In the evolving landscape of labour laws in India, the concept of bonus and salient features of related legislation have emerged as critical instruments to promote equity and justice in the employer-employee relationship. The government enacted the Payment of Bonus Act, 1965 to give employees a statutory right to receive a share of their organization’s profits. This law ensures that employers do not monopolize economic prosperity, and instead, it distributes wealth equitably among workers.
This article explores the concept of bonus and salient features of the Act, how it works in practice, who it benefits, and how it aligns with India’s Constitutional ideals of economic justice and dignity of labour.
What is the Concept of Bonus?
The concept of bonus refers to the extra payment made to employees over and above their regular wages or salaries. A bonus is generally paid from the profits earned by the employer during the accounting year. This payment acts as a reward and incentive for the employees’ contribution toward the company’s profitability and productivity.
The Payment of Bonus Act, 1965 makes it a legal obligation for employers to pay bonuses when specific conditions apply. This Act transforms the bonus from a mere gesture of goodwill into a statutory right. Its concept and key features ensure a standardized, fair, and legally enforceable payment to employees.
The Act applies to every factory and every other establishment where 20 or more persons are employed on any day during an accounting year. It is aimed at providing a share in the company’s profits. At the same time, encouraging a productive work environment.
Salient Features of the Payment of Bonus Act, 1965
The salient features of the Payment of Bonus Act are as follows:
1. Coverage
The Act applies to all factories and establishments employing 20 or more persons. Certain provisions may even apply to establishments with fewer employees if notified by the government.
2. Eligibility
An employee drawing a salary or wage not exceeding ₹21,000 per month and who has worked for at least 30 working days in that year is eligible for a bonus.
3. Minimum and Maximum Bonus
The minimum bonus prescribed by the Act is 8.33% of the salary or wage earned during the accounting year or ₹100, whichever is higher. The maximum limit is capped at 20% of the salary or wage.
4. Calculation of Bonus
Employers calculate the bonus based on the employee’s salary or wage, capping it at ₹7,000 per month or the minimum wage fixed for the scheduled employment—whichever is higher.
5. Set-on and Set-off
If the allocable surplus exceeds the maximum bonus payable. The excess is carried forward to be “set-on” in the next years. If there’s a shortfall, the deficit can be “set-off” from future surpluses.
6. Time Limit for Payment
Employers must pay the bonus within 8 months from the close of the accounting year. This ensures timely benefit for employees and compliance from employers.
7. Exemptions
Newly set-up establishments are exempt from the obligation to pay bonuses for the first five years if they do not make profits.
8. Disqualification
Employees can be disqualified from receiving a bonus if they are dismissed for fraud, riotous behaviour, or theft.
These salient features provide a strong legal framework that upholds the concept of bonus as a statutory right and not just a voluntary or arbitrary payment.
Constitutional Backing and Objectives
The Payment of Bonus Act, 1965 aligns with the Directive Principles of State Policy outlined in the Constitution of India, especially Article 38 and Article 43. These articles promote the idea of securing a just social order and ensuring that workers enjoy a living wage with conditions of work that ensure dignity.
The Act aims to bridge the gap between capital and labour by offering workers a rightful share in the profits. The concept of bonus and salient features embedded in the Act are tools for social justice, economic welfare, and fostering industrial harmony.
Practical Implications for Employers and Employees
Employers must maintain proper books of accounts and calculate the allocable surplus according to statutory guidelines. Non-compliance can lead to penalties and legal actions. For employees, the Act serves as a confidence-building mechanism. Ensuring their efforts contribute not just to the success of the company but to their own financial well-being.
The concept of bonus and salient features also motivate workers to be more productive, responsible, and loyal, thus benefiting the organization in return.
Relevance in the Modern Context
Even though the Payment of Bonus Act was enacted in 1965. It has evolved with amendments to remain relevant in today’s corporate and industrial environments. With changes in wage ceilings and definitions, the Act continues to be a critical aspect of labour welfare in India.
As labour codes are being simplified under the Code on Wages, 2019, the concept of bonus may see further rationalization. However, the core objective—to ensure employees receive their fair share in profits—remains firmly intact.
Mnemonic to Remember: “B-O-N-U-S P-A-Y”
To easily remember the salient features and concept of the Bonus Act, think of:
B – Basic eligibility: ₹21,000 salary limit
O – Over 30 days of work required
N – Not less than 8.33% bonus
U – Upper limit capped at 20%
S – Set-on and set-off rules
P – Profit-based sharing
A – Applicable to 20+ employee establishments
Y – Year-end payment within 8 months
