Payment Of Bonus Act 1965

Presented By: Saloni Dube

History
The practice of paying bonus in India appears to have originated during First World War when certain textile mills granted 10% of wages as war bonus to their workers in 1917. In certain cases of industrial disputes demand for payment of bonus was also included. In 1950, the Full Bench of the Labor Appellate evolved a formula for determination of bonus. A plea was made to raise that formula in 1959 Later a Tripartite Commission was set up by the Government of India to consider the payment of bonus based on profits to employees employed in establishments and to make recommendations to the Government. The Government of India accepted the recommendations of the Commission subject to certain modifications. To implement these recomm. the Payment of Bonus Ordinance, 1965 was promulgated on 29th May, 1965.

Meaning Of Bonus
An allowance in addition to what is usual, current or stipulated; a sum given or paid beyond what is legally inquired to be paid to the recipient; something which is given in addition to what is ordinarily received by or strictly due to the recipient

Object of the Act

Peace and Harmony In Hutti Gold Mines Kamgar Sangh Vs. Government Of India, (1973) 1 L.L.J .46. (A.P.) it was observed that the object of the Payment of Bonus Act , 1965 is to maintain peace and harmony between labour and capital by allowing employees, in the recognition of their rights, to share in the prosperity of the establishment reflected by the contributions made by the capital, management and labour.

 Social justice In Associated Cement Cos Ltd. Vs their Workmen, A.I.R. (1956) S C 967 the Supreme Court observed that The theory of social justice on which the workmans right to bonus is founded has a dual basis, namely, the contribution which the workmen have made to the earnings of profits by the industry, and the need to fill up the gap between the living and the actual wages paid

The scheme of the act, broadly stated is four dimensional i.e. To impose statutory liability upon an employer of every establishment covered by the Act to pay bonus to employees in every establishment; To define principle of payment of bonus according to the prescribed formula; To provide for the payment of minimum and maximum bonus and linking the bonus with the scheme of set-off and set-on and To provide machinery for enforcement of the liability for payment of bonus. Jalan Trading Co v Mills Mazadoor Union, A.I.R (1967) S.C. 961

 An employee of an establishment to which the Act does not apply cannot claim bonus as of right Chemical Enterprises( Pvt.) Ltd v Krishnan, ( 1979) Lab. I.C. NOC 191. Liability for bonus is statutory liability and not a contingent liability.

Applicability Of the Act (Sec 1)

The act extends to the whole of India [Sec 1 (2)] It applies to: a) Every factory as defined in the section 2 (m) of the Factories Act , 1948 b) Every other establishment in which 20 or more persons are employed on any day during any accounting year [ Sec 1 (3)]

 A proviso introduced in Section 1 (3) by the Amendment Act 1976 now empowers the appropriate Government to make the provisions of the Payment of Bonus Act, 1965 applicable to any establishment employing less than 20 but not less than 10 persons. An establishment to which the Act applies shall continue to be governed by the Act even if the number of persons employed therein falls below 20 or the number specified in the notification issued under Proviso to Section 1 (3) [ Section 1 (5)]

Definitions
Accounting year" means, i) The year ending on the day on which the books and accounts of the corporation are to be closed and balanced; ii) In relation to a company, the period in respect of which any profit and loss account of the company laid before it in annual general meeting is made up, whether that period is a year or not, (iii) in any other case,(a) the year commencing on the lst day of April; or (b) if the accounts of an establishment maintained by the employer thereof are closed and balanced on any day other than the 31st day of March, then, at the option of the employer, the year ending on the day on which its accounts are so closed and balanced

 Available surplus It is the profit that can be distributed to the workers Out of Available surplus, we will find allocable surplus. While calculating available surplus, we have to allow expenditure, depreciation etc. As per Income tax rules.

 Allocable surplus means, (a) in relation to an employer, being a company (other than a banking company) which has not made the arrangements prescribed under the Income Tax Act for the declaration and payment within India of the dividends payable out of its profits in accordance with the provisions of section 194 of that Act, sixty-seven per cent of the available surplus in an accounting year; (b) in any other case, sixty per cent of such available surplus;

 Set on Where for any accounting year, the allocable surplus exceeds the amount of maximum bonus payable to the employees in the establishment under section 11, then, the excess shall, subject to a limit of twenty per cent of the total salary or wages of the employees employed in the establishment in that accounting year, be carried forward for being set on in the succeeding accounting year and so on up to and inclusive of the fourth accounting year to be utilized for the purpose of payment of bonus.

 Set off Where for any accounting year, there is no available surplus or the allocable surplus in respect of that year falls short of the amount of minimum bonus payable to the employees in the establishment under section 10, and there is no amount or sufficient amount carried forward and set on which could be utilized for the purpose of payment of the minimum bonus, then such minimum amount or the deficiency, as the case may be, shall be carried forward for being set off in the succeeding accounting year and so on up to and inclusive of the fourth accounting year

 Employer" includes (i) In relation to an establishment which is factory, the owner or occupier of the factory, including the agent of such owner or occupier, the legal representative of a deceased owner or occupier and where a person has been named as a manager of the factory (ii) In relation to any other establishment, the person who, or the authority which, has the ultimate control over the affairs of the establishment and where the said affairs are entrusted to a manager, managing director or managing agent, such manager, managing director or managing agent ;

Establishments to include departments, undertakings and branches( Sec 3)

Where an establishment consists of different departments or undertakings or has branches, whether situated in the same place or in different places, all such departments or undertakings or branches shall be treated as parts of the same establishment for the purpose of computation of bonus

 Provided that where for any accounting year a separate balance-sheet and profit and loss account are prepared and maintained in respect of any such department or undertaking or branch, then, such department or undertaking or breach shall be treated as separate establishment for the purpose of computation of bonus under this Act for that year

Section 6- Sum deductible from gross profit

The following sums shall be deducted from the gross profits as prior charges, namely: (a) Any amount by way of depreciation admissible in accordance with the provisions of sub-section (1) of Section 32 of the Income-tax Act. (b) Any amount by way of development rebate or investment allowance or development allowance which the employer is entitled to deduction from his income under the Income-tax Act; (c) Subject to the provisions of Section 7, any direct tax which the employer is liable to pay for the accounting year in respect of his income, profits and gains during the year ; (d) Such further sums as are specified in respect of the employer in the Third Schedule.

Section 16- Special provisions with respect to certain establishments

Where an establishment is newly set up, whether before or after the commencement of this Act, the employees of such establishment shall be entitled to be paid bonus under this Act in accordance with the provisions of subsection (1-A), (1-B) and (1-C).

(1-A) In the first five accounting years following the accounting year in which the employee sells the goods produced or manufactured by him or renders services, as the case may be, from such establishment, bonus shall be payable only in respect of the accounting year in which the employer derives profit from such establishment .
(1-B) For the sixth and seventh accounting years following the accounting year in which the employer sells the goods produced or manufactured by him or renders services, as the case may be, from such establishment, the provisions of Sec.15 shall apply (1-C) From the eighth accounting year following the accounting year in which the employer sells the goods produced or manufactured by him or renders services, as the case may be, from such establishment, the provisions of Sec.15 shall apply.

Bonus Eligibility ( Sec 8)

Every employee shall be entitled to be paid by his employer in an accounting year, bonus, in accordance with the provisions of this Act, provided he has worked in the establishment for not less than thirty working days in that year. J.K. Ginning & Pressing Factory v.Labour Court 1991 (1) LLN 281 Where the seasonal workers have worked for not less than 30 days, they would be entitled to bonus.

Time limit for payment of bonus ( Sec 19)

(a) Where there is a dispute regarding payment of bonus pending before any authority under Sec.22, within a month from the date on which the award becomes enforceable or the settlement comes into operation, in respect of such dispute; (b) In any other case, within a period of eight months from the close of the accounting year

 Provided that the appropriate Government or such authority as the appropriate Government may specify in this behalf may, upon an application made to it by the employer and for sufficient reasons, by order, extend the said period of eight months to such further period or periods as it thinks fit; so, however, that the total period so extended shall not in any case exceed two years.

Classes of employees to whom the act is not applicable( Sec 32)

(i) Employees employed by any insurer carrying on general insurance business and the employees employed by the Life Insurance Corporation of India; (ii) Seamen (iii) Employees registered or listed under any scheme made under the Dock Workers (iv) Employees employed by an establishment engaged in any industry carried on by or under the authority of any department of the Central Government or a State Government or a Local authority;

(v)Employees employed by -(a) the Indian Red Cross Society or any other institution of a like nature (including its branches); (b) universities and other educational institutions; (c) institutions (including hospitals, chambers of commerce and social welfare institutions), established not for purposes of profit; (vi) Employees employed through contractor on building operations;

( vii) Employees employed by the Reserve Bank of India; (viii) Employees employed by - the Industrial Finance Corporation of India; any Financial Corporation established under section 3, or any Joint Financial Corporation established under section 3A, of the State Financial Corporations Act, 1951 (63 of 1951); the Deposit Insurance Corporation; the National Bank for Agriculture and Rural Development;] the Unit Trust of India; the Industrial Development Bank of India;

Distinction between an employee in sec. 2(13) under the Act and Workman in Sec. 2 (s) of ID Act
"Workman" is any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied and for the purposes of any proceedings under this act in relation to an industrial dispute, includes any such person who has been dismissed, discharged or retrenched in connection with, or as a consequence of, that dispute, or whose dismissal, discharge or retrenchment has led to that dispute, but does not include any such person-

(i)

who is subject to the Air Force Act, 1950 (45 of 1950) or the Army Act 1950 (46 of 1950) or the Navy Act 1957 (62 of 1957) or, (ii) who is employed in the police service or as an officer or other employee of a prison, or, (iii) who is employed mainly in managerial or administrative capacity, or (iv) who, being employed in a supervisory capacity ,draws wages exceeding Rs. 1600/- per mensem or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature.

"Employee Sec 2 (13) means Any person ( other than an apprentice) employed on a salary or wage not exceeding 10000 in any industry to do any skilled or unskilled, manual, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of employment be express or implied.

Case I
Anand Bazar Patrika v The Workmen Principle work was maintaining and writing the case book . Being the senior most clerk he was put in charge of the PF section and was given a small amount of control over the other clerks in that section. The only power he had was to allocate work to them. According to the Court these were minor supervisory duties.

Case II
IS TEACHER A WORKMAN?? A. Sundarambal v. Govt, of Goa, Daman and Diu Court said Imparting of education cannot be considered as skilled or unskilled manual , supervisory or technical work. Imparting education is in the nature of mission or a noble vocation

Thank you