What is Bonus Act 1965?
The Bonus Act 1965, also known as the Payment of Bonus Act. It aims to balance the working relationships between labor and capital. In other words, the sense that employees should enjoy the profits made by the organization. In monetary terms.
Objectives of the Bonus Act
- To bring in rudiments of fair remuneration. Additionally, in the form of further development.
- To imbibe increased productivity and performance.
- To ensure that every eligible person gets at least the minimum bonus.
Who is Covered Under the Bonus Act 1965?
Specifically, the Bonus Act 1965 applies to:
- All factories
- Any other establishment for every day, during any accounting year. Conversely, an average of 20 or more persons were employed on that day.
- All those whose basic salary (excluding dearness allowance) is ₹21000 or less.
- Even if an employer makes no profits. In addition, a minimum bonus payable-in-kind must be given to eligible employees.
Bonus Act 1965 Eligibility Conditions
To be specific, an employee qualifies for a bonus if:
- He/she works for a minimum of thirty working days in the accounting year.
- His/her salary does not exceed the ₹21,000 bar (twenty-one thousand) per month.
- Also, he/she is not an apprentice.
How Much Bonus is Given?
Minimum
At the very least, this process has a bonus payable. 8.33%(eight.three three) of either salary or wages.
Maximum Bonus Payable
On the other hand, 20% of salary or wages
Important Note: For calculation purposes, salary or wages shall not exceed Rs. 7000 per month. The option is rather to be the minimum wage. Otherwise, the one is higher among the two.
How is the Bonus Act 1965 Calculated?
Having salary not exceeding ₹21,000 per month.
Cap the salary at ₹7,000 (seven thousand) or minimum wage for all calculations.
Subsequently, apply the bonus percentage (ranging from 8.33% to 20% {twenty}) according to the company’s profit.
Example
Employee’s actual salary: ₹18,000/month
Eligible Salary for bonus: ₹7,000
Bonus rate: 10%
Months worked: 12
Bonus = ₹7,000 × 10% × 12 = ₹8,400
Therefore, even though the employee earns ₹18,000/month, the bonus is calculated on ₹7,000.
What are “Set On” and “Set Off”?
The Act contains the following provisions of management over the years:
Set On
On the other hand, if a company earns profits. As of the actual 20% bonus payments. The excess may be carried forward. For 4 years, to one or more years of poor profits.
Set Off
If a company does not earn enough profits as a result of which it is unable to pay the minimum of 8.33% bonus. Then the untaken bonus can be carried forward and adjusted in future years.
When will the Bonus Act 1965 have to be paid?
As of the date when financial year ends, the bonus has to be paid within 8 months. Which is usually on November 30 with respect to the financial year ending March 31.
Recent Amendments to the Bonus Act 1965
In 2015, the salary eligibility cap was increased from ₹10,000(ten thousand) to ₹21,000.
This raised the ceiling of calculations. As set from ₹3,500 (three thousand five hundred) to ₹7,000 (seven thousand) or minimum wages, whichever is higher. Open to increasing employee numbers.
Why Bonus Act 1965 is Important
- Firstly, it reduces workplace dissatisfaction and maintains industrial peace
- Secondly, improve employee motivation and loyalty
- In addition, the achievement of a fair distribution of profits. Emerging out of an organized and semi-organized sector
- Lastly, for creating a fair working culture
Conclusion
In conclusion, the Bonus Act 1965 has been playing an important part. In balancing employer-employee relationships. And giving share out of organizational success to the hands that actually help build it. If you’re handling payroll or just want to know more about your compensation rights. Being familiar with the fine details of this law will keep you informed and compliant.
To summarize, for an employer, on-time and fairest bonus payments are not just a legal obligation. It is one of the acts to develop a stronger and more motivated workforce.
FAQ
- What is the Bonus Act, 1965?
The Bonus Act 1965 gives the possibility of paying bonuses. Or productivity levels of the organization.
- Who is Eligible?
Every employee is entitled, provided he has completed 30 days of work in an accounting year. Also, those who had their monthly salary at par ₹21,000(twenty-one thousand) or less than that.
- How does the Bonus computation go under the Bonus Act, 1965?
Your salary should be at par ₹7,000 (seven thousand), which is per month or your fixed minimum wage. Will be multiplied by the bonus percentage (between 8.33%-20%) and months worked.
