Overview on the payment of bonus under the Payment of Bonus Act 1965
The Payment of Bonus Act, 1965 (“Act”) has a long history dating back to the First World War. With a view to give a legislative backing to it, after conducting exhaustive discussions and deliberations, this Act came to be passed by both the Houses of Parliament band became a law on 25th September, 1965. This post will help provide you with an overview on the computation of bonus under bonus act 1965.
Applicability of the Act
Before understanding the mode and manner of computation of bonus, it is vital to first understand the nature of establishments which are covered within its reach. Section 1 of the Act clearly states that every factory which has ten or more persons employed and which functions with the aid of power or twenty or more persons are employed without the aid of power on any day during an accounting year and includes departments, branches as well as undertakings etc.
Mode and manner of computation of bonus
Sub-section (21) of section 2 of the Act includes dearness allowance as part of the term ‘salary’ but excludes other allowances like house rent, over-time or any commission or incentive and has to be paid within 8 months from the end of the accounting year.
Although computation of bonus under bonus act 1965 depends upon the surplus profits made by the establishment, nevertheless, the employer is under a duty to pay a minimum bonus of 8.33% of the salary or one hundred rupees on completion of five years after the 1st accounting year even if the establishment does not report any profit.
Determination of surplus profits if an establishment
Before coming to the surplus profits earned by the establishment, it will be important to understand the different costs which should get deducted in order to come to ascertain the actual profits earned by the establishment. These expenses can be listed as follows:
ü amount admissible by way of depreciation according to the Income-tax Act, or as per agricultural income-tax law, as may be applicable;
ü any development rebate or investment allowance or development allowance which the employer is empowered to deduct under the income-tax Act; and
ü any direct tax which the employer is liable to pay for the accounting year in respect of his income, profit and gain during that particular accounting year.
Eligibility of employees
Not all employees automatically become entitled for bonus. As per section 12 of the Act, employees earning wages or salaries up to rupees ten thousand every month or lesser than shall be considered for bonus. However, by virtue of the amendment which took place in 2015, this amount has been revised to twenty one thousand rupees in with a view to make more employees eligible.
Some thoughts on the ‘bonus’ legislation
This Act is undoubtedly a welfare and pro-labour legislation because this is one Act which brings widespread contentment among the workforce. Hence, the computation of bonus under bonus act 1965 is also prescribed in such a manner that will include more employees and provide them with considerable financial relief.
