The Payment of Bonus Act, 1965

The main object of this Act is to share the prosperity of the establishment with the employees in the form of providing bonus and to maintain harmony between the employer and employee. This Act most commonly deals with profit bonus, however, is silent about the statutory and customary bonus, thus, these bonuses cannot be held inconsistent.

This Act is applicable to the whole of India and shall apply to every establishment which has twenty or more employees employed on any day in the accounting year and to every factory.

[Suggested Read: Afcons Infrastructure Ltd. Vs. Nagpur Metro Rail Corporation Ltd. [Supreme Court of India, 15-09-2016]]

An employee is eligible for the bonus if he has worked for not less than thirty working days in a year in the establishment. However, a suspended employee is also eligible for the bonus if he is reinstated with full back wages as held in Project Manager Ahmedabad Project ONCG V. Sham Kumar Sahegal. Minimum Rate of Bonus Payable is 8.33% and the maximum is 20%.

  • The act imposes a legal duty on employers to pay their employees a bonus. 
  • Further, the act specifies the maximum and minimum limits of bonus and designs formula to calculate the bonus.
  • This act does not include non-profit making organisations, LIC, hospitals or any organization exempted as a sick unit by the authorities. 
  • Only those employees earning a salary not more than Rs. 10,000 are eligible for claiming even in case of loss experienced by the establishment. 
  • If an employee is dismissed from employment on account of fraud, violent behaviour, theft or damage to property, then he is not entitled to the bonus for the accounting year in which he was unemployed and also any pending bonus before. 

[Suggested Read: Objectives of Legal Aid in India]