What is Payment of Bonus Act?

The Payment of Bonus Act, 1965 obliges certain employers to pay an annual bonus to eligible employees, intended to share a part of the establishment's profits (or a minimum statutory bonus in the absence of profit, subject to conditions) with the workforce.

• The Act applies to factories and establishments employing the notified minimum number of persons.
• Employees drawing wages up to the wage ceiling notified under the Act are eligible, provided they have worked at least the minimum number of days in the accounting year specified under the Act.
• Eligibility and wage ceilings for bonus computation are periodically reviewed by the government — check the current figures on labour.gov.in before applying a specific number.

• The Act prescribes a minimum bonus percentage of salary/wages payable even if the establishment has inadequate profits (subject to conditions), and a maximum bonus percentage payable when profits (the "allocable surplus") are high enough.
• The actual bonus percentage within that statutory minimum–maximum band depends on the establishment's allocable surplus for the accounting year, computed per the Act's schedules.
• Bonus must generally be paid within 8 months from the close of the accounting year, unless an extension is granted under the Act.

• Paying an ad-hoc festival/incentive bonus and assuming it satisfies the statutory bonus obligation.
• Missing the payment deadline after the close of the accounting year.
• Not maintaining the registers (Forms A, B, C, D) prescribed under the Payment of Bonus Rules.