allocable surplus = 60% of available surplus,
67% in case of foreign companies.
4. Make adjustment for „set on‟ and „set off ‟ for
calculating the amount of bonus in respect of an
accounting year.
25

26. ALLOCABLE SURPLUS
 (Allocable Surplus = 60% of Available Surplus,
67% in case of foreign companies). The bonus is
to be paid out of the allocable surplus. The
allocable surplus so computed is distributed
amongst the employees in proportion to salary or
wages received by them during the relevant
accounting year. In case of a foreign company,
the allocable surplus is 67 percent of the
available surplus and in other cases it is 60
percent (section 4,5 and 7)
26

27. SET ON & SET OFF
 Where in any accounting year any amount has been
carried forward and set on or set off under this section,
then, in 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.
 The allocable surplus so computed is distributed
amongst the employees in proportion to salary or wages
received by them during the relevant accounting year.
27

28. WHO IS ENTITLED TO BONUS UNDER THE
PAYMENT OF BONUS ACT, 1965
 Every employee of an establishment covered
under the Payment of Bonus Act, 1965 is entitled
to bonus from his employer 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 Rs.3,500 per
month
(Section 2 (13)
28

29. AN EMPLOYEE IN THE FOLLOWING CASES IS
ENTITLED TO BONUS:
(1) A temporary workman on the basis of total
number of days worked by him.
(2) An employee of a seasonal factory is entitled to
proportionate bonus and not minimum bonus, as
prescribed by the Act.
(3) A part-time employee, as a sweeper engaged on
a regular basis.
Exa :- (Automobile Karmachari Sangh vs.
Industrial Tribunal (1970) 29

30. (4) A retrenched employee, provided he has worked
for minimum qualifying period
Exa: (East Asiatic C. (P) Ltd. Vs. Industrial
Tribunal (1961).
(5) A probationer is an employee and as such is
entitled to bonus.
Exa: (Bank of Mudra Ltd. Vs. Employee’s Union,
1970 US.
30

31. (6) A dismissed employee re-instated with back
wages is entitled to bonus
Exa: (Gammon India Ltd Vs. Nirnjan Das (1984)
(7) A piece rated worker is entitled to bonus
Exa: (Mathuradas Kani Vs. L.A. Tribunal AIR
(1958)
31

32. Q-1 IS A SEASONAL WORKER ENTITLED TO
GET BONUS?
 Section 8 relates to the eligibility for bonus. The
only requirement of that section is that the
employee should have worked in an
establishment for not less than thirty working
days in an accounting year. Therefore, if a
seasonal worker has worked in an establishment
for more that thirty working days, he shall be
entitled to get bonus.
32

33. Q-2 WHAT IS THE MEANING OF
CUSTOMARY BONUS?:
Customary bonus is bonus which is being paid by
way of tradition or custom at a uniform rate over
a number of years and which has no link with
profit.
33

34. Q-3 IS OPEN TO THE EMPLOYER TO PAY BONUS
BASED ON PRODUCTION OR PRODUCTIVITY?:
If is open to any employer to pay bonus linked
with production or productivity instead of bonus
based on profits, if there is an agreement to that
effect between him and his employees, but
subject to the provisions of the Act in respect of
payment of minimum and maximum basis.
{Section 31A}
34

35. Q-4 ARE THE NEWLY SET UP ESTABLISHMENTS
EXEMPTED FROM PAYING BONUS TO THEIR
EMPLOYEES?:
 The newly set up establishment is exempted from
paying bonus to its employees in the first five
years following the year in which the employer
sells the goods produced or manufactured by him.
If, however, the employer derives profit in any of
the first five year, he has to pay bonus for that
year. The provisions of set on and set off are not
applicable in such cases. {Section 16}
35

36. Q-5. IS THE EMPLOYER REQUIRED TO MAINTAIN
ANY REGISTERS UNDER THE ACT?:
 Every employer is required to maintain, in the
prescribed form, the following three registers:
1.) A register showing the computation of the
allocable surplus;
2.) A register showing the set-on and set-off of
the allocable surplus;
3.) A register showing the details of the amount
of bonus payable to each of employees, the
amount of deductions if any, and the amount
actually paid.
36

37. The employer is also required to send, in the
prescribed form, an annual return to the
Inspector appointed under the Act. The time
limit for sending the annual return is thirty days
from the expiry of the time limit specified in
section 19 for payment of bonus.
{Section 26 & Rule 4 and 5}
37

38. REVIEW OF THE TOPIC
1.) Introduction Payment of bonus act 1965
2.) Aims of The payment of Bonus Act, 1965
3.) Applicability of the Act
4.) Eligibility of the Act
5.) Minimum Bonus of the Act
6.) Maximum Bonus of the Act
7.) Mode and Time for Payment of Bonus Act
8.) Employers’ Obligations of the Act
9.) Time limit for payment
10.) Offences and penalties
11.) Set on & Set off 38

39. 12.) Methods of Calculation of bonus
1.) Calculate the statutory bonus
2.) Calculate the Available Surplus
13.) Who is entitled to bonus under the Payment of
Bonus Act, 1965
14.) Some Important Questions-Answers related
with the Payment of Bonus Act 1965
15.)Conclusions
39

40. BIBLIOGRAPHY
 Industrial Jurisprudence And Labour Legislation
By A.M.Sharma
Himaliya Publishing House
 Labour Laws
Taxmann‟s 2003 edition
 Industry & labour law
By sanjeev kapoor
40

41.  Thank you
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