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Payment of Bonus Act, 1965 Amended to increase Minimum Bonus

Payment of Bonus Act, 1965

In India, Payment of bonus is governed by “Payment  of Bonus Act, 1965” as amended from time to time including latest amendment act of 2015 i.e. “Payment of Bonus (Amendment) Act, 2015 (applicable w.e.f.  01.04.2014)” . Key points regarding payment of bonus are given below:

  1. Applicability of Payment of Bonus Act:

Every factory wherein 10 or more persons are employed with the aid of power or An establishment In which 20 or more persons are employed without the aid of power on any day during an accounting year.

  1. Non Applicability of the Act

Act not applicable to certain employees of LIC. General Insurance, Dock Yards, Red Cross, Universities* Educational Institutions, Chambers of Commerce, Social Welfare Institutions. etc. Sec.32.

  1. Employee Eligible for Bonus:

    An employee will be entitled only when he has worked for 30 working days in that year. Sec. 8.As per section 2(13), An Employee means any person (other than an apprentice) employed 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 on a salary or wage not exceeding:

Rs. 21000 (twenty one thousand) w.e.f. 01.04.2014
Rs. 10000(ten thousand) w.e.f. 01.04.2006
Rs. 3500 (three thousand five hundred) w.e.f  01.04.1993
Rs. 2500 (two thousand five hundred) w.e.f  07.11.1985
Rs. 1600 (One thousand six hundred) initially (Since 1965)

Who are entitled to be paid bonus?: Every employee who is drawing a salary or wage upto Rs. 21000.00 per month (w.e.f. 1-4-2014) and who has worked for minimum period of 30 days in a year is entitled to be paid bonus. {Section 2(13) & 8}

  1. Disqualification and Deduction of Bonus :

  1. On dismissal of an employee for fraud; or
  2. riotous or violent behaviour while on the premises of the establishment; or
  3. theft, misappropriation or sabotage of any property of the establishment; or
  4. Misconduct of causing financial loss to the employer to the extent that bonus can be deducted for that year.
  1. Time Limit for Payment of Bonus:

If there is no dispute about payment of bonus, bonus must be paid within a period of 8 month from the close of the accounting year. If there is a dispute about the payment of bonus pending before any authority, bonus must be paid within one month from the date on which the award in respect of such dispute becomes enforceable or the settlement in respect of such dispute comes into operation. In all cases bonus must be paid in cash. {Section 19}

  1. Minimum Bonus:

The employer is bound to pay to his employees every year a minimum bonus of 8.33% of the salary or wage or Rs. 100.00, whichever is higher, whether be has any allocable surplus or not. {Section 10}

  1. Maximum Bonus :

When in any year the allocable surplus exceeds the amount of minimum bonus payable to the employees, the maximum bonus payable by the employer to his employees in that year is 20% of the salary or wage. {Section 11}

  1. Components of Salary:

For the purpose of calculation of bonus a salary or wage includes  basic salary or wage and dearness allowance but does not include other allowances, overtime salary or wage, house rent allowance, traveling concessions, bonus, employer’s contribution to provident fund, retrenchment compensation, gratuity or commission etc. {Section 2(21)}

Is an employee entitled to get bonus on the basis of his entire salary or wage?:

Before amendment (upto 31-03-2014):-

  • If an employee is drawing a salary or wage not exceeding 3500.00 per month, bonus will be calculated on entire salary being less than 3500/-.
  • If an employee is getting a salary or wage exceeding 3500.00 per month, but not exceeding 10000.00 per month, the bonus payable to him is to be calculated on Rs. 3500.00 per month.
  • An employee getting a salary or wage exceeding Rs. 10000.00 per month is not entitled to get bonus. {Section 12}

After amendment (w.e.f 01-04-2014)

  • If an employee is getting a salary or wage not exceeding Rs. 21000, the bonus payable is to be calculated on Rs. 7000/- Or the minimum wage for scheduled employment, as fixed by the appropriate Government, whichever is higher.
  • An employee getting a salary or wage exceeding 21000/- is not entitled to get bonus. {Section 12}

For Example

Mr. A working in a factory on which payment of bonus act applies and he worked for full year of 2014-15  and drawing monthly salary including DA of Rs.:

  1. 6000/- p.m
  2. 12000/- p.m
  3. 25000/- p.m.

Calculate bonus payable to Mr. A for the financial year 2014-15 considering that allocable surplus is less than minimum bonus.


Amended provision will apply to this case being case of FY 2014-15, His bonus under each of above situation is as follows:

First case

            Total Salary for the year is 6000X12=Rs. 72000/-

            Bonus payable on Rs. 7000X12=84000. Bonus payable is 84000*8.33% i.e. 7000/-

            (equal to one month salary as 12X8.33%=1month)

Second Case

            Total salary for the year is Rs. 12000X12= 144000/-

           Salary is more than Rs. 7000/- per month hence salary for bonus will be taken as higher i.e.Rs. 12000/- per month

                        Bonus payable is Rs. 144000X8.33%= 12000/-

In third situation, Employee is drawing salary more than 21000/- per month Hence employee is not covered for bonus under payment of bonus act 1965.

  1. Available Surplus and Allocable Surplus:

Bonus payable under the Act is linked with profits. The employer has to calculate “gross profits” of his establishment in the manner specified in section 4. Then from “gross profits” so calculated he has to deduct the sums referred to in section 6 as prior charges. The balance is called “available surplus”. A percentage of the available surplus calculated in accordance with the provisions of sub-section (4) of section 2 is called “allocable surplus”. Where, in respect of any year the allocable surplus exceeds the amount of minimum bonus payable to the employees, the employer must pay to every employee in respect of that year bonus in proportion to the salary or wage earned by the employee during the year subject to a maximum of twenty percent of such salary or wage. {Subsection 2(4), 4 , 5, 6 & 11}

  1. Dispute for Bonus:

A dispute about bonus payable under the Act will have to be raised by the employees concerned in accordance with the provisions of the Industrial Disputes Act, 1947, or any corresponding State law, as is applicable to them, as such a dispute is deemed to be an industrial dispute within the meaning of such laws. {Subsection 22 & 39}

  1. Punishment under Act:

If any person contravenes any provision of the Act or any rule made thereunder; or fails to comply with any direction given to him; he would be punished with imprisonment upto 6 months, or with fine upto Rs. 1000.00 or with both. {Section 28}

CA Ashok Kumar

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