The Payment of Bonus Act of 1965 imposes a contractual obligation on employers
to pay bonuses to employees in proportion to the resources available for the
establishment's smooth functioning. The Act's purpose was to give workers a say
in the company's profits and to enable them to earn slightly more than the
minimum wage based on their performance.
History Of Payment Of Bonus Act, 1965
The tradition of paying bonuses in India seems to have started during World War
I, when some textile mills gave their employees a 10% wage increase as a war
bonus in 1917. In certain cases of labour disputes, the claim for bonus payment
was also included. The Full Bench of the Labour Appellate Tribunal established a
bonus calculation formula in 1950. In 1959, a demand was made to change the
It was decided at the second and third meetings of the eighteenth
Session of the Standing Labour Committee (G.O.I) in New Delhi in March/April
1960 to appoint a Commission to look into the issue of bonuses and develop
appropriate norms. The Government of India established a Tripartite Commission
to examine the issue of bonus payments based on earnings to employees working in
establishments in a detailed manner and make recommendations to the Government.
The Commission's recommendations were adopted by the Indian government with some
modifications. The Payment of Bonus Act of 1965 was enacted to carry out these
recommendations, and it went into effect on September 25, 1965.
Scope And Coverage Of The Payment Of Bonus Act, 1965
The Bonus Payment Act covers the entire India. It covers any establishment with
twenty or more employees on any given day during the accounting year, as well as
any factory as specified by the factories act of 1948. “Employee
” is defined in
Section 2 (13) of the Act as any person (other than an apprentice) employed on a
salary or wage of not more than twenty one thousand rupees per mensem in any
industry to perform any skilled or unskilled manual, supervisory, managerial,
administrative, scientific, or clerical work for hire or compensation,
regardless of whether the terms of employment are express or implied.
does not apply to the following classes of employees:
Objective Behind The Act
- Employees employed in:
- Life Insurance Corporation of India
- Industry carried on or under the authority of any department of Central
Government or a State Government or a Local Authority.
- Indian Red Cross Society or any other institution of like nature
including its branches;
- Universities and other educational institutions;
- Hospital, Chambers of Commerce and Social Welfare Institutions
established not for purposes of profits;
- employed through contractors on building operations;
- Reserve Bank of India;
- Industrial Finance Corporation of India, Deposit Insurance Corporation
and other financial corporations being set up financially assisted by the
Government, and Unit Trust of India, Agricultural Refinance Corporation, and
Industrial Bank of India,
- Seamen as defined in Sec. 3(42) of the Merchant Shipping Act, 1958;
- Inland Water Transport establishment. (Section 32).
The objective of the Payment of Bonus Act, 1965 is to provide for the payment of
bonus to the persons employed in certain establishments on the basis of profits
or production. The object of the Payment of Bonus Act was very clearly described
in Jalan Trading v Mill Mazdoor Sabha
1, the Supreme Court observed that the
purpose of the Bonus Act was to maintain peace and harmony between labour and
capital by allowing workers to share the prosperity of the establishment and
prescribing the maximum and minimum rates of bonus, as well as the scheme of
" and set - on to not only secure the labour's right in the share of
profits but also to ensure a reasonable degree of uniformity.
Constitutionality Of The Act
The constitutional validity of the act was challenged in the Supreme Court in
the case of Jalan Trading Company Ltd. v. Mill Mazdoor Sabha2, on the grounds of
violation of Articles 14 and 19 of the Constitution. The Supreme Court ruled
that the main provision of the Act which required the payment of a minimum bonus
was constitutional. The payment of a bonus is fair since it complies with
Articles 39 and 43 of the Constitution.
“Bonus” As Under The Act
The word "bonus" is not specified anywhere in the bonus payment act. A bonus is
a monetary reward that is above and beyond the standard payment. According to
the Cambridge dictionary, a bonus is an additional sum of money offered to you
as a gift or incentive for good performance. The primary goal of providing
bonuses is to distribute the company's profits to its workers and employees.
bonus commission in its report suggested "It is difficult to define in rigid
terms the concept of bonus, but it is possible to urge that once the profits
exceed a certain base, labour should legitimately have a share in them. In other
words, we think it to construe the concept of bonus as sharing by the workers in
the prosperity of the concern in which they are employed.
This has also the
advantage that in the case of low paid workers sharing in prosperity augments
their earnings to bridge the gap between the actual wage and the need-based
wage. If it is not feasible to better the standard of living of all the
industrial and agricultural workers as aimed at in Article 43 of the
Constitution it is nothing wrong in endeavoring to do so in respect of those
workers whose efforts have contributed to the profits of the concern in which
they have worked.
The validity of such a conception of bonus is not affected by
the difficulty of determining or qualifying precisely the living wage or even
the “need-based:” wage at any given time and place. It appears tows that a
properly conceived bonus system that is linked to profit also imparts a measure
of desirable flexibility to wage structure. The workers are enabled to share in
the prosperity of the concern without disturbing the underlying- basic wage
Eligibility For Bonus Under The Act
The payment of bonus is a statutory right under the act and According to the
Section 8 of the act, any employer who has worked for a minimum of 30 days in an
accounting year, shall be eligible for a bonus.
In East Asiatic Co. Ltd. Vs Industrial Tribunal
3, it was held that a retrenched
employee is eligible for bonus if they worked for a min of 30 days and have a
salary of 10,000 pm in a year.
In the case of J. K. Ginning & Pressing Factory v. Second Labour Court, Akola &
4, a factory employed ten seasonal employees, and the issue of their bonus
eligibility arose. The Bombay High Court ruled that the Act does not exclude
such seasonal workers from employment; the only criterion for eligibility is
that they meet the Section 8 requirements. As a result, even seasonal employees
were deemed to be entitled to bonus payments under the Act.
Disqualification From Bonus Under The Act
According to the sec 9 of the act an employee shall be disqualified from
receiving bonus under the Payment of Bonus Act, 1965, if he is dismissed from
- Fraud, or
- Riotous or violent behavior while on the premises of the establishment,
- Theft, misappropriation or sabotage of any property of the establishment
This provision is based on the recommendation of Bonus Commission, which stated
After all, bonus can only be shared by those workers who promote the
stability and well-being of the industry, not by those who positively exhibit
disruptive tendencies. Bonuses, without a doubt, impose a duty of good behaviour.
The appellant, a bus conductor working for a government of Tamil Nadu
undertaking, was dismissed from service in Pandian Roadways Corporation Ltd. vs.
5. Following that, the petitioner and management reached an
agreement, and the petitioner as appointed as a new entrant. Following that, the
petitioner claimed an bonus of rs 1,842 for the duration after his
re-appointment. the court ruled in the case that " If an employee is dismissed
from service, he is disqualified from receiving any bonus under the said Act,
not just the bonus for the accounting year," the court ruled.
In Gammon India Ltd Vs Niranjan Das
6, the court held that an employee who is
dismissed from service for fraud, riotous or aggressive behaviour on the
premises of the company, or who is guilty of theft, misappropriation, or
sabotage of any establishment's property is disqualified from receiving bonus
for the accounting year under section 9 of the Payment of Bonus Act, 1965. A
dismissed employee who has been reinstated with back pay has evidently not
committed the above crimes and has not been fired. As a result, he is entitled
to a bonus.
Rights Of Employer And Employee
The Said act defines the rights available to the employees as defined below:
The rights available to the Employer against any exploitation or the protection
of their business are given as below:
- Right to claim bonus due under the Act, which allows them to make a
request to the government for payment and recovery of bonus amounts that are
not paid to them within one year of their due date
- The right to take any dispute to a Labour Court or Tribunal; however, it is
necessary to remember that employees who are not entitled to bonuses are unable
to take their case to a Labour Court or Tribunal.
- Right to seek clarity to obtain details about whatever products are in
the name of the business so that they can determine whether or not they are
being fairly compensated for their services.
- Rights to bring any dispute to the Labour Court or the Tribunal over a
request for an interpretation of any clause of the Act.
- Right to deduct a fair amount from an employee's bonus on account of a
bonus already paid as a festival bonus or in the event of a monetary loss
caused by the employee's misbehaviour.
- Right to deduct the value of a bonus paid to an employee who has been
fired for misbehaviour, offensive behaviour, or obstructing the establishment's land.
Payment Of Minimum Bonus
Section 10 of the Act states that, regardless of whether the employer has some
allocable surplus in the accounting year, each employer must pay each employee a
minimum bonus equivalent to 8.33 percent of the employee's salary or wage earned
during the accounting year, or one hundred rupees, whichever is greater.
However, if an employee is under the age of fifteen at the start of the
accounting year, the terms of this Section refer to that employee as if the
words "one hundred rupees" were replaced with "sixty rupees." Section 10 of the
Act does not contradict Articles 19 and 301 of the Constitution. Even if the
employer loses money during the fiscal year, he must pay the minimum bonus as
according to section 10 of the act.
In J.K. Chemicals Ltd. vs. Govt. of Maharashtra
7 the court held that the company
would not be relieved from its liability to pay minimum bonus, if the bonus
liability is negligible in comparison to the loss incurred. If the employer's
damages were not caused by employee wrongdoing, the employer must pay the
statutory minimum bonus.
Payment Of Maximum Bonus
If the allocable surplus for any accounting year referred to in Section 10
exceeds the amount of the minimum bonus available to workers under that Section,
the employer is allowed to pay a bonus equal to each employee's salary or wage
received during that accounting year. In determining the allocable surplus under
this Section, the amount set on or set off under the provisions of Section 15
must be taken into account in accordance with those provisions.
Provisions Related To Bonus Under The Code On Wages, 2019
The chapter relating to bonus payments under the code on wages applies only to
establishments employing at least 20 workers on any day during the accounting
year, similar to the provisions of the Payment of Bonus Act, 1965.
bonus would be paid to all workers whose salaries do not exceed a certain
monthly sum (to be determined by the federal or state governments). Bonuses are
paid on the higher of the minimum wage or the wage limit set by the relevant
government. Along the lines of the Payment of Bonus Act, the Code on wages lists
disqualifications for receiving bonuses. It should be noted, however, that the
Code also states that removal from service due to a conviction for sexual
assault would be provided a ground for disqualification of bonus under the
The Payment of Bonus Act of 1965 aims to legalise the practise of various
establishments paying bonuses. It provides a mechanism for calculating bonus
based on profit and performance. It allows workers to make more money than the
minimum wage or salary. This Act establishes various procedures for different
types of businesses, such as banks and government agencies, as well as
businesses that are not corporations or firms. This Act also establishes a
rigorous redress process in addition to the procedure.
- Jalan Trading v Mill Mazdoor Sabha  AIR 691
- East Asiatic Co. Ltd. Vs Industrial Tribunal  ILLJ 720 Cal
- J. K. Ginning & Pressing Factory v. Second Labour Court, Akola & Others
 62 FLR 207 (Bom)
- Pandian Roadways Corporation Ltd. vs. Presiding Officer  2 CLR
- Gammon India Ltd Vs Niranjan Das 1984 (1) S.C.C. 509
- State v. Sardar Singh Majithia  Lab. I.C.
- J.K. Chemicals Ltd. vs. Govt. of Maharashtra 1996 (1) BomCR 197
- Payment of Bonus Act Applicability, Eligibility, Disqualification,
Payment of Minimum and Maximum Bonus < https://www.expertmile.com/articles/1066/Payment-of-Bonus-Act--Applicability,-Eligibility,-Disqualification,-Payment-of-Minimum-and-Maximum-Bonus
> accessed on 20th May, 2021.
- Explain the eligibility and disqualification for receiving bonus under
the payment of bonus act 1965.< https://www.owlgen.in/explain-the-eligibility-and-disqualification-for-receiving-bonus-under-the-payment-of-bonus-act-1965/
> accessed on 20th May, 2021