Payment of Wages Act,

1936
Minimum Wage Act, 1948
 History of minimum wages.
The initiative by Shri K.G.R.Choudhary in 1920
set up boards for determination of wages.
The International Labour Conference adopted
convention no.26 and 30 in 1928 relating to
wage fixing machinery in trades or parts of
trades.
A Minimum Wages Bill was introduced in the
Central Legislative Assembly on 11.04.1946 and
came into force with effect from 15.03.1948.
The Committee on Fair Wage was set up in 1948
to provide guidelines for wage structure.
The Minimum wages .
The minimum wages Act 1948, was to secure the
welfare of unorganised workers in certain
industries by fixing the minimum rates of wages.
The Act contemplates that minimum wages rates
must ensure for him not only his subsistence and
that of his family but also preserve his efficiency
as a workman.
The Act empowers the appropriate Government
for fixation of minimum wages in employments
enumerated in the schedule to the Act. The
fixation of minimum wages relates to the
industries where sweated labour is most
prevalent or where there is inevitable chance of
exploitation. In prescribing the minimum wages
rates, the capacity of the employers need to be
 Objectives of the act.
To provide minimum wages to the workers working in
organized sector.
To stop exploitation of the workers.

To empower the government to take steps for fixing

minimum wages and to revising it in a timely manner.
To apply this law on most of the sections in organized
sector.

Short title and extent

(sec. 1)
This Act, the Minimum Wages Act, 1948 extends to
the whole of India.
This Act may be called the Minimum Wages Act, 1948.
Interpretation/Definition
(sec.2)
(a) Adult', Adolescent and Child
Adult- is who has completed his eighteen years of age.
Adolescent completed his fifteen years but not eighteen
years of age.
Child who has not completed his fifteen years of age
(b) Appropriate government India has federal form
of Government at the centre and state level . The
minimum wages act provide separate areas of
jurisdiction for both centre and state government.
(e) Employer means any person who employs one or
more employees in any schedule of employment.
(h) Wages means all remuneration capable of being
expressed in terms of money.
(i) Employee means any person employed for hire or
FIXATION AND REVISION OF MINIMUM
WAGES
fixing of minimum rates of wages
(sec.3)
The minimum rates of wages will be reviewed/
revised, for every five years, by the appropriate
govt.
Appropriate govt. can add any employment, to the
schedule(part-I or part II), wherein one thousand or
more employees are found working
Different minimum rates of wages may be fixed for
different scheduled employments/ different classes
of work /different localities
Minimum rates of wages
(sec.4)
1. Basic + Special Allowance (Which varies with
the cost of living index).

2. Basic + Cash value of concessional supply of

materials like food, clothes, etc.

3. An all inclusive rate which includes Basic + Cost

of living Allowance + Cash value of concessional
supply of materials.
Procedure for fixation and revision
of minimum rates of wages (sec.5)
Publish its proposals in the official gazette asking
comments from the affected parties.
Constitute committees/sub committees for the
purpose.
The committees/sub-committees and advisory
boards constituted by the Government consist of
equal number of members of :
Employers

Employees, and

Independent persons
Fixation of minimum wages

Recommendation of Advisory Board for different class

[unskilled, skilled, Clerk, Supervisor]

Publish recommendations in National Publications [for

public comments/representations from Trade Unions etc.]

Hearing of the Representatives

Notification of Minimum wages

 Advisory board (sec.7)

. Appointed by appropriate government.

. To co-ordinate the work of committees and sub

committees appointed under Section 5.

Central advisory board (sec.8)

. To advise the Central and State Governments
in fixation and revision of minimum rates of wages.
. To co-ordinate the work of the Advisory Boards.
Composition of Committees,
etc.
(Sec.
Each of9)
the committee, sub-committee and the
Advisory Board shall consist of:
a. persons to be nominated by the appropriate
Government.
b. representing the employers and employees in the
scheduled employments who shall be equal in
number and
c. independent persons not exceeding one-third of its
total number of members: one of such independent
persons shall be appointed the Chairman by the
appropriate Government.
 PAYMENT OF MINIMUM
WAGES
Wages in kind (sec. 11)
Minimum wages shall be paid in cash.
The appropriate govt. may authorize, where there
has been a custom of payment in this manner,
payment of minimum wages either wholly or
partly in kind.
The appropriate govt. may authorize supply of
essential commodities at concessional rates.
Payment of minimum rate of wages
(sec. 12)

The Minimum Wages has to be paid

without any deductions other than
Statutory Deductions.

Payment of wages less than

minimum wages on the ground of
less performance or output is illegal.
Fixing hours of work
(sec. 13)
For an Adult Worker working in Factories:

Number of Working Hours should not exceed

48 Hours in a week with a weekly
Holiday.

The Daily Hours should not exceed more

than 9 Hours with 1 Hour Rest Interval.

Provision of Compensatory Holiday/Overtime

Wages if working on holiday.
Overtime wages
(sec. 14)

If the person has worked for more than 48

hours in a week then, the excess hours worked
will be treated as Overtime.

Overtime wage rate will be twice of the

normal wage rate .
Wages for a person who has worked less
than normal working hours (sec. 15)

Employer could not provide the activities

of the job then, the employee is
entitled to receive full salary .

Employee has not worked due to his

unwillingness then, the employee is not
entitled to receive full salar y.
Records to be maintained
(sec. 18)

The Registers should contain the

following particulars-
(i) particulars of employed persons
(ii) the work performed by them
(iii) the wages paid to them
(iv) the receipts given by them
Claims
(sec. 20)

A Labour Commissioner or any other

appointed authority is authorized to
hear claims regarding non-payment
of minimum wages
Any aggrieved person may apply to
the authority for settling his claims
within 6 months
Penalties
(sec. 22)
Offence Punishment

Payment of less than Imprisonment which may

Minimum Wages to extend up to 6 Months or
employee Fine which may extend
up to Rs 500/- or Both
Contracting out
(Sec. 25)
Any contract or agreement, whether
made before or after the commencement
of this Act, whereby an employee either
relinquishes or reduces his right to a
minimum rate of wages or any
privilege or concession accruing to him
under this Act shall be null and void so
far as it purports to reduce the minimum
rate of wages fixed under this Act.
Power of State Government to add
schedule (sec.27)

The State Government has to notify in the

Official Gazette not less than three months
of its intention to do so.
Power of Central Government to give
directions (sec.28)

The Central Government may give directions to a

State Government as to the carrying into
execution of this Act in the State.
Payment of Gratuity
Act, 1972
 MEANING OF WORD GRATUITY
The word Gratuity has been derived from the word
Gratuitous which means Gift or Present.
It is a lump sum payment made by an employer as the retrial
reward for his past service when his employment is
terminated.
The Payment of Gratuity Act, 1972 applies to the whole India
except State of Jammu & Kashmir in so far as it relates to
ports and plantations.
 APPLICATION OF THE GRATUITY ACT
(SEC.1)
Every factory, mine, oilfield, plantation, port and Railway Company.

Every shop or establishment within the meaning of any law for the time
being in force in relation to shops and establishment in a State, in
which 10 or more persons are or were employed on any day in the
preceding 12 months.

Such other establishments or class of establishment, in which 10 or

more employees are or were employed on any day in the preceding 12
months, as notified by CG by way of a notification in the Official
Gazette.
 CONTINUED APPLICABILITY & RIGHT TO
RECEIVE GRATUITY (SEC.1)
If the provisions of the Act become applicable to a shop or establishment
once, the Act shall continue to apply to such shop or establishment even
if the no. of employees falls below 10 at any time in the future.

An Employee is eligible to receive gratuity under the Act, if he :-

a) Is employed in an establishment to which the Act applies (Sec. 1)
b) Is an employee as per Sec. 2(e).
c) has been in Continuous Service of 5 Years subject to some
exceptions.
 EMPLOYEE [SEC. 2(E)]

Employee means :-
Any person (other than apprentice)
employed on wages

in any establishment, factory, mine, oilfield, plantation, port or

Railway Company or shop
to do any work (i.e., skilled, unskilled, manual supervisory, technical
or clerical)
whether the terms of employment are expressed or implied
whether or not he is employed in a managerial or administrative
capacity.
 SUPERANNUATION [SEC. 2( R)]
The attainment by the employee of such age

as fixed in the contract and conditions of service

as the age on attainment of which the employee shall vacate

the employment.
 CONTINUOUS SERVICE (SEC. 2A)

Continuous Service means uninterrupted service

which may be interrupted on account of sickness,
accident, leave, absence from duty without leave (not
being treated as break in service), lay-off, strike, lock-
out or cessation of work not due to the fault of the
employee.

whether such uninterrupted or interrupted service was

rendered before or after the commencement of the Act.
SEC. 2A.. CONTINUE

If an employee is not in continuous service for 1 year, he shall be

deemed to be in continuous service for 1 year, if the employee has,
during immediately preceding 12 calendar months, worked under the
employer for not less than

190 Days, if the employee was employed below the ground in a

mine

190 Days, if the employee was employed in an establishment which

works for less than 6 days in a week

240 Days, in any other case.

SEC. 2A.. CONTINUE

If an employee is not in continuous service for 6 months, he shall be

deemed to be in continuous service for 6 months, if the employee
has, during immediately preceding 6 calendar months worked under
the employer for not less than

95 Days, if the employee was employed below the ground in a mine

95 Days, if the employee was employed in an establishment which

works for less than 6 days in a week

120 Days, in any other case.

SEC. 2A.. CONTINUE
If an employee of a seasonal establishment, is not in
continuous service of 1 year or 6 months, he shall be deemed
to be in continuous service for such period, if he has actually
worked for not less than 75% of the No. of Days on which the
establishment was in operation during such period.
 APPLICATION FOR THE PAYMENT OF GRATUITY (SEC.7)

Application can be made by :-

An employee who is eligible for payment of gratuity.

Any person authorised in writing by such employee.

Nominee of the employee (if the deceased employee had made a

nomination)

Legal heir of the employee (if the deceased employee had not made
any nomination)
APPLICATION TO WHOM AND IN WHAT MANNER (SEC. 7)

Application shall be made to the employer in writing within

30 days from the date gratuity becomes payable

If the date of superannuation and retirement of the employee

is known in advance , the employee may apply to the
employer before 30 days of date of superannuation or
retirement.
 DETERMINATION BY EMPLOYER (SEC. 7)

As soon as the gratuity becomes payable the employer

shall determine the amount of gratuity payable.

The employer shall give notice specifying the amount of

gratuity to controlling authority & employee.

Note: The employer has to determine the amount of gratuity & give
notice irrespective of the fact whether an application for payment of
gratuity has been made or not.
 PAYMENT OF GRATUITY

Time limit Within 30 days of gratuity becoming

payable

Maximum Amount The gratuity payable to an

employee shall not exceed Rs. 3,50,000.

Under the terms of an award, settlement or contract,

an employee may be entitled to better terms of
gratuity. Such an award, settlement or contract shall
be valid & effectual.
 GRATUITY DISPUTES (SEC. 7)

In case of dispute, the employer shall deposit :-

With the controlling authority such amount as he admits to be

payable by him.

The controlling authority shall hold an enquiry and shall give

reasonable opportunity of being heard to the parties concerned.

Thereafter the controlling authority shall determine the gratuity

payable .

If amount determined by the controlling authority is more than the

amount deposited by the employer , the controlling authority shall
direct the employer to pay the balance amount.
APPEAL AGAINST THE ORDER OF CONTROLLING AUTHORITY (SEC. 7)

Any person aggrieved by an order of the Controlling Authority may

appeal with AG or such authority as AG may specify in this behalf
(hereinafter called as Appellate Authority)

The appeal may be filed within 60 days from the date of receipt of
order of the controlling authority which may be further extended to
60 days more on sufficient cause.

Appeal by the employer shall not be admitted unless he deposits

with the appellate authority a sum equal to the amount of gratuity
determined by controlling authority.
APPEAL AGAINST THE ORDER OF CONTROLLING AUTHORITY (SEC. 7) ..

The appellate authority shall give a reasonable opportunity of

being heard to the parties concerned.

Thereafter, the appellate authority may confirm, modify or

reverse the decision of the Controlling Authority.
 ELIGIBILITY FOR GRATUITY (SEC. 4)

Gratuity shall be payable to an employee :-

Who has rendered continuous service for not less than 5
years on the termination of his employment :-

on his superannuation; or
on his retirement or resignation; or
on his death or disablement due to accident or disease

Note:- The completion of continuous service of 5 years shall not be

necessary where the termination of the employment of any employee
is due to death or disablement due to accident or disease.
GRATUITY TO WHOM???

Gratuity shall be paid to :-

The Employee

Nominee of the Employee (if deceased employee had made a

nomination)

Legal heir of the Employee (if deceased employee had not made
any nomination)

If the nominee or legal heir is a minor, the amount of gratuity shall

be deposited with controlling authority which shall invest the same
for the benefit of minor in bank or financial institution, as may be
prescribed, until such minor attains majority.
 CALCULATION OF THE AMOUNT OF GRATUITY
(SEC. 4)

Monthly Rated Employee

Piece Rated Employee

Employee of a Seasonal Establishment.

 MONTHLY RATED EMPLOYEE

Last drawn wages 15/26 Completed years of Service

(incl. a part of year in excess of 6 months)

Note:
Wages = Last Drawn

Month = Period of 26 Days

15 days wages = Last drawn wages 15/26
 PIECE-RATED EMPLOYEE
Last drawn wages 15/26 Completed years of Service
(incl. a part of year in excess of 6 months)

Note:
Last drawn Wages = Total wages received during 3 months immediately
preceding termination /Days actually worked
Last drawn wages shall not include overtime wages.
 SEASONAL ESTABLISHMENT

Such an employee shall be paid gratuity at the rate of

7 days wages for each season.
 GRATUITY IN CASE OF DISABLED EMPLOYEE (SEC. 4)

If an employee becomes disabled due to an accident or

disease so that he becomes incapable of performing the
work which he was performing before such accident or
disease, but is re-employed on reduced wages on some
other job, he shall be paid gratuity as follows:
 GRATUITY IN CASE OF DISABLED
EMPLOYEE.
a) For the period preceding the disablement
on the basis of wages last drawn by the employee at the
time of disablement.

b) For the period subsequent to disablement

on the basis of reduced wages last drawn by the employee
at the time of termination of service.
 MODE OF PAYMENT OF GRATUITY

By Cash

By DD or Cheque, if so desired by the payee.

By Postal Money Order (after deducting the

commission payable) if the payee so desires and the
amount of gratuity payable is less than Rs. 1000.

Note: The details of payment shall be sent by the employer to the

controlling authority.
 FORFEITURE OF GRATUITY TO THE EXTENT OF LOSS [SEC. 4(6)]

If the service of an employee are terminated

for any act, willful omission or negligence
resulting in damage or loss or destruction of the property of
the employer.

Then the gratuity payable to the employee shall be forfeited

to the extent of such damage or loss.
FORFEITURE OF WHOLE AMOUNT OF GRATUITY [SEC. 4(6)]

If the services of an employee are terminated

for his riotous or disorderly conduct or any other act
of violence on his part, or for any act which constitutes
an offence involving moral turpitude.

Then the gratuity payable to the employee shall be

wholly exempt.
 NOMINATION (SEC. 6)

Every employee, who has completed 1 year of service, is

compulsorily required to make a nomination (Form F).

The nomination must be made within 30 days of

completion of one year of service.

The nomination must be made in favour of one or more

members of the family (nomination shall be void if it is
made in favour of a person who is not a member of his
family)
 NOMINATION (SEC. 6)

If at the time of making nomination the employee does

not have family, the nomination may be made in favour
of any person.

The employee may distribute the amount of gratuity

amongst more than one nominee.

The nomination made by an employee may be varied by

him at anytime.
 NOMINATION (SEC. 6)

If the nominee dies before the death of employee, the

employee shall make a fresh nomination.

Nomination comes into operation from the date of receipt of

the same by the employer.

Every nomination, fresh nomination or modification of

nomination, as the case may be, shall be sent by the
employee to his employer, who shall keep the same in his
safe custody.
 PROTECTION OF GRATUITY (SEC. 13)
Gratuity payable to an employee shall not be liable to
attachment in execution of any decree or order of any civil,
revenue or criminal court.

It is immaterial as to whether the gratuity is payable to the

employee

a) under the Act; or

b) in an establishment exempted u/s 5.
 RECOVERY OF GRATUITY (SEC. 8)

If the employer fails to pay the gratuity within the prescribed time
(i.e., within 30 days of termination of employment), the controlling
authority is empowered to issue a certificate to the Collector to
recover the amount of Gratuity.

The employer shall also be liable to pay Compound Interest at such

rate as may be notified by CG from time to time.

The interest shall be paid from the date of expiry of the prescribed
period & ending with actual date of payment of Gratuity.

The interest payable shall not exceed the amount of Gratuity

payable.
CONSEQUENCES OF DEFAULT BY EMPLOYEE

The employer shall not be liable to pay any interest, if :-

If delay in payment of gratuity is due to the fault of

employee.

the employer has obtained permission in writing from the

controlling authority for delayed payment on such ground.
 COMPULSORY INSURANCE (SEC. 4A)

Every employer shall get his establishment registered with the

controlling authority.

The registration shall be done within the prescribed time and in

prescribed manner.

An employer shall be required to be registered only if he has taken

insurance or he has established an approved gratuity fund.

Every employer shall take insurance against is liability for payment of

gratuity under the Act.
 COMPULSORY INSURANCE (SEC. 4A)

The insurance shall be taken from LIC or any other prescribed

insurance company.

However, employer of an establishment belonging to or under the

control of CG or SG are exempted from the operations of Sec. 4A.

AG may exempt :-
An employer who has already established an approved gratuity fund
in respect of his employees and who desires to continue such
arrangement.

An employer having 500 or more persons, who establishes an

approved gratuity fund in the manner prescribed.
 EXEMPTION FROM PROVISIONS OF THE ACT
(SEC. 5)
The exemption :-
may be given by AG.

can be given only by way of a notification in the Official

Gazette.

shall be subject to such conditions as may be specified in the

notification.

may be given prospectively or retrospectively

 INSPECTORS [SEC. 7A & 7B]

The inspectors shall be appointed by AG by Notification in the Official

Gazette

Every Inspector shall be deemed to be a public servant within the

meaning of section 21 of IPC.

Such number of inspectors may be appointed as AG may deem fit.

AG may define the area to which the authority of an inspector shall

extend. Where two or more inspectors are appointed for the same
area, AG may distribute or allocate work to be performed by them
(i.e., AG may define the limits within which the inspector shall
exercise jurisdiction).
 SEC. 7A & 7B

Powers of Inspector :-
To call such information from the employer as he considers necessary.

To enter into or inspect, at all reasonable times, any premises of any

establishment, factory, mine oilfield, plantation port or railway
company or shop to which this Act applies, any books, registers,
records, notices and other documents.

To examine the employer and his servants.

To make copies and take extracts of any books, registers, records,

notices and other documents.

To exercise such other powers as may be prescribed.

 INSPECTORS [SEC. 7A & 7B]
Purpose of Appointment :-
To ascertain whether or not the provisions of the Act have
been complied with by an employer.

Duties of Owners etc. :-

To produce accounts, books, registers or other documents
required by the inspector;

To give information required by the Inspector.

 PENALTIES (SEC. 9)

Knowingly making false statement/ false representation to avoid to

make payment imprisonment up to 06 months, or with fine which
may extend to Rs.10,000/- or both.

Failure to comply with any provision of this Act Shall be punishable

with imprisonment upto 1 year but will not be less than 3 months or
with fine, which will not be less than Rs.10,000/- but may extend upto
Rs. 20,000/- or with both.

Any offence relating to Non-payment of any gratuity Employer shall

be punishable with imprisonment for a term which shall not be less
than 6 months but may extend to 2 years, unless the court for reasons
recorded decides for a lesser term of imprisonment or a fine, which
would meet.
PAYMENT OF BONUS ACT, 1965
 The Payment of Bonus Act 1965, Process
Calendar

Records to be Disqualification for

Act Requirement Due dates
Maintained bonus

-Bonus payment Register -An employee shall be disqualified Within eight months of the next
Eligibility
from receiving bonus under this financial year (Before
Act, if he is dismissed from service Nov).
-Every employee shall be entitled to be paid by for-
his employer in an accounting year, bonus, in
accordance with the provisions of this Act, (a) Fraud
provided he has worked in the establishment for (b) Riotous or violent behaviour
not less than thirty working days in that year. while on the premises of the
establishment
(c) Theft, misappropriation or
sabotage of any property of
the establishment

Calculation Income Tax Applicability

Applicability
Minimum 8.33% Fully Taxable
-Minimum wages (Basic & DA) 10000/=p.m. or Maximum 20%
Below (On Rs. 3500)
APPLICABILITY

The Act applies to-

(a) every factory; and
(b) every other establishment in which twenty or more persons
are employed on any day during an accounting year.
Establishments to include departments, undertakings and branches
Where an establishment consists of different departments or undertakings or has
branches, whether situated in the same place or in different places, all such
departments or undertakings or branches shall be treated as parts of the same
establishment for the purpose of computation of bonus.
Provided that where for any accounting year a separate balance-sheet and profit and
loss account are prepared and maintained in respect of any such department or
undertaking or branch, then, such department or undertaking or branch shall be
treated as a separate establishment for the purpose of computation of bonus, for that
year.
However employees of L.I.C., Universities and Educational institutions, Hospitals,
Chamber of Commerce, R.B.I., IFCI, U.T.I. Social Welfare institutions are not
entitled to bonus under this Act.
The payment of Bonus Act provides for payment of bonus to persons employed
in certain establishments of the basis of profits or on the basis of production or
productivity and for matters connected therewith.
ELIGIBIITY FOR BONUS

Every employee receiving salary or wages up to RS.10,000 p.m.

and engaged in any kind of work whether skilled, unskilled,
managerial, supervisory etc. is entitled to bonus for every
accounting year if he has worked for at least 30 working days in
that year.
SALARY LIMIT (CEILING OF BONUS)

Where the salary or wages of an employee exceeds

Rs.10,000 per month, the bonus payable to such
employee shall be calculated as if his salary or wages
were Rs.10,000 per month.
Salary or Wages " means all remuneration (other than
remuneration in respect of over-time work, which would,
be payable to an employee in respect of his employment or
of work done in such employment and includes dearness
allowance, but does not include,-

(i) any other allowance which the employee is for the time
being entitled to;
(ii) the value of any house accommodation or of supply of
light, water, medical attendance or other amenity or of any
service or of any concessional supply of food grains or
other articles;
(iii) any travelling concession.

(iv) any bonus (including incentive, production and attendance

bonus).

(v) any contribution paid or payable by the employer to any

pension fund or provident fund or for the benefit of the employee.

(vi) any retrenchment compensation or any gratuity or other

retirement benefit payable to the employee or any ex gratia
payment made to him.

(vii) any commission payable to the employee.

COMPUTATION OF NUMBER OF WORKING DAYS
An employee shall be deemed to have worked in an establishment
in any accounting year also on the days on which :

(a) he has been laid off under an agreement or as permitted by

standing orders under the Industrial Employment (Standing Orders)
Act, 1946, or under the Industrial Disputes Act, 1947, or under any
other law applicable to the establishment;
(b) he has been on leave with salary or wages;

(c) he has been absent due to temporary disablement caused by

accident arising out of and in the course of his employment, and

(d) the employee has been on maternity leave with salary or wages,
during the accounting year.
DISQUALIFICATION FOR BONUS
An employee shall be disqualified from receiving bonus under this
Act, if he is dismissed from service for,-
fraud; or
riotous or violent behavior while on the premises of the
establishment; or
theft, misappropriation or sabotage of any property of the
establishment.
DEDUCTION OF CERTAIN AMOUNTS FROM
BONUS PAYABLE UNDER THE ACT
Where in any accounting year, an employee is found guilty of
misconduct causing financial loss to the employer, then, it shall
be lawful for the employer to deduct the amount of loss from
the amount of bonus payable by him to the employee under this
Act in respect of that accounting year only and the employee
shall be entitled to receive the balance, if any.
 MINIMUM AND MAXIMUM BONUS PAYABLE

MINIMUM BONUS

The minimum bonus which an employer is required to pay even if

he suffers losses during the accounting year or there is no allocable
surplus is 8.33 % of the salary during the accounting year, or

Rs. 100 in case of employees above 15 years and Rs 60 in case of

employees below 15 years,
whichever is higher
MAXIMUM BONUS
If in an accounting year, the allocable surplus, calculated after
taking into account the amount set on or the amount set of
exceeds the minimum bonus, the employer should pay bonus in
proportion to the salary or wages earned by the employee in that
accounting year subject to a maximum of 20% of such salary or
wages.
TIME LIMIT FOR PAYMENT

The bonus should be paid in cash within 8 months from the close of
the accounting year or within one month from the date of
enforcement of the award or coming into operation of a settlement
following an industrial dispute regarding payment of bonus.

However if there is sufficient cause extension may be applied for.

CALCULATION OF BONUS

The method for calculation of annual bonus is as follows:

1) Calculate the Available Surplus.

AVAILABLE SURPLUS

Available Surplus = Gross Profit ( deduct) the following :

Depreciation admissible u/s 32 of the Income tax Act

Development allowance
AVAILABLE SURPLUS
(DEDUCTIONS)
Direct taxes payable for the accounting year (calculated as per
Sec.7) Sums specified in the Third Schedule.
Direct Taxes (calculated as per Sec. 7) in respect of gross profits
for the immediately preceding accounting year.
CALCULATE ALLOCABLE SURPLUS
Allocable Surplus = 60% of Available Surplus, 67% in case of
foreign companies.

Make adjustment for Set-on and Set-off. For calculating

the amount of bonus in respect of an accounting year,
allocable surplus is computed after considering the amount of
set on and set off from the previous years, as illustrated in
Fourth Schedule.
SET ON
Where for any accounting year, the allocable surplus exceeds
the amount of maximum bonus payable to the employees, then,
the excess shall, subject to a limit of twenty per cent of the total
salary or wages of the employees employed in the
establishment in that accounting year, be carried forward for
being set on in the succeeding accounting year and so on up to
and inclusive of the fourth accounting year to be utilized for the
purpose of payment of bonus.
SET OFF
Where for any accounting year, there is no available surplus or the
allocable surplus in respect of that year falls short of the amount of
minimum bonus payable to the employees, and there is no amount
or sufficient amount carried forward and set on which could be
utilized for the purpose of payment of the minimum bonus, then
such minimum amount or the deficiency, as the case may be, shall
be carried forward for being set off in the succeeding accounting
year and so on up to and inclusive of the fourth accounting year.
 SET & SET OFF

Where in any accounting year any amount has been carried

forward and set on or set off under this section, then, in calculating
bonus for the succeeding accounting year, the amount of set on or
set off carried forward from the earliest accounting year shall first
be taken into account.
The allocable surplus so computed is distributed amongst the
employees in proportion to salary or wages received by them
during the relevant accounting year.
DUTIES OF EMPLOYER
To calculate and pay the annual bonus as required under the
Act.

To submit an annul return of bonus paid to employees during

the year, in Form D, to the Inspector, within 30 days of the
expiry of the time limit specified for payment of bonus.

To co-operate with the Inspector, produce before him the

registers/records maintained, and such other information as
may be required by them.
 RIGHTS OF EMPLOYER
Right to forfeit bonus of an employee, who has been dismissed
from service for fraud, riotous or violent behavior, or theft,
misappropriation or sabotage of any property of the establishment.
Right to make permissible deductions from the bonus payable to an
employee, such as, festival/interim bonus paid and financial loss
caused by misconduct of the employee.
Right to refer any disputes relating to application or interpretation
of any provision of the Act, to the Labour Court or Labour
Tribunal.
RIGHTS OF EMPLOYEES
Right to claim bonus payable under the Act and to make an
application to the Government, for the recovery of bonus due and
unpaid, within one year of its becoming due.
Right to refer any dispute to the Labour Court/Tribunal.
Employees, to whom the Payment of Bonus Act does not apply,
cannot raise a dispute regarding bonus under the Industrial
Disputes Act.
Right to seek clarification and obtain information, on any item in
the accounts of the establishment.
 OFFENCES AND PENALTIES

For contravention of the provisions of the Act or rules the penalty is

imprisonment upto 6 months, or fine up to Rs.1000, or both.

For failure to comply with the directions or requisitions made the

penalty is imprisonment upto 6 months, or fine up to Rs.1000, or
both.
 In case of offences by companies, firms, body corporate or
association of individuals, its director, partner or a principal officer
responsible for the conduct of its business, shall be deemed to be
guilty of that offence, unless the person concerned proves that the
offence was committed without his knowledge or that he exercised
all due diligence