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A curated and categorised database of common questions regarding the law.

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1 To whom does the Bonus act apply ?

  • The Payment of Bonus Act extends to the whole of India and is applicable to every factory and to every establishment wherein 20 or more workers are employed on any day during an accounting year.
  • The Central/State Government can however, extend its provisions to any establishment employing less than 20 but more than 10 employees.
  • For the purpose of calculating the number of employees for applicability of the Act, part-time employees are also included.
  • Every employee not drawing more than Rs.10000 per month who has worked for not less than 30 days in an accounting year, shall be eligible for bonus.
  • Any establishment which has been covered under the Act once shall continue to be governed by the Act even if the number of persons employed therein at any time falls below 20.
2 If the number of employees working in an establishment becomes less than 20, will the Act apply?

Yes, the act will continue to apply once it has become applicable
3 What is Bonus ?

The object of the Payment of Bonus Act is to provide for the payment of bonus (linked with profit or productivity) to employees.
4 Do new establishments have to pay bonus ?

A newly set up establishment is exempted from paying bonus to its employees in the first five years following the year in which the employer sells the goods produced or manufactured by him. If, however, the employer derives profit in any of the first five year, he has to pay bonus for that year. The provisions of set on and set off are not applicable in such cases.
5 Can an establishment be deemed to be newly set in case of a change in ownership ?

Even if ownership of an establishment is transferred, the establishment remains the same and it cannot be said to be a new establishment for the purpose of Bonus applicability
6 If a management has a number of departments, undertakings or branches, should they be treated as separate establishments or as one composite establishment?:

If an establishment consists of different departments or undertakings or has branches, whether situated in the same place or in different places, unless a separate balance-sheet and profit and loss account are prepared and maintained in respect of them, all such departments of undertakings or branches should be treated as parts of the same establishment for the purpose of computation of bonus, and once they are treated as parts of the same establishment, they should be continued to be treated as such.


7 What component of wages are used to calculate Bonus ?

Salary is defined as Basic Wage + DA and does not include allowances.Salary is capped at Rs 3500 for the purposes of bonus calculation
8 What is the minimum bonus prescribed by the Act?

The minimum bonus prescribed by the Act is 8.33 % of annual basic salary, which is equivalent to one months basic salary or Rs. 100 whichever is higher.
9 What is the maximum bonus payable under the Act?

The maximum bonus payable under the Act is 20 % of annual basic salary or two and a half months basic salary. Basic salary is capped at Rs 3500 for the purposes of bonus calculation, so maximum bonus payable is Rs 8,400 (20% of Rs 42000 i.e. Rs 3500*12 month)
10 What is the meaning of "available surplus" and "allocable surplus"

Bonus payable under the Act is linked with profits. The employer has to calculate "gross profits" of his establishment in the manner specified in section 4. Then from "gross profits" so calculated he has to deduct the sums referred to in section 6. The balance is called "available surplus". A percentage of the available surplus calculated in accordance with the provisions of sub-section (4) of section 2 is called "allocable surplus". Where, in respect of any year the allocable surplus exceeds the amount of minimum bonus payable to the employees, the employer must pay to every employee in respect of that year bonus in proportion to the salary or wage earned by the employee during the year subject to a maximum of twenty percent of such salary or wage. (Subsection 2(4), 4 , 5, 6 and amp; 11)
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