Payment of Bonus Act, 1965

What is Payment of Bonus Act, 1965?

The Payment of Bonus Act, 1965 mandates yearly bonus payments to employees in factories and other establishments employing 20 or more persons. An employee is eligible if their salary or wage (basic + DA) is ₹21,000 or less per month and they have worked at least 30 days in the accounting year. The minimum bonus is 8.33% of annual basic + DA, and the maximum is 20%, computed on a wage ceiling of ₹7,000 or the state minimum wage, whichever is higher. Bonus must be paid within 8 months of the close of the financial year. Employers also file Form D with the labour department. Section 9 disqualifies employees dismissed for fraud, theft, or violent misconduct.

Formula: Bonus = (Basic + DA) capped at ₹7,000 per month or state min wage x bonus % (8.33% to 20%) x months worked

Example

Ramesh earns basic + DA of ₹18,000/month. Wage ceiling for bonus calc is ₹7,000. At 8.33%, his annual bonus = 7,000 x 12 x 8.33% = ₹6,997.

How Payment of Bonus Act, 1965 is used

Apply this Act every year before October 31st (for April-March FY) when calculating annual bonus. Keep Form A, B, C, and D registers updated for inspections.

Payment of Bonus Act, 1965 FAQs

Which establishments does the Payment of Bonus Act cover?

Every factory and every other establishment with 20 or more employees on any day during the accounting year. Once covered, it stays covered even if headcount later drops below 20.

What is the penalty for not paying statutory bonus on time?

Section 28 prescribes imprisonment up to 6 months or fine up to ₹1,000, or both. Employees can also recover unpaid bonus through the labour authority within one year.

Are new joiners eligible for bonus in their first year?

Yes, if they have worked at least 30 working days in the accounting year and their basic + DA is ₹21,000 or less per month. Bonus is paid pro-rata based on days worked.