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Payment of Bonus Act 1965






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Payment of Bonus Act 1965

Know in depth about Payment of Bonus Act 1965.

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Payment of Bonus Act 1965


Payment of Bonus Act 1965 is applicable to whole of India and the objective of coming up with this Act was to:-

  • Impose a legal responsibility on the employer
  • Designate the minimum and maximum percentage of bonus
  • Prescribe the formula for calculating bonus
  • Provide reasonable mechanism

The Payment of Bonus Act 1956 provide for payment of Statutory bonus, which is different from the general term bonus. The term “Bonus” and “Statutory Bonus” are two different terms and are defined differently. Bonus is termed as a general word that denote a bonus linked to performance or productivity as an incentive or any customary bonus given on festivals. Whereas if we talk about Statutory Bonus, it is the bonus paid under the Payment of Bonus Act 1965.

Note:- The Statutory bonus is a mandatory payment made by the law which is a right of every employee working in a factory or establishment.
Here is everything you need to know about the Payment of Bonus Act 1965. Continue reading it to gain complete knowledge of it.


The Payment of Bonus Act 1965 is applicable on every factory and every establishment having 20 or more employed. It must be noted that once it is applicable on a factory or establishment, then shall continue to fall under the Payment of Bonus Act 1965 which means the factory shall continue to pay the bonus even if the number of employees working falls below 20.

Payment of Bonus Act 1965 once applicable, remains applicable.
Now, there are three conditions for an employee to be eligible for availing bonus. And these three condition are as follows:-

  1. The salary or wage of the employee is upto Rs. 21,000 per month
  2. The employee is engaged in any work may it be skilled, unskilled, managerial, supervisory
  3. The employee who have worked not less than 30 working days in the same year.

Note: The Payment of Bonus Act 1965 shall not be applicable if any employee is a defaulter or found to be dishonest, had theft, sabotage of any property or establishment, have violent behavior while on the duty within premises of the establishment.


The Payment of Bonus Act 1965 on the follow mentioned employees, namely:-

  • Employees of the Life Insurance Company (LIC)
  • Seamen defined under clause 42 of the Merchant Shipping Act 1958
  • Employees registered or listed under the Dock Workers Act 1948 and employed by the registered of listed employers
  • Employees of any industry controlled by the Central or State Government
  • Employees from Indian red cross society or educational institutions, institutions not for profit
  • Employees employed by the contractor on building operations
  • Employees of the Reserve Bank of India (RBI)
  • Employees of any financial corporation under Section 3 or Section 3a of the State Financial Corporation Act (SFC) 1951
  • Employees of IFCI, Deposit Insurance Corporation, Agriculture Refinance Corporation
  • Any financial institution is an establishment in the public sector which the Central Government notifies
  • The employees of Inland Water Transport Establishment


  1. If basic salary plus dearness allowance is under Rs. 7000 then the bonus calculated shall be on the actual amount itself.
  2. Whereas if basic salary plus dearness allowance is greater than Rs. 7000 then bonus is calculated on Rs. 7000.


The amount of bonus that is payable to the employee is required to be made payable only in terms of cash payment. And not in accumulation with perquisite or allowances given to the employee

And the amount of bonus must be paid within the period of 8 months of closing of the books of accounts.
There seems four fays in which statutory bonus can be paid. Let us discuss them one by one.

Firstly, Advance Payment through salary:- to pay advance statutory bonus through salary, the employer is required to include this under the head of salary structure. As including under it will allow the statutory bonus to be paid automatically through payroll.

Secondly, Advance Payment as an adhoc:- where the employee has not made its inclusion in the head of salary structure then, they can still make the payment through the Adhoc payment process.

Third, Advance Payment in bulk:- if the employer is willing to pay the employee in advance during the year but also based on a percentage of wages then the employer can use this option.i.e. to make advance payment in bulk.

Fourth, Arrear Payment in bulk:- while the employer can pay advance Statutory Bonus numerous time and with varying percentage, the arrear payment can be done only after his March payroll for the year confirmed.


If any employer is found not to obey the provision of the Payment of Bonus Act 1965 then, penalty shall be charged. The one who responsible for the same shall be imprisoned for a term of six months or be liable to pay a fine of Rs. 1000 or both as the case may be.

In case the default has been made by the company or firm or body corporate or association of individuals then, its director, partner or a principal or officer responsible for the conduct of its business, must be deemed to be guilty of that offence, unless the director, partner or principal or officer proves that the crime was committed out of knowledge or that he exercised all due diligence.

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Payment of Bonus Act 1965

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Answer to your queries

Payment of Bonus Act 1965

The minimum bonus of 8.33% is payable that can be paid by every industry and establishment.
The maximum bonus shall not exceed 20% of the salary /wage of an employee.

The maximum limit for bonus allowed is 20% of the salary or wage earned by an employee during an accounting year for payment of maximum bonus.

As per Payment of Bonus Act 1948, the employees receiving a salary or wages up to Rs. 21,000 per month is eligible to opt for bonus. Also, the employee engaged in work may it be skilled or unskilled or managerial or supervisory etc are eligible for bonus. The employee who have worked not less than 30 working days in the same year are also allowed to gain bonus.


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