1. The Payment of Bonus & Gratuity
Act.
Bonus Act-1965 & Gratuity Act-
1972

2. The Payment of Bonus Act, 1965.
 Meaning of Bonus.
 Object of the Act
 Definitions
 Eligibility for Bonus
 Disqualification for bonus
 Determination of Bonus
 Special Provisions with Respect to Certain
Establishments
 Inspectors
 Penalties
 Offences
 Recovery of Bonus due from the Employer

3. Meaning of Bonus
 The Dictionary meaning of the word bonus is
„something to the good‟, „extra dividend to the
shareholders of a company or „gratuity to
workmen beyond their wages‟. It is the last
meaning of the word which has acquired the
significance for the labour-management relations
in India. Till recently, bonus was regarded as the
ex-gratia payment made by the employer to his
workers for the extra effort by them in production
process. From this limited connotation of the
word, we have travelled a long way to reach the
stage of enactment of the Payment of Bonus Act,
1965, which makes this annual payment

4. Object of the Act.
 The object of the Act is to provide for the payment of
bonus to persons employed in certain establishments
and for matters connected therewith. The Scheme of
the Act, broadly stated is four dimensional, i.e.,
1) To impose statutory liability upon an employer of
every establishment covered by the Act to pay
bonus to employees in the establishment.
2) To define the principle of payment of bonus
according to the prescribed formula
3) To provide for payment of minimum & maximum
bonus & linking the payment of bonus with the
scheme of “set-off” and “set-on”.
4) To provide machinery for enforcement of the liability
for payment of bonus.

5. A minimum bonus of 8.33% of the wages or salary
(upto Rs.3500) of an employee or Rs.100
whichever is higher ( Rs.60 in case of employee
below the age of 15 years) is payable irrespective
of the fact whether the establishment has made a
profit or loss. Bonus is no longer linked with
production and profitability. Liability for bonus is
statutory liability and not a contingent liability

6. Application of the Act
 The Act extends to whole of India, it applies to:
a) Every factory ( as defined in Factories Act )
b) Every other establishment in which 20 or more
persons are employed on any day during any
accounting year
c) Once the Act is applied, it continues to be
applied

7. Definition
 Accounting Year: For corporations, for
companies, and in any other case.
 Allocable Surplus: The Allocable Surplus is the
workers share in the available Surplus. In case of
an employer being a Company(not a banking co.)
it is 67% of the available surplus in an accounting
year. And in any other case , 60% of the available
surplus.
 Available Surplus : Gross Profit of any accounting
year – any amount of depreciation, any amount
by way of development rebate or investment
allowance or any direct tax calculated according
to the provisions.

8.  Employee: any person (other than the apprentice) employed
on a salary or wage not exceeding Rs.10000/- per month in
any industry to do any skilled or unskilled, manual,
supervisory, managerial, administrative, technical or clerical
work for hire or reward. It makes no difference whether the
terms of employment are express or implied.
 The base salary of the employee for calculating bonus shall
be taken as Rs.3500/- as per the Bonus Act.
 Employer:
i) In relation to an establishment which is a factor, the owner
or occupier of the factor, including the agent of such owner
or occupier, the legal representative of a deceased of a
deceased owner or occupier and the manager of the
factory.
ii) In relation to any other establishment, the person who, or
the authority which, has the ultimate control over the affairs
of the establishment. Where the said affairs are entrusted
to a manager or managing director, such manager or
managing director is the employer.

9.  Establishment in private sector: it means any
establishment other than an establishment in public
sector.
 Establishment in public sector:
a) A Govt. co.
b) A corporation in which not less than 40% of the
capital is held whether singly or taken together by
the Govt. or RBI or by both of them.
 Factory: as defined in Factories Act1948.
 Salary or Wages: It means all the remuneration
capable of being expressed in terms of money,
which would, if the terms of employment, express
or implied, were fulfilled, be payable to an
employee in respect of his employment of work
done.

10. Eligibility and Disqualification for
Bonus
 Eligibility for bonus: Every employee shall be entitled to be
paid by his employer in an accounting year, bonus, in
accordance with the provisions of the Act, provided he has
worked in the establishment for not less than 30 working
days in that year. Where an employee has not worked for
all the working days in an accounting year, the bonus
payable to him shall be proportionately reduced.
 Disqualification for bonus: Notwithstanding anything
contained in the Act, an employee shall be disqualified
from receiving bonus under the Act, if he is dismissed from
service for:
i) Fraud
ii) Riotous or violent behavior while on the premises of the
establishment
iii) Theft, misappropriation or sabotage of any property of
the establishment.

11. Determination of Bonus
 Bonus under the Payment of Bonus Act, 1905,
cannot be claimed by the workers as a matter of
right. The Bonus Formula under the Act rests on
the Calculation of the „available surplus‟ and it
envisage the following steps.
i) Computation of Gross profits
ii) Determination of Available Surplus.
iii) Allocable Surplus:
The rules followed for distribution of allocable
surplus are:

12. 1. Amount of Bonus: How much to pay, and has to be
paid even in losses also.
a)Minimum Bonus: As per the act that is 8.33% of the
wages or salary or Rs.100 whichever is higher.
b)Maximum Bonus: Bonus at a rate higher than the
minimum is payable only when the allocable surplus
in a particular accounting year exceeds the amount
of minimum bonus payable to employees.
Maximum bonus paid can be 20% of such salary or
wages.
2. Calculation of bonus with respect to certain
employees: If an employees salary exceeds
Rs.3500 p.m. than for purpose of calculation of
bonus his salary will be taken as Rs.3500/- p.m.

13. Calculation of Bonus
 Where the salary or wages of an employee
exceeds Rs.3500 p.m the bonus payable will be
calculated as if his salary or wages were Rs.3500
p.m.
Accordingly, if any employee‟s salary is
Rs.5000p.m. and the bonus declared by the
employer is 15%, he will be entitled to the amount
of the bonus of Rs.6300, calculated in the
following manner:
=3500 * 15 * 12 = 6300
100

14. 3. „Set on‟ & „Set off‟ of allocable surplus:
a) Set on: In any accounting year if the allocable
surplus exceeds the amount of maximum bonus
than then the excess will be carried forward for
being „set on‟ to the succeeding accounting year
and so on up to and inclusive of the 4th accounting
year.
b) Set off: in any accounting year if there is no
allocable surplus , or where the allocable surplus
falls short of the amount of minimum bonus, and
there is no amount of sufficient amount carried
forward and „set on‟ which could be utilize for the
purpose of payment of minimum bonus. In such
cases, the minimum amount of deficiency, as the
case may be, shall be carried forward for being „set-
off‟ in the succeeding accounting year and so on,

15. 4) Proportionate reduction in bonus in certain cases: When
an employee has not worked for all the working days in
any accounting year, the minimum bonus of Rs100 or
Rs.60 as the case may be, if such bonus is higher than the
8.33% of his salary for the days he has worked I that
accounting year shall be proportionately reduced.
5) Adjustment of customary or interim bonus against bonus
payable under the Act.
6) Deduction of certain amounts from bonus
7) Time limit for payment of bonus: All amounts, payable to
an employee by his employer by way of bonus under the
Act, must be paid in cash. Further, the amount of bonus
must be paid in the following manner in respect of the
relevant cases:
i) In the cases where a dispute regarding the payment of
bonus is pending before any authority, the amount of
bonus must be paid within one month from the date on
which the award becomes enforceable, or settlement
comes into operation, in respect of such dispute.
ii) In other cases, however, the amount of bonus must be

16. Special Provisions with respect to
certain Establishments.
 Provision regarding New Establishments: In such
new establishments, the employees of such
establishments shall be entitles to be paid bonus
as per the provisions:
 First 5 accounting years: In case of newly
establish firms, in the first 5 accounting year,
following the accounting year in which,the
employer sells the goods produced ,
manufactured by him or render services as the
case maybe, the bonus shall be payable by such
firm only in respect of the accounting year in
which the employer earns profits from such newly
set-up establishments.

17.  6th & 7th Accounting Years: The provision of „set-on‟
and „set-off‟ will be allowed for the 5th & 6th year.
And in case of 7th year again set on and set off will be
allowed of allocable surplus for 5th, 6th and 7th year.
 8th Accounting year: From the 8th a/c year, following
accounting year in which the employer sells the
goods produced or manufactured by him, or renders
the services, from such establishment, the provisions
of the Act will apply in respect of such establishments
also as they apply in respect of any other
establishment.

18. Bonus Linked with Production or
Productivity
 In some cases, there maybe an agreement
between the employee and the employer for
bonus linked to production or performance before
the commencement of Bonus Act 1975, then such
employees shall be entitled to receive bonus due
to them under such agreement. But any such
agreement or settlement whereby the employees
relinquish there right to receive the minimum
bonus, shall be null & void in so far as it purports
to deprive them of such right. Further, such
employees shall not be entitled to be paid any
bonus in excess of 20% of the salary or wages
earned by them during the relevant accounting

19. Inspectors
 The appropriate Government may appoint such
persons as it thinks fit to be Inspectors for the
purpose of the Act and define the limits within
which they shall exercise jurisdiction.
 Powers of the Inspectors: Same that of Factories
& Wages Act.

20. Penalties
 If any person contravenes any of the provisions of
the Act or any rule made there under, he shall be
punishable with imprisonment for a term which
may extend to 6 months, or fine which may
extend to Rs.1000 or with both.

21. Recovery of Bonus due from
Employer
 In cases where any amount is due to an
employee by way of his bonus under an
agreement, a settlement or an award, the
employee himself or any other person authorised
by him , or in the case of death of employee his
assignee or heirs may make an application to the
appropriate Govt. for the recovery of the amount
of bonus due to him.
 But such application has to be made within 12
months of the amount due.

22. The Payment of Gratuity
Act,1972
 What is Gratuity
 Definition
 Payment of Gratuity
 Forfeiture of Gratuity
 Nomination
 Determination of Gratuity
 Recovery of Grauity
 Inspectors
 Penalties & offences

23. What is Gratuity
 Gratuity is a kind of retirement benefit, like
provident fund or pension. It is a payment which
is intended to help an employee after his
retirement whether the retirement is result of the
rules of superannuation or of some physical
disability. The general principal of Gratuity
scheme is that by faithful service over a long
period the employee is entitled to claim certain
amount as retirement benefit. Thus it is earned by
an employee as a reward for long and meritorious
services.

24. Object of the Act
 To ensure a uniform pattern of payment of
gratuity to the employees throughout the country,
and
 To avoid different treatment to the employees of
establishments having branches in more than one
State.
 The Act provides for a scheme of compulsory
payment of gratuity by managements of factories,
mines, oilfields, plantations, ports, railway
companies and other establishments employing
more than 10 or more persons in the event of
superannuation, retirement, resignation and
death or disablement due to accident or disease.
The payment of gratuity is dependent on

25. How Gratuity is calculated
 It is to be calculated at the rate of 15 days salary
for every completed year of service, subject to
maximum of Rs 3,50,000. The right of a workman
to claim gratuity can be forfeited by the employer
in certain cases.

26. Scope of Coverage
 The Act applies to:
a) Every factory, mine, oilfield, plantation, port and
railway company.
b) Every shop or establishment within the meaning of
any law for the time being in force in relation to
shops and establishments in a State, in which 10 or
more persons are employed, or were employed , on
any day of the preceding 12 months.
c) Such other establishments, or class of
establishments, in which 10 or more employees are
employed, or were employed, on any day of the
preceding 12 months, as the Central Government
may deem fit.

27. Payment & Forfeiture of Gratuity and
Exemption
 Payment of Gratuity:
a) Gratuity payable on termination of employment: To
be paid to employee on his termination of his
employment after has has rendered his services for
not less than 5 years.
b) Rate of Gratuity: For every completed year of
service or part thereof in excess of 6 months, the
employer shall pay gratuity to an employee at the
rate of 15 days wages based on the rate of wages
last drawn by employee.
 Maximum Gratuity: Not more than Rs 3,50,000
 Forfeiture of Gratuity: If he services of an employee
are terminated due to any act , willful omission, or
negligence causing any damage or loss to, or
destruction of property belonging to the employer,
shall be forfeited to the extent of the damage or loss
caused.

28. Compulsory Insurance and
Protection of Gratuity.
 Complusory Insurance: As per the Act to ensure
that the loyal and commited employees get the
gratutity the employers are asked to take
Insurance from the LIC or any other company for
safegaurding this Gratuity fund in any uncertain
event. This rule is applicable for establishments
having more than 500 employees
 Exemption:The companies who have intiated a
sperate Gratuity Fund than they are exempted
from taking Insurance after they take appropriate
approval from the Central Government.
 Protection of Gratuity: Case in Civil or Criminal
Court may be filed.

29. Nomination
 Each employee is required to make nomination within a
specified period and in the specified manner. The rule are:
1) Nomination within 90/30 days: Employee who has
completed 1 year of service before commencement of
Gratuity Act 1972, shall make within 90 days, and each
employee who completes 1 year of service after the date
of commencement of these rules, within 30 days of
completion of 1 year of service nomination has to be
made.
2) Distribution of amount of Gratuity: Can be paid to more
than one nominee.
3) Nomination in favour of family members:
4) Modification of nomination:
5) Death of nominee:
6) Safe custody of nomination:

30. Determination & Recovery of Gratuity
 Determination of Gratuity: As soon as gratuity is payable
the employer shall determine the amount and give notice
to the employee/nominee to whom the gratuity is payable
and to the Controlling Authority specifying the amount of
gratuity determined. This exercise is to be done
irrespective of the fact whether an application for payment
has been made or not.
 Payment of Gratuity: Within 30 days from the date when it
becomes payable.
 Payment of Interest: If the amount is not paid within 30
days than interest as per the Simple Rate of Interest which
is earned on long-term Govt. deposits will be paid till the
date the payment is made.
 Dispute as to gratuity: If there is any dispute in regards to
receiving of gratuity than the employer will deposit the
amount with the Controlling authority.

31.  Powers of Controlling Authority: Powers as that of
Civil Court.
 Appeal: If any person wants to appeal against any
desicion of Controlling Authority than within 60 days
form the date of receipt of the order to the appropriate
Government. In case of employer, for his appeal will
only be entertained when he produces a certificate
showing that the disputed amount has been
deposited with the Controlling Authority and than only
his appeal can be heard.
 Recovery of Gratuity: employee can make an
application to the Controlling Authority of non-
payment of the prescribed amount and the Authority
after investigation can issue a certificate of amount to
Collector to recover the amount together with
compound interest thereon.

32. Inspector
 Appointed by the State or Central Governement.
 Have power to enter, investigate the premises
 Take evidences.
 Question witnesses etc.
 Examine the premises and the records
 Exercise such other powers as prescribed by the
law.

33. Penalties and Offences
 Penalty for False statement or false
representation: Imprisonment upto 6 months and
fine upto Rs. 10,000 or both.
 For Contravention of the Act: Imprisonment shall
not be less than 3 months but may extend to 1
year and fine shall not be less than Rs.10,000 but
it may extend to Rs.20,000.

34. Thank You