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What is the time limit to pay bonus?

8 months Time limit for Payment of Bonus (Section 19) The bonus shall be paid within a period of 8 months from the close of accounting year.

taxguru.in - Payment of Bonus Act, 1965 – A student approach - TaxGuru

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THE PAYMENT OF BONUS ACT, 1965

Objects and Scope

The main object of the Payment of Bonus Act, 1965 is to maintain peace and harmony between labour and capital by allowing the employees to share the prosperity of the establishment, prescribing the minimum and maximum rates of Bonus together with the scheme of ‘Set on’ and ‘Set off’. This Act secures the right of labour to share in the profits of the establishment.

Application of the Act (Section 1)

1. The Act applies to whole of India.

2. The Act applies to:

(a) Every factory;

(b) Every other establishment in which 20 or more persons are employed on any day during the accounting year. However, the Government may, by notification in the official gazette (OG), apply the provisions of the Act to any establishment employing more than 10 persons but less than 20, after giving 2 months notice to the employer. 3. An establishment to which the Act applies during the accounting year shall continue to be governed by the Act notwithstanding that the number of persons employed fall below 20/10, as the case may be. The Payment of Bonus Act not to apply to certain classes and employees (Section 32): The Act shall not apply to the following classes of employees.

(i) Employees employed in LIC.

(ii) Seamen defined in the Merchant Shipping Act.

(iii) Employees registered under the Dockworkers [Regulation of employment] Act, 1948.

(iv) Employees employed by an establishment under the authority of Central Government/ State Government or Local Authority. (v) Employees employed by Indian Red Cross society, Universities, Educational institutions, Hospitals, Chamber of Commerce and Social Welfare Institutions.

(vi) Employees employed by RBI.

(vii) Employees employed by IFCI, UTI, IDBI, SFC etc.

(viii) Employee employed by Inland Water Transport establishment.

Case law: Haryana Housing Board cannot be treated to be a local authority within the meaning of Section 32 (iv) of the Act; Housing Board of Haryana v. Haryana Housing Board Employees’ Union, AIR 1996 SC 434.

Accounting Year (Section 2(1): Accounting Year means:

(a) In relation to a Corporation, the year ending on the day on which the books of accounts are closed and balanced. (b) In relation to a Company, the period for which the profit and loss accounts are laid before AGM, whether its year or not. (c) In other cases, the year commencing on 1st April, or year ending on the day the accounts are closed by the employer, if other than 31 March, at the option of the employer. However, once the option is exercised, the accounting year shall not be changed by the employer except with the previous approval of the prescribed authority. Appropriate Government – Section 2(5): In relation to an establishment in respect of which the Appropriate Government under the Industrial Disputes Act, 1947, is the Central Government; in other cases its State Government. Allocable Surplus: Means 67 % of the available surplus in an accounting year, in relation to an employer, being a Company, other than a banking company. In any other case, the allocable surplus means 60% of such available surplus. Employee – Section 2(13): Employee means any person, other than apprentice, employed on salary/wages not exceeding Rs. 21,000 per month in any industry to do any skilled, unskilled, manual, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of employment is expressed or implied. As per the Payment of Bonus (Amendment) Act, 2015, the eligibility limit for payment of bonus has been enhanced from Rs. 10, 000 to Rs. 21,000 per mensem. Employer – Section 2(14): (same as in the EPF and MP Act, 1952) (i) In relation to an establishment, which is a 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 manager of the factory under the Factories Act, 1948 the person so named; and (ii) In relation to any other establishment, the person who, or the authority which, has ultimate control over the affairs of the establishment, and where the said affairs are entrusted to a manager or managing director, such manager or managing director.

Salary/ Wages

Salary/ wages means all remuneration capable of being expressed in terms of money and payable to the employees in respect of his work done in his employment as per the terms of employment, whether expressed or implied and includes dearness allowance but does not include overtime, any other allowance, value of house accommodation, confessional supply of food grains or any other amenity, leave travel concession, bonus, employer contribution to P.F. or commission. Where an employee is given free food allowance or free food by his employer, in lieu of the whole or part of the salary, such food allowance or value of food will be deemed to form part of the salary or wages.

Establishment includes Departments, Undertaking and Branches (Section 3)

The word Establishment shall include all its departments, undertakings and branches, wherever situated and the same will be treated as a part of the same establishment for the purpose of computation of bonus under this Act. However, where for any accounting year, 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, undertaking or branch shall be treated as a separate establishment for the purpose of computation of bonus under the Act.

Q1. T Limited Carried on three business ventures viz., manufacturing sugar, cement and heavy engineering machinery, locating them in three different places in North India. They employed workmen on different terms in the different units. One of these units was financially feeling ill. The workers of this unit demanded bonus on the basis of treating these three units as one composite establishment. Can the workmen succeed in getting bonus?

ANS.: The payment of bonus act provides that, where an establishment consists of different departments or has branches, all such departments or branches shall be treated as part of the same establishment. Therefore, the workmen succeed in getting bonus. Eligibility for Bonus (Section 8): Every employee shall be entitled to bonus in an accounting year, provided he has worked in the establishment for not less than 30 days in an accounting year.

Q2. A person has worked only for 35 days in an accounting year. Is he eligible or entitled to be paid bonus by his employer for that year?

ANS.: The employee in the given case has not worked for all working days in an accounting year. Section13 provides for proportionate reduction of bonus in such cases. The employees shall hence be entitled to bonus for 35 working days only as a ratio of the bonus payable for the total working days.

Q3. S joins as a worker with Dhampur Sugar Factory on 2nd February, 2017. Will he be eligible for Bonus for the financial year 2016-17?

ANS.: Section 8 of the Payment of Bonus Act provides that an employee is entitled to bonus if he has worked in the establishment for not less than 30 days. Since S has worked for more than 30 days in the accounting year, he would be eligible for Bonus for 2016-17. Q4. ‘Evelyn’ joined as supervisor on monthly salary of Rs. 3,400 on 1.02.2017 and resigned from his job on 28.02.2017. The company declared a bonus of 20% to all eligible employees and paid it on time. Mr. ‘Evelyn’ knowing the facts made a claim to HRD, which in turn rejected the claim. Examine the validity in the light of the provisions of the Payment of Bonus Act, 1965.

Answer

As per proviso of Section 2(13) of the Payment of Bonus Act, 1965 an employee means only person on a salary or wage not exceeding Rs.10,000 per month. Further, Section 8 provides that an employee to be entitled for bonus in the accounting year should have worked in the establishment for not less than 30 working days in that year. As per the Payment of Bonus (Amendment) Act, 2015, the eligibility limit for payment of bonus has been enhanced from Rs. 10, 000 to Rs. 21,000 per mensem. Thus, in view of the above Mr. ‘Evelyn’ is not entitled for Bonus, as he has not worked for 30 days in the accounting year.

Classes of employees eligible to Bonus:

(i) A temporary workman on the basis of total number of days worked by him. (ii) An employee of a seasonal factory is entitled to proportionate bonus and not the minimum bonus. (iii) A part time employee as a sweeper engaged on a regular basis is entitled to bonus.

(iv) A retrenched employee, if he has worked for minimum qualifying period.

(v) A probationer is an employee and as such is entitled to bonus.

(vi) A dismissed employee reinstated with back wages.

(vii) A piece-rated worker.

Q5. State with reasons whether the following persons are entitled to receive bonus under the Payment of Bonus Act, 1965:

(i) An apprentice under the Apprentice Act.

(ii) A probationer

(iii) An employee employed through contractors on building operations

(iv) A retrenched employee

(v) A dismissed employee reinstated with back wages.

Answer: Entitlement to Bonus

(i) Apprentice: An Apprentice who is an apprentice under the Apprentice Act is not entitled to bonus, as apprentice is specifically excluded from ‘Employee’ u/s 2 (13) (ii) Probationer: A probationer is an employee and as such is entitled to bonus provided he has worked in the establishment for not less than 30 working days in the accounting year (Section 8) Confirmation of the employee is not a necessary requirement (iii) An employee employed through contractors on building operations is entitled to bonus. (iv) Retrenched Employee: He is eligible to get bonus provided he has worked for minimum qualifying period (East Asiatic Co. (P) Ltd. Vs Industrial Tribunal) (v) Employee includes a person who is no longer in service (Explanation u/s 21). A dismissed employee reinstated with back wages is entitled to bonus (Commom India Ltd Vs Neeranjan Das).

Disqualifications for Bonus

An employee shall be disqualified from receiving bonus under the Act, if he is dismissed from service for:

(a) Fraud or

(b) Riotous or violent behavior while in employment or

(c) Theft, misappropriation or sabotage of any property of the establishment.

Thus, bonus certainly carries with it the obligation of good behaviour.

Q6. Radhey, an employee of Airtel Limited destroyed some electronic machines in the company premises. He was found guilty and punished under the Industrial Disputes Act, 1947. The Company loose huge amount due to break down of the machines. When the company paid bonus in that year to its employees it deducted the amount from the bonus payable to Radhey and he did not get any bonus in that year. Did the company violate any provisions of the Payment of Bonus Act, 1965 in not paying bonus to Radhey?

ANS.: As per Section 18 of the Payment of Bonus Act, 1965, the Company can deduct the amount of loss from the bonus payable to Radhey and it did not violate the provisions of the Act.

Calculation of Gross Profit/available surplus/allocable surplus

Net Profit as per P&L account XXX Schedule II Adjustments Add: a) Bonus to employees for the current year or previous year XXX b) Provision for depreciation XXX c) Provision for taxation XXX d) Development rebate Reserve Investment Allowance Reserve XXX e) Excess of gratuity being the difference provision of gratuity and actual gratuity paid XXX f) Donations in excess of amount admissible under Income Tax Act XXX g) Difference between annuity provided and paid XXX h) Capital expenditure, other than capital exp. on scientific research XXX i) Losses in respect of business situated outside India XXX XXX Less: a) Capital receipts & Capital profits XXX b) Profits & receipts relating to business situated outside India XXX c) Refund of excess income tax paid XXX d) Cash subsidy, if any, given by Government XXX XXX Gross Profit for the purpose of bonus XXX Less Sec. 6 deductions a) Depreciation admissible under Income Tax Act XXX b) Amount of Income Tax payable as per Income Tax Act XXX c) Amount of development rebate reserve or Investment allowance reserve allowed under IT Act. XXX XXX Less Schedule-III Deductions a) In case of a company (i) Preference dividend payable on preference share capital XXX (ii) 8.5% on paid-up equity share capital XXX (iii) 6% of the reserves XXX XXX b) In case of a corporation (i) 8.5% on the capital invested XXX (ii) 6% of the reserves XXX XXX c) In case of others (Sole proprietor ship/partnership) (i) 8.5% of the capital invested XXX (ii) 48,000 per year per partner towards salary or 25% of Gross profit whichever is less XXX XXX Available surplus XXX After calculating available surplus (a) 67% of available surplus in case of a company which has not declared any dividend or (b) 60% of available surplus in any other case, is called as allocable surplus.

Minimum Bonus (Section 10)

1. Where in respect any accounting year, there is no allocable surplus or inadequate allocable surplus, the employer shall be bound to pay every employee, in respect of each accounting year, a minimum bonus which shall be 8.33% of the salary/wages earned by the employee during the accounting year or Rs. 100/-, whichever is higher. 2. Where an employee has not completed 15 years of age at the beginning of the accounting year, the provisions of Section 10 will apply substituting the figure Rs. 60 instead of Rs. 100. 3. Thus the employer is bound to pay minimum bonus even if he suffers losses during the accounting year. Minimum Amount ⇒ (Section 10) Employee age ⇒ Age ≥ 15 yrs – Rs. 100 or 8.33% of salary or wages Age < 15 yrs – Rs. 60 or 8.33% of salary or wages Q7. In an accounting year, a company to which the Payment of Bonus Act, 1965 applies, suffered heavy losses. The BOD of the Company decided not to give bonus to the employees. The employees of the company move to the court for relief. Decide in the light of the provisions of the said Act, whether the employee will get relief. ANS.: The employees are entitled to get minimum bonus even if the company suffered any loss. As per Sec.10 of Act, every employer shall bound to pay to every employee a minimum bonus which shall be 8.33% of salary/wages earned by the employee during the accounting year or Rs. 100 whichever is higher, whether or not the company has allocable surplus. In case of an employee who has not completed 15 years of age, such min. bonus would be Rs. 60 or 8.33% of the salary/wages, whichever is higher. In the present problem, employer is liable to pay minimum bonus to the employee.

Q8. What is the amount of minimum bonus to be paid to the employees under the provisions of the Payment of Bonus Act, 1965?

Maximum Bonus (Section 11)

Where in respect of an accounting year, the allocable surplus exceeds the amount of minimum bonus payable, the employer shall, in lieu of such minimum bonus, be bound to pay bonus for the accounting year which shall be, the proportion the allocable surplus bears to the total salaries and wages earned by the employee, however, subject to maximum of 20% of such salary/wages. Q9. Skylark Wooden Toys Limited was employing 100 workmen in the year 2005. Since then, the company suffered losses, but minimum bonus was paid in the accounting years of 2006 and 2007. In the accounting year 2008 the company earned huge profits. After mitigating the previous losses the company is having surplus profits and wants to pay the bonus to its workmen. The Company wants legal advice on the following issues:

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(a) How much minimum and maximum bonus may be paid to the workmen?

(b) Whether the company may adjust the puja bonus already paid to the workmen while calculating the amount of bonus payable to workmen for that accounting year.

(c) The Company wants to give wooden toys as bonus instead of cash. Whether the company can do so?

Answer

As per Section 10 of the Payment of Bonus Act, 1965, every employer shall be bound to pay to every employee in respect of any accounting year, a minimum bonus which shall be 8.33 percent of the salary or wage earned by the employee during the accounting year or ` 100, whichever is higher, whether or not the employer has any allocable surplus in the accounting year. Where an employee has not completed 15 years of age at the beginning of the accounting year, the minimum bonus payable is 8.33% or Rs. 60 whichever is higher. Even in the case of loss, minimum bonus has to be paid. Further, as per Section 11(1) the maximum bonus payable to the employee is 20% in any accounting year. Section 17 of the Act is related to the adjustment of customary or interim bonus. Bonus should be paid only in cash by the employer. The legal advice asked in the problem may be given on the basis of the provisions of the Act accordingly: (a) As regards minimum and maximum bonus: The workmen of the Company are entitled to get 8.33% of the salary or wage earned during that particular accounting year. The maximum bonus payable is 20% of the salary or wage earned during that particular accounting year. Even if the employer suffers losses during that accounting year the company is bound to pay minimum bonus as prescribed by Section 10. (b) As regards adjustment of Puja Bonus: As per Section 17 of the Act, where, in an accounting year an employer has paid any puja bonus/other customary bonus to an employee, the employer shall be entitled to deduct (adjust) the amount of bonus so paid from the amount of bonus payable to the employee in respect of that accounting year and the employee shall be entitled to receive only the balance. Therefore, the company may adjust the puja bonus already paid from the amount of bonus payable to the workmen and the workmen shall be entitled to receive only the balance. (c) The amount payable to an employee by way of bonus under the Act shall be paid only in cash by the employer. Therefore, the company cannot distribute wooden toys, instead of cash, as bonus. It is against the statutory provisions. Q10. Akshay is an Employee in a Company. The Bonus payable to him during a year is Rs. 1,25,000. The Company deducted a sum of Rs. 25,000 against the “Diwali Bonus” already paid to him during the said year and paid the remaining amount. Akshay files a suit against the Company for recovery of the deducted amount. Decide whether Akshay would be given relief by the Court on adjustment of already paid interim bonus on Diwali under the POBA, 1965. Answer: The Employer is entitled to deduct the amount of Festival Bonus paid, and the Employee is entitled to receive only the balance.

Set on and Set off of allocable surplus (Section 15)

1. Where in any accounting year, the allocable surplus exceeds the amount of maximum bonus payable u/s 11, then the surplus shall, subject to a limit of 20% of salaries and wages of the employees in that accounting year, be carried forward for being ‘set on’ in the succeeding amounting year and so on upto and inclusive of the 4th accounting year to be utilized for the payment of bonus. 2. Where in any accounting year, there is no allocable surplus or the allocable surplus falls short of the amount of minimum bonus payable u/s 10 and there is no sufficient amount carried forward for set on, such deficiency shall be carried forward for set off in the succeeding accounting year and so on upto and inclusive of the 4th accounting year. 3. Where in any accounting year an amount has been carried forward for ‘set on’ and ‘set off’ under this Section, for the purpose of calculating bonus for the succeeding accounting year, the amount of set on or set off first carried forward shall be first taken into account.

Calculation of Bonus applying the principles of set on and Set off

Total Salaries and wages = Rs. 12, 50,000; 8.33% = Rs. 1, 04,167, 20% = Rs. 2, 50,000 Year Allocable Surplus Bonus Set on/Set off for the year Total Set on/Set off 1 1,04,167 1,04,167

(8.33%) Nil Nil 2 6,35,000 2,50,000

(20%) 2,50,000

(Set on) 2,50,000-Set on (2) 3 2,20,000 2,50,000

(20%) Nil 2,20,000-Set on (2) 4 3,75,000 2,50,000

(20%) 1,25,000

(Set on) 2,20,000-Set on (2)

1,25,000-Set on (4) 5 1,40,000 2,50,000

(20%) Nil 1,10,000-Set on (2)

1,25,000-Set on (4) 6 3,10,000 2,50,000

(20%) 60,000

(Set on) 1,25,000-Set on (4)

60,000-Set on (6) 7 1,00,000 2,50,000

(20%) Nil 35,000-Set on (6) 8 Nil 1,04,167

(8.33%) 69,167

(Set off) 69,167-Set off (8) 9 10,000 1,04,167

(8.33%) 94,167

(Set off) 69,167-Set off (8)

94,167-set off (9) 10 2,15,000 1,04,167

(8.33%) 52,501

(Set off) 52,501-Set off (10)

Calculation of Bonus with respect of certain employees

1. Where the salary or wages of an employee exceeds Rs. 3,500 per month bonus shall be payable u/s 10 or 11 calculated as if his salary/wages were Rs. 3,500 per month. 2. The Section read with the definition of the employee, can be analyzed as under: (a) Salary upto Rs. 3,500 PM bonus shall be calculated on the basis of his actual salary. (b) Salary more than Rs. 3,500 per month upto Rs. 10,000 per month – bonus shall be calculated as if his salary is Rs. 3,500 per month. (c) Salary more than Rs. 10,000 per month – not eligible to bonus. This section has been incorporated by the Payment of Bonus (Amendment) Act, 2007 w.e.f. from 1.04.2006. As per the Payment of Bonus (Amendment) Act, 2015, calculation ceiling for the bonus has been raised. For the words ‘‘3,500 rupees’’ at both the places where they occur, the words ‘‘7,000 rupees or the minimum wage for the scheduled employment, as fixed by the appropriate Government, whichever is higher’’ shall respectively be substituted; Q11. An employee drawing a salary of Rs. 25,000 per month is entitled to Bonus. True/false. ANS.: False, as per the Payment of Bonus Act, 1965, an employee employed on a salary not exceeding Rs. 10,000 per month is entitled to Bonus. As per the Payment of Bonus (Amendment) Act, 2015, the eligibility limit for payment of bonus has been enhanced from Rs. 10, 000 to Rs. 21,000 per mensem.

Proportionate reduction in Bonus in certain cases (Section 13)

1. Where an employee has not worked for all the working days in an accounting year, the minimum bonus of Rs. 100 or Rs. 60 in case of child worker, is higher than 8.33% of his salaries/wages, such minimum bonus shall be proportionately reduced based on the number of days he has actually worked. 2. For the purpose of calculating the number of days the employee was actually present in the establishment, his absence due to the following reasons shall also be included.

(a) He has been on leave with wages (EL).

(b) He has been laid off under the Industrial Dispute Act, 1947.

(d) The employee was on maternity leave.

Q12. State whether an employee is eligible for payment of bonus for the following period –

a) An employee lay off under an agreement.

b) An employee on casual leave for 5 days in a year.

c) A woman employee on maternity leave.

d) An employee absent due to temporary disablement.

ANS.: The eligibility of the following categories of employees to bonus are discussed below a) An employee laid-off under agreement – Eligible for bonus for the period of so laid off (Sec.14) b) An employee on casual leave – Eligible for bonus for the period of such leaves (Sec.14) as casual leaves are generally leave with salary. c) Woman employee on Maternity Leave – Eligible if she has been on leave with salary wages. If she has been absent i.e. with salary /wages, she is not eligible for that period of absence. d) An employee absent due to temporary disablement eligible only if the temporary disablement is caused by accident arising out of and in course of employment Q13. Sharma is a supervisor in a factory drawing a salary of Rs. 7,500 per month. In a particular accounting year he was on one month leave with salary. His employer declared minimum bonus as per the Payment of Bonus Act, 1965 to all eligible employees. State in this connection:

a. What shall be the salary that shall be taken into account for the purpose of calculating bonus payable to him?

b. What shall be the total bonus payable to him in that accounting year?

c. What would be your answer if the company suffers losses in that accounting year?

d. Is bonus payable to him if he was illegally terminated?

ANS.:

a. Where the salary or wage of an employee exceeds Rs. 3,500 per month, the bonus payable to such employee shall be calculated as if his salary or wages were Rs. 3,500 per month. As per the Payment of Bonus (Amendment) Act, 2015, calculation ceiling for the bonus has been raised. For the words ‘‘3,500 rupees’’ at both the places where they occur, the words ‘‘7,000 rupees or the minimum wage for the scheduled employment, as fixed by the appropriate Government, whichever is higher’’ shall respectively be substituted; In the instant case, Mr. Sharma is drawing a salary of Rs. 7,500 per month. For the purpose of bonus his salary shall be taken at Rs. 7,000 per month. b. The total bonus payable to him in that accounting year shall be Rs. 7,000 X 12 X 8.33%. For the purpose of calculating the total working days, leave with salary or wages shall be deemed to the working days of an employee. (Section 14) c. Even if the company suffers losses, the employer has to pay the minimum bonus. d. Where an employee was prevented from working by reason of an illegal order of termination, Sec.13 and 14 do not apply.

Q14. X, a temporary employee drawing a salary of Rs. 3,000 per month, in an establishment to which the Payment of Bonus Act applies was prevented by the employers from working in the establishment for two months during the financial year 2010-11, pending certain inquiry. Since there were no adverse findings ‘X’ was re-instated in service. Later, when the bonus was paid to other employees, the employers refuse to pay bonus to ‘X’, even though he has worked for the remaining ten months in the year. Examine the validity of employer’s refusal?

ANS.: The employee in the given case has not worked for all working days in an accounting year. Section 13 provides for proportionate reduction of bonus in such cases. But Sec.13 does not cover a case where an employee was prevented from working by reason of an illegal order of termination. Thus, based on the above, the refusal by the employers to pay bonus to X is not valid and he (X) is entitled to get bonus.

Special provisions with respect to newly set up establishment (Section 16)

1. In case of newly set up establishments, in the first 5 accounting years following the accounting year in which the employer sells goods or renders services from his establishment, bonus shall be payable only in respect of that accounting year in which the employer derives profits and such bonus shall be calculated as per the Act taking into account Section 10 and Section 11 but without applying the provisions of Section 15 relating to ‘Set on’ and ‘Set off’. 2. For the 6th accounting year, bonus shall be payable as specified above except that the provisions of Section 15 relating to set on and set off shall apply only for 5th and 6th accounting years. 3. In respect of the 7th accounting year, bonus shall be payable as per point [2] except that the provisions of Section 15 will apply only in respect of 5th, 6th, 7th accounting year. 4. Similarly, for 8th accounting year, the provisions of Section 15 relating to set on and set off will apply in respect of 5th, 6th, 7th and 8th accounting year. 5. From the 9th accounting year onwards bonus shall be payable as per the provisions of the act, notwithstanding whether the company has earned profits or not. 6. An establishment shall not be deemed to be newly set up merely because of change in location, name or ownership. For the purpose of this Section, the employer shall be said to have derived profit only after provision of current year depreciation, arrears of depreciation and set off of previous year’s losses. Sale of goods produced in the course of trial production shall not be considered for reckoning, whether the Company has started selling goods produced by it. Q15. An employer had been paying to his employees every year at the time of Deepawali one month’s basic wages as Deepawali Bonus for the last 10 years, in addition to the bonus payable under the Payment of Bonus Act. The bonus had been paid even in those years when there were losses. The employer now wants to adjust Deepawali Bonus paid by him for the current accounting year against the bonus payable by him under the Act, for the current accounting year. State whether it is possible for the employer to make the above adjustments. ANS.: According to Section 17 of the Payment of Bonus Act, if the employer has paid in any accounting year, Deepawali, Puja or any customary bonus to his employees, the employer is within his rights to deduct the amount of bonus so paid from the amount of bonus payable by him under the Act in respect of that accounting year. Thus, the employer can deduct/adjust the Deepawali bonus already paid against the bonus payable under the Act and the employees shall be entitled to receive only the balance. Deductions of certain amounts from Bonus (Section 18): Where in any accounting year, an employee has caused any financial loss to the employer by willful misconduct or negligence the employer can deduct the amount of loss from the bonus payable to him for that accounting year. No other deduction is allowed from the bonus payable under the Act.

Time limit for Payment of Bonus (Section 19)

1. The bonus shall be paid within a period of 8 months from the close of accounting year. However, on application by the employer and on sufficient reasons, the Appropriate authority, by order may extend the said period of 8 months to a period not exceeding 2 years. 2. In case of any dispute regarding payment of bonus, the bonus shall be payable in cash within one month from the date on which the award become enforceable or the settlement comes into operation.

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Q16. Explain the time limits within which the employer must pay bonus due to the employees. Answer: As per sec.19 of the Payment of Bonus Act,1965 the employer is bound to pay the bonus to his employees within the under mentioned time period :- – If there is a dispute regarding the payment of bonus is pending before any authority The bonus shall be paid within 1month of the award becoming enforceable or the settlement comes into operation.

– In any other cases

The bonus shall be paid within a period of 8months from the end of accounting year. The 8 months period can be extended by the Appropriate Government, on the basis of following conditions:

(1) An application shall be made by the employer to Appropriate Govt.

(2) There must be sufficient reasons to the satisfaction of Appropriate Govt. to grant the extension of time. (3) The total period including the period of extension shall not exceed 2 years. Q17. X was an employee of Universal Limited. He retired from the company on 31st March, 2011 and died after few months. Y, the heir of X, applied within the prescribed time to the company for payment of due bonus of X. The company refused to pay the bonus. Examine the validity of the company’s refusal and also state the procedure to recover the bonus under the provisions of the Payment of Bonus Act, 1965. Ans: Company cannot refuse to pay the bonus amount to the legal heir. Section 19 says that all amounts payable to employee shall be paid in CASH within following time limit:- (i) Where, there is a dispute pending before any authority u/s 22, then within one month from the date on which award becomes enforceable or settlement comes in operations, in respect of such dispute. (ii) In any other case, within eight months from the end of accounting year. However, if the employer applies to Appropriate Government, and has SUFFICIENT REASONS, then that Government may extend this period of eight months upto TWO YEARS. Section 21 states that money may be due from employer to employee under settlement, award or agreement. Employer may not pay the amount. In such case, employee or any authorised person, or if employee is dead, then his heirs or assignee may make application to APPROPRIATE GOVERNMENT. If Appropriate govt. or other authority appointed by Appropriate govt. for this purpose is satisfied, that money is so due, it shall issue a CERTIFICATE for that amount to collector, who shall recover the same as arrears of land revenue. Time Limit: The aforesaid application must be made within one year from the date on which money is due from employer to employee. But Appropriate Government may accept the application even after one year if applicant has sufficient cause.

Application of the Act to the establishment in Public Sector

1. An establishment in public sector means an establishment owned, controlled or managed by (i) a Government Company (ii) a Corporation in which not less than 40 % of its capital is held by Government or RBI or a Corporation owned by Government/ RBI. 2. In any accounting year, if an establishment in public sector sells goods manufactured by it or renders any services in competition with an establishment in private sector and the income from such sale/service is not less than 20% of the gross income of the establishment in public sector for the year, the provisions of the Act shall also apply to such establishment in public sector.

Presumptions about accuracy of annual accounts of establishments

1. If the balance sheet and the P & L account of a corporation or a company is duly audited by CAG or by the auditors under the Companies act, the prescribed authorities may presume that the statements and particulars contained in such balance sheet and P & L account to be accurate and it shall not be necessary for the corporation/company to prove the accuracy of such statements. 2. However, in case the trade union/employees require any clarification relating to any item in the Balance Sheet/ Statement of Profit and Loss, the prescribed authority by order may direct the corporation/company to furnish such clarification. 3. In case of establishments which are not corporations or companies, they may get their accounts audited by an auditor duly qualified to act as auditor of companies (i.e. CA), in which case, the presumption of accuracy will also be available to such establishments.

Bonus linked with Production/ Productivity (Section 31A)

1. The employer may enter into an agreement with its employees providing that the employees may be paid annual bonus linked with production or productivity and such payment of bonus shall be in lieu of bonus on profits payable under this Act. 2. Any such agreement whereby the employees relinquish their right to receive the minimum bonus u/s 10 (8.33% of salaries/wages) shall be null and void. The employees shall not be entitled to receive bonus in excess of 20% of the salary or wages earned by them during the relevant accounting year. 3. However, the other provisions of the agreement shall be void and enforceable.

4. The provisions shall apply notwithstanding anything contained in this Act.

Agreements inconsistent with the Act: The Payment of Bonus Act will have effect notwithstanding anything inconsistent contained in any other law or in the terms or any agreement, settlement, award or contract of service. Q18. On 1st January 2015, Arihant Industries Ltd agreed with the employees for payment of an annual bonus linked with production or productivity, instead of bonus based on profits subject to the limits of 30% of their Salary Wages during the relevant accounting year. It was also agreed by the Employees that they will not claim Minimum Bonus stated u/s 10 of the Payment of Bonus Act, 1965. As per the aforesaid agreement, the Employees claimed bonus, but the Company refused to honour the agreement. On refusal of the Company, the employees moved to the Court for relief. Decide as per the provisions of the Payment of Bonus Act, 1965 whether the Employees will get the relief. Also decide whether inspite of the aforesaid agreement whether the Employees are still entitled to receive Minimum Bonus. Answer: Company’s decision to grant bonus of 30% based on production: Agreement providing for bonus exceeding 20% of the Salary / Wages earned by the Employee is null and void. Employees cannot get any relief from Court for recovering Bonus exceeding 20%. Agreement with the Employees not to claim Minimum Bonus u/s 10: Agreement providing / restricting the Employee to receive less than Minimum Bonus of 8.33% of Salary / Wage is null and void. Employee can get relief from the Court for receiving the Minimum Bonus of 8.33%.

Recovery of Bonus due from employer (Section 21)

1. If any bonus due to an employee from his employer under a settlement or an award or agreement is not paid, the employee or his assignee or heirs can make an application for the recovery of the amount to the Appropriate Government within one year from the date on which the bonus becomes due. 2. On the receipt of the aforesaid application, the Appropriate Government/ specified authority will issue a certificate or that amount to the Collector. Thereupon, Collector shall proceed to recover the same in the same manner as an arrear of land revenue.

Q19. A Company could not pay bonus to its employees even after the expiry of six months from the close of its accounting year. Can the employees sue the employer for this reason?

ANS.: All amounts payable to an employee by way of bonus shall be paid in cash by his employer, within a period of 8 months from the close of the accounting year. This period of 8 months may be extended upto a maximum of 2 years by the Appropriate Government, on an application being made by the employer. Since the periods of 8 months have not expired, employees cannot sue the employer. Q20. K. Mukherjee, an employee of Big Boss Ltd. left the company on 30.11.12 on health ground. He was on sick leave since 5th August 2012 and did not work from that date. There was an agreement by the company with its worker in 2005 for payment of bonus to employees. The company refused to pay the bonus for the year 2011-12 and threatened the employees of retrenchment in case of any labour trouble in connection with the bonus issue. Explain in terms of the payment of Bonus Act, 1965

i) What remedy is available to the workers,

ii) Can Sri Mukherjee after leaving the company move to recover amt from co.?

iii) What is the power of the Appropriate Government to recover the amount?

ANS.: As per Section 21 of the Payment of Bonus Act, 1965.

(i) Workers can apply to Appropriate Government for recovery of amount due to them. (ii) Sri Mukherjee can move to Appropriate Government within one year from the date the money became due to him. (iii) The Appropriate Government if satisfied that any amount is due to Sri Mukherjee, It shall issue a certificate for that amount to the collector who shall collect the amount as an arrear of land revenue.

Exemption from the provisions of the Act

The Appropriate Government may exempt any establishment from any of the provisions of this Act subject to the following: (a) The Appropriate Government shall consider the financial position and other relevant circumstances before granting any exemption. (b) Before granting any exemption, the Appropriate Government must form an opinion that it will not be in public interest to apply all or any of the provisions of this Act to such establishment or class of establishments. (c) The order of the Appropriate Government granting exemption shall be published by way of a notification in the Official Gazette. (d) The exemption may be granted for such period as may be specified in the notification and subject to such terms and conditions as it may think fit to impose.

Q21. Can the Appropriate Government exempt an establishment from payment of statutory minimum bonus? If so under what circumstances?

ANS.: As provided in Section 36, If the Appropriate Government, having regard to the financial position and other relevant circumstances of any establishment is of the opinion that it will not be in public interest to apply, all or any of, the provisions of the Act thereto, it may by notification in the Official Gazette exempt such establishment for such period as may be specified therein and subject to such conditions as it may think fit. Q22. A Company in a particular accounting year suffered losses and hence was not able to pay even the minimum bonus to its workmen. State in this connection, whether the minimum bonus is payable irrespective of losses and any circumstances that the Company may get exemption under the Payment of Bonus Act, 1965. ANS.: As per the Act, minimum bonus is payable whether or not the employer has any allocable surplus in the accounting year i.e. even if the employer suffers losses during the accounting year he is bound to pay this. However, exemption can be granted by the Central Government. Q23. Standard Airways Limited was incorporated at Chennai, employing 125 workmen. Due to strike of workers, mismanagement in the company and accidental loss of the assets, the company suffered heavy losses continuously since its incorporation, resulting in a large part of the capital and assets getting wiped out. Consequently, the company moved an application to the Government of Tamilnadu requesting to exempt the company fully from the application of the provisions of the Payment of Bonus Act, 1965. Decide, whether the Government of Tamilnadu may grant exemption to the Company. State the provisions of law in this regard as stated under the Payment of Bonus Act, 1965. (November 2009)

Answer

An employer who is unable to comply with the provisions of the Payment of Bonus Act, due to paucity of funds or for other reasons, can make an application to the Appropriate Government for exemption fully or partly from the provisions of the Payment of Bonus Act, 1965 under Section 36. If the Appropriate Government having regard to the financial position and other relevant circumstances of any establishment or class of establishments, is of the opinion that it will not be in public interest to apply all or any of the provisions of the Act thereto, it may, by notification in official Gazette, exempt for such period as may be specified therein and subject to such conditions as it may think fit to impose, such establishment or class of establishments from all or any of the provisions of the Act. Such relevant considerations for granting exemptions are industrial peace, law and order situation, effect on production of consumer goods, difficulties of management, etc. Decision u/s 36 must be an objective one. If the employer establishes that losses were being incurred continuously and entire capital and assets have been wiped out, the State Government cannot refuse to grant exemption u/s 36 [Nav Bharat Potteries vs. State (1987) (Bombay)]. Employees should be heard before granting such exemption. The facts of the problem meet the criteria spelt out in Section 36 and hence, Standard Airways may be allowed exemption.

Powers of Inspector: An Inspector may:

(a) Require an employer to furnish such information as may consider necessary.

(b) Enter and inspect, at all reasonable hours, any premises of or place in any establishment for the purpose of examining any register, record or notice or other document required to be kept under the act. (c) Examine, the employer or any person whom he finds in such premises or place and who, he has reasonable cause to believe, is an employee employed therein. (d) Makes copies of, or take extracts from any register, record, notice or other document, as he may consider relevant, and where he has reason to believe that any offence under this Act has been committed by an employer, search and seize such records.

(e) Exercise such other powers as may be prescribed.

Offences and Penalties

For contravention of the provisions of the Act or Rules the penalty is imprisonment upto 6 months or fine up to Rs. 1000, or both. For failure to comply with the directions or requisitions made the penalty is imprisonment upto 6 months or fine up to Rs. 1000, or both. In case of offences by Companies, Firms, body corporate or association of persons, its Director, Partner or a Principal Officer responsible for the conduct of its business, as the case may be, shall be deemed to be guilty of that offence and punished accordingly, unless the person concerned proves that the offence was committed without his knowledge or that he exercised all due diligence.

taxguru.in - Payment of Bonus Act, 1965 – A student approach - TaxGuru

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