payment do f bonusact.ppt

7/27/2019 payment do f bonusact.ppt

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PAYMENT OF BONUS ACT1965

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Bonus-History

The practice of paying bonus inIndia appears to have originatedduring First World War whencertain textile mills granted 10%

of wages as war bonus to theirworkers in 1917.In certain cases of industrial

disputes demand for payment ofbonus was also included.

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Introduction

An Act to provide for the payment of bonus to persons

employed in certain establishments on the basis ofprofits or on the basis of production or productivityand for matters connected therewith.

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It extends to the whole ofIndiaEvery other establishment in

which twenty or more personsare employed on any dayduring an accounting year.


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Bonus - Applicability

(a) Every factory (as def. in Factories Act), & (b) Every otherestablishment in which 20 or more persons (less than 20 but 10or more if appropriate Govt. notifies) are employed on any daysubject to certain exemptions.

(b) Bonus to be paid within eight months from the expiry of theaccounting year.

Establishments to include departments, undertakings andbranches

Where an establishment consists of different departments orundertakings or has branches, whether situated in the sameplace or in different places, all such departments orundertakings or branches shall be treated as parts of the same

establishment for the purpose of computation of bonus4


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Accounting Year In relation to a corporation:

the year ending on the day on which the books and accounts of the

corporation are to be closed and balances; In relation to a company:

the period in respect of which any profit and loss account of thecompany laid before it in annual general meeting is made up;

In any other case:

the year commencing on the 1st day of April; or

if the accounts of an establishment maintained by the employerthereof are closed and balances on any day other than the 31st dayof March, then, at the option of the employer, the year ending onthe day on which its accounts are so closed and balanced.

Provided that an option once executed by the employer underparagraph (b) of this sub-clause shall not again be exercisedexcept with the previous permission in writing of the prescribedauthority and upon such conditions as that authority may think fit.[Section 2(1)]

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Employee Employee means any person (other than an apprentice) employed on a

salary or wages not exceeding Rs.3,500 per annum in any industry to do

any skilled or unskilled, manual, supervisory, managerial, administrative,technical or clerical work or hire or reward, whether the terms ofemployment be express or implied. [Section 2(13)]

Part time permanent employees working on fixed hours are employees.

Employer In relation to an establishment which is a factory, the owner or occupier

of the factory, including the agent of such owner or occupier, the legalrepresentative of a deceased owner or occupier, and where a person hasbeen named as a manager of the factory under clause (f) of Sub-section7(1) of the Factories Act, 1948, the person so named; and

In relation to any other establishment, the person who, or the authoritywhich, has the ultimate control over the affairs of the establishmentand where the said affairs are entrusted to a manager, managingdirector or managing agent, such manager, managing director ormanaging agent. [Section 2(14)]

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Salary or Wages The Salary or Wage means all remuneration (other than remuneration in

respect of over-time work) capable of being expressed in terms of money,which would, if the terms of employment, express or implied, were

fulfilled, be payable to an employee in respect of his employment or ofwork done in such employment and includes dearness allowance (that is tosay, all cash payments, by whatever name called, paid to an employee onaccount of a rise in the cost of living) but does not include:

any other allowance which the employee is for the time being entitled to;

the value of any house accommodation or of supply of light, water, medical

attendance or any other amenity or of any service or of any concessionalsupply of food grains or other articles;

any traveling concession;

any bonus (including incentive, production and attendance bonus);

any contribution paid or payable by the employer to any pension fund or

provident fund or for the benefit of the employee under any law for thetime being in force;

any retrenchment compensation or any gratuity or other retirementbenefit payable to the employee or any ex-gratia payment made to him;

any commission payable to the employee [Section 2(21)]

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ESTABLISHMENT

The word establishment is not defined in the Act. Normally,establishment is a permanently fixed place for business. The termestablishment is much wider than factory. It covers any office orfixed place where business is carried out.

ESTABLISHMENTS TO INCLUDEDEPARTMENTS, UNDERTAKINGS &

BRANCHES Where an establishment consists of different departments or

undertakings or has branches, whether situated in the same place or indifferent places, all such departments or undertakings or branchesshall be treated as parts of the same establishment for the purpose ofcomputation of bonus under this Act.

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Every employee shallbe entitled to be paidby his employer in anaccounting year,bonus, in accordance

with the provisions ofthis Act, provided hehas worked in theestablishment for notless than thirtyworking days in that

year.

BonusEligibility Disqualificationfor bonus

An employee shall bedisqualified from receivingbonus under this Act :-

(a) fraud; or

(b) riotous or violentbehavior while on thepremises of theestablishment; or(c) theft, misappropriationor sabotage of any propertyof the establishment


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Section 32 of the Act provides that the Act shall not apply to thefollowing classes of employees:

Employees employed by any insurer carrying on generalinsurance business and the employees employed by the Life

Insurance Corporation of India; Seamen as defined in clause (42) of Section 3 of the Merchant

Shipping Act, 1958;

Employees registered or listed under any scheme made underthe Dock Workers (Regulation of Employment) Act, 1948 and

employed by registered or listed employers;

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Act not to apply to certainclasses of employees:


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Employees employed by :

The Indian Red Cross Society or any other institution of alike nature including its branches;

Universities and other educational institutions;

Institutions (including hospitals, chambers of commerce andsocial welfare institutions) established not for the purposeof profit;

Employees employed through contractors on buildingoperations;

Employees employed by the Reserve Bank of India;


The Industrial Finance Corporation of India; Any Financial Corporation established under Section 3, or

any Joint Financial Corporation established under Section3A of the State Financial Corporations Act, 1961;

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The Small Industries Development Bank of India establishedunder Sec 3 of the Small Industries Development Bank of IndiaAct, 1989;

The National Housing Bank;

Any other financial institution (other than Banking Company) beingan establishment in public sector, which the Central Governmentmay by notification specify having regard to (i) its capital structure;

(ii) its objectives and the nature of its activities; (iii) the nature andextent of financial assistance or any other concession given to it bythe Government; and (iv) any other relevant factor.

Apart from the above, the appropriate Government has necessarypowers under Section 36 to exempt any establishment or class of

establishments from all or any of the provisions of the Act for aspecified period having regard to its financial position and otherrelevant circumstances and it is of the opinion that it will not be inthe public interest to apply all or any of the provisions of this Actthereto. It may also impose such conditions while according theexemptions as it may consider fit to impose.

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Computation for Numberof Working Days

An employee shall be deemed to have worked in anestablishment in any accounting year also on the days onwhich, he has been laid off under an agreement or as permitted by

standing orders under the Industrial EmploymentSTANDING ORDERS ACT, 1946 or under the

INDUSTRIAL DISPUTES ACT, 1947 or under

ANY OTHER LAW applicable to the establishment;

he has been on leave with salary or wages; he has been absent due to temporary disablement caused by

accident arising out of and in the course of his employment,&

the employee has been on maternity leave with salary or wages,during the accounting year

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CALCULATION OFBONUS

Calculate the Available Surplus. Available Surplus = Gross Profit

Depreciation admissible u/s 32 ofthe Income tax Act -Development allowance

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The method for calculation ofannual bonus is as follows:


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1. Calculate the gross profit in the manner specified in First Schedule, in case of a banking company, or

Second Schedule, in any other case.2. Calculate the Available Surplus

Available Surplus = Gross Profit Depreciationadmissible u/s 32 of the Income tax Act -

Development allowance - Direct taxes payable for theaccounting year (calculated as per Sec.7) Sumsspecified in the Third Schedule + Direct Taxes(calculated as per Sec. 7) in respect of gross profitsfor the immediately preceding accounting year

Direct Taxes in respect of such gross profits asreduced by the amount of bonus, for the immediatelypreceding accounting year.

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3. Calculate Allocable SurplusAllocable Surplus = 60% of Available Surplus, 67%

in case of foreign companies.

Make adjustment for Set-on and Set-off. Forcalculating the amount of bonus in respect of anaccounting year, allocable surplus is computedafter considering the amount of set on and set offfrom the previous years, as illustrated in FourthSchedule.

The allocable surplus so computed is distributedamongst the employees in proportion to salary orwages received by them during the relevant

accounting year.4. In case of an employee receiving salary or wages

above Rs. 3,500 the bonus payable is to becalculated as if the salary or wages were Rs. 3,500

p.m. only. 17


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Allocable & Available Surplus

Allocable Surplus: in relation to an employer, being a company (other than a

banking company) which has not made the arrangementsprescribed under the Income-tax Act for the declarationand payment within India of the dividends payable out of itsprofits in accordance with the provisions of Section 194 ofthat Act, 67% of the available surplus in an accounting year.

In any other case, 60% of such available surplus [Section2(4)].

Available Surplus: It means the available surplus under Section 5.

{Section 2(6)}.

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Available Surplus (Deductions) Direct taxes payable for the accounting year (calculated

as per Sec.7) Sums specified in the Third Schedule.

Direct Taxes (calculated as per Sec. 7) in respect ofgross profits for the immediately preceding accountingyear.

Allocable Surplus = 60% of Available Surplus,67% in case of foreign companies.

Make adjustment for Set-on and Set-off. Forcalculating the amount of bonus in respect of anaccounting year, allocable surplus is computed afterconsidering the amount of set on and set off from theprevious years

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Set On & Set Off

Where in any accounting year any

amount has been carried forward andset on or set off under this section,then, in calculating bonus for thesucceeding accounting year, the amountof set on or set off carried forward

from the earliest accounting year shallfirst be taken into account.

The allocable surplus so computed isdistributed amongst the employees inproportion to salary or wages receivedby them during the relevant accountingyear.

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Set On & Set Off Provisions

It may happen that in some years, the allocablesurplus is more than the amount paid to employees asbonus calculating it @ 20%. Such excess allocablesurplus is carried forward to next year for calculation

purposes. This is called carry forward for being set onin succeeding years. The ceiling on set on that isrequired to be carried forward is 20% of total salaryand wages of employees employed in theestablishment. In other words, even if actual excess is

more than 20% of salary/wages, only 20% is requiredto be carried forward. The amount set on is carriedforward only upto and inclusive of the fourthaccounting year. If the amount carried forward is notutilized in that period, it lapses [section 15(1)].

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Set On & Set Off Provisions

Similarly, in a particular year, there may be lowerallocable surplus or no allocable surplus even forpayment of 8.33% bonus. Such shortfall is also carried

to next year. This is called carry forward for beingset off in succeeding years. Thus, in every year,allocable surplus is calculated. To this amount, set onfrom previous years is added. Similarly, set off, if any,from previous years is deducted. This gives amount

which is available for distribution as bonus. Theamount set off is carried forward only up to andinclusive of the fourth accounting year. If the amountcarried forward is not set off in that period, it lapses.[section 15(2)]

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Time-limit for payment of bonus

where there is a disputeregarding payment of bonuspending before any authorityunder section 22, within a

month from the date on whichthe award becomesenforceable or the settlementcomes into operation, inrespect of such dispute;

in any other case, within aperiod of eight months fromthe close of the accounting

year:

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Recovery of Bonus Due from anEmployer (Sec-21)

Where any money is due to an employee by way ofbonus from his employer under a settlement or anaward or agreement, the employee himself or any otherperson authorized by him in writing in this behalf, or in

the case of the death of the employee, his assignee orheirs may, without prejudice to any other mode ofrecovery, make an application to the appropriateGovernment or such authority as the appropriateGovernment may specify in this behalf is satisfied thatany money is so due, it shall issue a certificate for thatamount to the Collector who shall proceed to recoverthe same in particular employee.

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RIGHTS OF EMPLOYEES

Right to claim bonus payable underthe Act and to make an applicationto the Government, for the recoveryof bonus due and unpaid, within one

year of its becoming due.

Right to refer any dispute to theLabour Court/Tribunal. Employees, to whom the Payment of

Bonus Act does not apply, cannotraise a dispute regarding bonus

under the Industrial Disputes Act. Right to seek clarification andobtain information, on any item inthe accounts of the establishment

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Disputes under the Bonus Act Where any dispute arises between an

employer and his employees withrespect to the bonus payable underthis Act or with respect to theapplication of this Act to an

establishment in public sector, thensuch dispute shall be deemed to be anindustries dispute within the meaningof the INDUSTRIAL DISPUTESACT, 1947 (14 of 1947), or of anycorresponding law relating toinvestigation and settlement ofindustrial disputes in force in a Stateand the provisions of that Act.

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Maintenance of Register,

Records & Inspectors Every employer shall prepare andmaintain such registers, recordsand other documents in suchform and in such manner as may

prescribed. The appropriate Government

may, by notification on theOfficial Gazette, appoint such

person as it think fit to beInspectors for the purposes ofthis Act and may define thelimits within which they shall

exercise jurisdiction. 27


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Inspectors Duties

An Inspector appointed under sub-section (1) may, forthe purpose of ascertaining whether any of theprovisions of this Act has been complied with

Require an employer to furnish such information as he may

consider necessary;

At any reasonable time and with such assistance, if any, as hethinks fit enter any establishment or any premises connectedtherewith and require any one found in charge thereof to

produce before him for examination any accounts, books,registers and other documents relating to the employment ofpersons or the payment of salary or wage or bonus in theestablishment.

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OFFENCES AND PENALTIES For contravention of the provisions of

the Act or rules the penalty isimprisonment up to 6 months, or fine upto Rs.1000, or both.

For failure to comply with the directionsor requisitions made the penalty isimprisonment up to 6 months, or fine up

to Rs.1000, or both.

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In case of offences by companies, firms, bodycorporate or association of individuals, itsdirector, partner or a principal officer responsible

for the conduct of its business, shall be deemedto be guilty of that offence, unless the personconcerned proves that the offence was committedwithout his knowledge or that he exercised all duediligence


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AMENDMENTs

The Cabinet in its meeting held on October 1, 2007 hasapproved the Amendments to the payment of BonusAct, 1965, which are as follows:-

i) Amendment to Section 2(13): To raise the eligibilitylimit for payment of bonus from the salary or wage ofRs.3500/- to Rs.10,000 per month.

ii) Amendment to section 12: To raise the ceiling forcalculation purpose from the salary or wage of Rs.2500/-

to Rs.3500/- per month, and;iii) Deletion of section 32(vi): To cover the employeesemployed through contractors on building operationsattribution

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payment do f bonusact.ppt

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