The Payment of Bonus Act, 1965 -Labour Laws – UGC NET Paper 2 Code:55

The Payment of Bonus Act, 1965

 

Introduction

“Bonus”  is one of the most contentious issues in the area of wage legislation. Starting from its first use during the early 1920s, bonus has neither satisfied the employee not the employer. Starting as an ex gratia payment, over the years, it has acquired the form of obligatory payment through the enactment of legislation ( Payment of Bonus Act, 1965) in this regard. The opening vignette describes a typical “ situation” relating to payment of bonus and the complexities of the issues surrounding it.

Interestingly the term “bonus” is not defined in the payment f Bonus act, 1965. In common parlance, bonus is regarded as an ex gratia payment made by the employer to his workers to provide encouragement for the extra effort by the in the production process. Sometimes, it also represents a desire of the management to share its gains with the workers, who are vital to the production process and who contribute to the income and profits of the enterprise.

The payment of “bonus” started in the cotton mills of Bombay during the closing period of the First World War. End of the war and declining profits, however, led to discontinuation of this practice. The Second World War started in 1939 and industrial units, including, cotton textile, again started making profits, and the practice started once again. Wartime bonus came to be regarded as payment made to the workers out of the extraordinary profits earned during the war. Although several employers paid bonus voluntarily, there being no statutory provision, many disputes on the issue arose and were referred to adjudication. The adjudication took the view that profits were made possible by the cooperation, both of labour and capital. Labour, therefore, had a right to share in increased profits. The claim to bonus was accepted chiefly on grounds of broad principles of justice, equity and good conscience with a view to keeping labour contended. This position continued until the Bombay High Court laid down that payment of bonus could be demanded by workers as a right, that is to say, a payment that should be made by the employer as extra-remuneration for work done by the employee under a contract, express or implied.

The main Objectives of the Act

1. To impose statutory obligation on the employer of every establishment defined in the Act to pay bonus to all eligible employees working in the establishments.

2. To outline the principles of payment of bonus according to prescribed formula.

3. To provide for payment of minimum and maximum bonus and linking in the payment of bonus with the scheme of “set off” and “set on” and

4. To provide machinery for enforcement of bonus.

Details of amendments to the Payment of Bonus Act, 1965:

S.No Year Of Amendment Eligibility Limit (Rs. Per Month) Calculation Ceiling (Rs. Per Month)
1. 1965 Rs. 1600 Rs.750
2. 1985 Rs.2500 Rs. 1600
3. 1995 Rs. 3500 Rs. 2500
4. 2007 Rs. 10000 Rs. 3500
5. 2015 Rs. 21000 Rs. 7000 Or the minimum wage for scheduled employment, as fixed by the appropriate Government, whichever is higher.

The last amendment of 2015 was notified on 1st Jan., 2016 and is effective from 1st April, 2014.

Scheme of the Act

The Act is divided into 40 Sections and 4 Schedules.

1. Short title, extent and application

(1) This Act may be called the Payment of Bonus Act, 1965.

(2) It extends to the whole of India 2[***].

(3) Save as otherwise provided in this Act, it shall apply to,-

(a) every factory; and

(b) every other establishment in which twenty or more persons are employed on any day during an accounting year.

3[PROVIDED that the appropriate government may, after giving not less than two months’ notice of its intention so to do, by notification in the Official Gazette, apply the provisions of this Act with effect from such accounting year as may be specified in the notification, to any establishment or class of establishments [including an establishment being a factory within the meaning of sub-clause (ii) of clause (m) of section 2 of the Factories Act, 1948 (63 of 1948)] employing such number of persons less than twenty as may be specified in the notification; so, however, that the number of persons so specified shall in no case be less than ten.]

(4) Save as otherwise provided in this Act, the provisions of this Act shall, in relation to a factory or other establishment to which this Act applies, have effect in respect of the accounting year commencing on any day in the year 1964 and in respect of every subsequent accounting year:

4[PROVIDED that in relation to the State of Jammu and Kashmir, the reference to the accounting year commencing on any day in the year 1964, and every subsequent accounting year shall be construed as reference to the accounting year commencing on any day in the year 1968 and every subsequent accounting year:]

3[PROVIDED FURTHER that when the provisions of this Act have been made applicable to any establishment or class of establishments by the issue of a notification under the proviso to sub-section (3), the reference to the accounting year commencing on any day in the year 1964 and every subsequent accounting year or, as the case may be, the reference to the accounting year commencing on any day in the year 1968 and every subsequent accounting year, shall, in relation to such establishment or class of establishments, be construed as a reference to the accounting year specified in such notification and every subsequent accounting year.]

(5) An establishment to which this Act applies 5[***] shall continue to be governed by this Act notwithstanding that the number of persons employed therein falls below twenty 3[or, as the case may be, the number specified in the notification issued under the proviso to sub-section (3)].

The Payment of Bonus Act, 1965 -Labour Laws – UGC NET Paper 2 Code:55

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