APPLICABILITY OF PAYMENT TO BONUS ACT

OBJECTIVE OF THE ACT

The Bonus Act (Payment of Bonus Act) aims to achieve the following goals:

1. To impose a legal obligation on the employer of each establishment covered by the Act to provide employees with a bonus.
2. To indicate the bonus's lowest and highest percentage.
3. To establish the bonus calculation procedure.
4. To supply a redressal system

 

APPLICABILITY OF THE ACT

The payment of bonus act is applicable to whole India to every factory and every other establishment which employs twenty or more persons on any day during the accounting year.

ESTABLISHMENTS TO WHICH THE ACT IS NOT APPLICABLE

1. Employees of Employed by insurance companies carrying General Insurance Business
2. LIC
3. Seamen
4. Employees registered or Listed under any Scheme.
5. Establishments not for profit purposes
6. Employees employed through contractor on Building operation.
7. RBI, IFCI, Financial Corporations, Deposit insurance corporation
8. NABARD, UTI, IDBI, SIDBI,
9. Employees employed by Inland Water Transport Establishments
10. Establishments or class of establishments notified by governments.

 

ELIGIBLE EMPLOYEES

1. The Employee must have worked in the establishment for not less than 30 days in a year.
2. The Employees must receive remuneration less than Rs.21000/- as amended in 2015.
3. Temporary Workmen based on days worked.
4. Employees of Seasonal factories on proportionate basis
5. A retrenched employees which have worked for minimum qualifying days.
6. A probationer employee
7. A piece rated employees.
8. Contract workers from their contractor and if contractor fails to pay then principal employer is liable to pay and who is entitled to indemnified by contractor.

Excluding an apprentice who is an apprentice under Apprentice Act.

 

 

DISQUALIFICATION OF EMPLOYEES UNDER BONUS ACT

If an employee is dismissed from service for

1. Fraud
2. Riotous or violent behaviour during the employment
3. Theft, misappropriation or sarbotage of any property of that establishment

TIME LIMIT FOR BONUS PAYMENT

1. Within 8 months of from the close of accounting year
2. In case of dispute within one month from the date of it become enforceable

 

MEANING OF SALARY UNDER BONUS ACT

Basic+ DA but does not include any other allowance, HRA, Overtime, leave travel, concessional food supply, employer contribution of PF, or commission.

CALCULATION OF BONUS

1. Where salary and wages of an employee exceeds (Rs.7000.00 or minimum wages fixed by government) whichever is higher per month then the bonus payable will be calculated as if his salary or wage were such higher amount per month.

It means salary will be such higher of the two-amount mentioned above for the purpose of calculation of bonus.

 

INITIAL YEAR OF ESTABLISHMENT

In first five starting years of establishment, the establishment has to pay bonus only in case of profit.

From Sixth years of establishment and onwards the bonus shall be paid after considering the procedure of set on and set off.

 

MINIMUM AND MAXIMUM BONUS

Where in any accounting year there is no allocable surplus, the Bonus Act provides minimum bonus @8.33% on the salary earned (i.e. calculated above). The amount of minimum bonus is payable even if there is a loss incurred in that year.

Where the allocable surplus exceeds the amount of minimum bonus, then the employer is bound to pay bonus for the year in proportion to allocable surplus bears to the total salary subject to Maximum bonus @20% of the salary or wages earned in the year.

However, as per section 34, more bonuses can be payable on mutual agreement based on productivity consideration.  

In case the employee has not completed the age of 15, then the minimum amount of bonus to be received by him as bonus is Rs.60/- and for others Rs.100/-

 

                                                         CALCULATION OF ALLOCABLE SURPLUS

In computing allocable surplus, the amount of set on and set off will be considered under the provision of             section 15. Shall be considered.

HOW TO CALCULATE ALLOCABLE SURPLUS UNDER BONUS ACT

CALCULATION ALLOCABLE SURPLUS

Net Profit as per P&L account                                                                                                              xxx

 Schedule II Adjustments

 Add:

 a) Bonus to employees for the current year or previous year

b) Provision for depreciation

 c) Provision for taxation

d) Development rebate Reserve Investment Allowance Reserve

e) Excess of gratuity being the difference provision of gratuity and actual gratuity paid

f) Donations more than amount admissible under Income Tax Act

g) Difference between annuity provided and paid

h) Capital expenditure, other than capital exp. on scientific research

i) Losses in respect of business situated outside India

Less:

a) Capital receipts & Capital profits

b) Profits & receipts relating to business situated outside India

c) Refund of excess income tax paid

d) Cash subsidy, if any, given by Government

Gross Profit for the purpose of bonus                                                                                               xxx

 

Less Sec. 6 deductions

a) Depreciation admissible under Income Tax Act

b) Amount of Income Tax payable as per Income Tax Act

c) Amount of development rebate reserve or Investment allowance reserve allowed under IT Act.

 

Less Schedule-III Deductions

a) In case of a Limited company

 

(i) Preference dividend payable on preference share capital

(ii) 8.5% on paid-up equity share capital 

(iii) 6% of the reserves

 

b) In case of a corporation

(i) 8.5% on the capital invested

(ii) 6% of the reserves

 

c) In case of Sole proprietor ship/partnership)

(i) 8.5% of the capital invested

(ii) 48,000 per year per partner towards salary or 25% of Gross profit whichever is less

 

ALLOCABLE SURPLUS                                                                                                                                    XXX

 

PROCEDURE TO SET ON & SET OFF ALLOCABLE SURPLUS

 

SET ON

In any accounting year, if the amount of allocable surplus exceeds the amount of maximum bonus payable (calculated above) to employees, then the excess subject to a limit of 20% of total salary & wages of the employees during the year be carried forward for Set on in the succeeding financial year and so on.

In simple words, set on is basically the amount that would be carried forward to next year to compensate in case there is any shortage of allocable surplus/loss in the succeeding year. It is carried forward to next four year to be available for set on.

 

SET OFF

Where in any accounting year there is no available surplus which short of amount of minimum bonus payable to employees under section 10 or sufficient amount carried forward which could be utilized for the purpose for payment of such minimum bonus, then such minimum bonus payable  i.e deficiency as the case may be , shall be carried forward and available for set off in the succeeding year and so on up to fourth year as a manner in fourth schedule with the amount available to set on in net year.

 

 

ADJUSTMENT OF INTERIM BONUS FROM BONUS PAYABLE

If the employer has paid any puja bonus or and other amount as bonus before the date on which the bonus become payable, in that case, the employer has right to deduct the amount of bonus from actual payment and it is eligible for remaining amount of bonus only.

 

REGISTERS/ RECORDS TO BE MAITAINED UNDER BONUS

1. Computation of allocable surplus, FORM-A
2. Set on & Set Off, FORM-B
3. A register showing the amount of bonus due to each of the employees, the deductions under sections 17 and 18 and the amount disbursed, in Form C

 

RETURNS

Every employer has to file the Annual Return in Form-D within 30 days after expiry of time limit specified under section 19 for payment of bonus act.

 

 

PENALTY

If any establishment contravenes any of the provisions of Bonus Act or fails to comply with any of the directions then it would be punishable with imprisonment up to 6 months or fine for Rs.1000.00 or both.

 

 

References

1. https://labour.gov.in/sites/default/files/ThePaymentofBonusAct1965.pdf

 

2. Practical Guide To Payment of Bonus Act and Rules by H L Kumar