The payment of bonus

• The objective is to providing for the payment of bonus to the employees of certain
establishments, and for matters concerned there with.
• Under the code ,it shall apply to only those establishments ,employing at least 20
employees on any day in that accounting year.
• Any employee is eligible for availing bonus if the following conditions are satisfied:
1. The employee receiving salary or wages up to Rs.21,000 per month.
2. The employee engaged in any work whether skilled, unskilled, managerial,
supervisory etc.
3. The employee who have worked not less than 30 working days in the same year.
• The minimum bonus of 8.33% is payable by every industry and
establishment under section 10 of the Act.
• The maximum bonus including productivity linked bonus that can be
paid in any accounting year shall not exceed 20% of the salary/wage
of an employee under the section 31 A of the Act.
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 or wages during the accounting year, or
• Rs. 100 in case of employees above 15 years and Rs 60 in case of employees
below 15 years, at the beginning of the accounting year, whichever is higher
Allocable surplus-
In relation to an employer, being a company which has not made the
arrangements prescribed under the income tax act for the declaration and
apyments with in india of the dividends payable out its profit in accordance
with the provisions of section 194, 67%of the available surplus in an
accounting year.
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.
Set on and set off
• Where for any accounting year, the allocable surplus exceeds the
amount of maximum bonus payable to the employees in the
establishment under section 11, 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 in the manner illustrated in the Fourth
Schedule.
• 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 in the establishment under
section 10, and there is no amount or sufficient amount carried
forward and set on under sub-section (1) 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 in the manner illustrated
in the Fourth Schedule.
DISQUALIFICATION FOR BONUS
• Notwithstanding anything contained in the act,
An employee shall be disqualified from receiving bonus, if he is
dismissed from service for fraud or riotous or violent behaviour while in
the premises of the establishment or theft, misappropriation or
sabotage of any property of the establishment.
Duties/Rights of Employer

• DUTIES
• 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.
• To get his account audited as per the directions of a Labour
Court/Tribunal or of any such other authority.
RIGHTS
An employer has the following rights:
• Right to forfeit bonus of an employee, who has been dismissed from
service for fraud, riotous or violent behaviour, 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
 Recovery of Bonus Due
• Where any bonus is due to an employee by way of bonus, employee or
any other person authorised by him can make an application to the
appropriate government for recovery of the money due.
• If the government is satisfied that money is due to an employee by way
of bonus, it shall issue a certificate for that amount to the collector who
then recovers the money.
• Such application shall be made within one year from the date on which
the money became due to the employee.
• However the application may be entertained after a year if the applicant
shows that there was sufficient cause for not making the application
within time.
 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, as the case may be, shall be deemed to be guilty of
that offence and punished accordingly, unless the person concerned proves
that the offence was committed without his knowledge or that he exercised all
due diligence
Case: Sakhkkar Mills Mazdoor Sangh
v. Gwalior Sugar Co. Ltd
• The company engaged in the manufacture of sugar and employing
over 1100 workers.
• 300 were permanent and 800 were seasonal employees.
 Advisory board
An advisory board is a body that provides non-binding
strategic advice to the management of a corporation,
organization, or foundation. The informal nature of an
advisory board gives greater flexibility in structure and
management compared to the board of directors. Unlike
the board of directors, the advisory board does not have
authority to vote on corporate matters or bear
legal fiduciary responsibilities.
Roles and responsibilities of advisory board
members

• Developing an understanding of the business, market and industry

trends
• Provide “wise counsel” on issues raised by owners/directors or
management
• Provide unbiased insights and ideas from a third point-of-view (not
involved in the operation of the business)
• Encourage and support the exploration of new business ideas
• Act as a resource for executives.
Reasons for creating an advisory board

• The main reason to create an advisory board is to seek expertise

outside of the company. Advisory board members should provide the
company with knowledge, understanding and strategic thinking of the
industry or management of the company.
• Companies should seek advisory board members whose qualities
complement the existing board of directors and not mask gaps in
knowledge or skill in the main board.
Creating and operating an advisory board

• Mandate
The type of advisory board members should be determined by the nature of
what is sought and expected from them by the enterprise. Advisory board
members should have distinctive knowledge on different aspects of business
such as marketing, product development, sales techniques that are of use to
the directors.
• Focus
The advisory board must determine what the focus of the committee is,
whether it is a broad focus or a narrow one on a specific product feature.
Individuals in an advisory board should share a common goal or similar
interests.
• Size
Size of an advisory board influences the efficiency of delivering
ongoing information and effectiveness of organizing board meetings.
A large advisory board may result in managerial issues. Therefore, it is
recommended that an advisory board begin with the advisory board
leader, and grow from a fairly small size to its ultimate number. 
• Compensation
Advisory board members serve an enterprise for a range of reasons,
from personal loyalty to direct compensation.
Benefits of an advisory board
• Distance control
Multinational companies have local companies running their
business in a particular foreign jurisdiction for lower costs e.g. tax,
price of raw materials, and organizational benefits. However, giving
authority to an outside group of directors in the local company
may increase risks and instability of the multinational corporation. 
• Preparation for board of directors
Companies may choose to have an advisory board before they
have a board of directors. The development of an effective board
of directors requires a group of individuals with good chemistry
and has the combination of appropriate skills to propel the
business.
• Higher efficiency
A large board of directors may grow to an unmanageable size where
organizational complexity and communication breakdown may occur,
leading to ineffective and inefficient function of the board.
Drawbacks of an advisory board
• Less compensation
An advisory board deals with a more narrow range of issues and
meet less often than board of directors. There is less
commitment for advisory board members compared to directors
in the board. This is reflected in the lower compensation advisory
board members receive as compared to those in the board of
directors. 

• Fiduciary duty/ liability issues

Board of directors is exposed to a variety of legislated liabilities,
fiduciary and other duties. Responsibilities include unpaid wages,
unpaid taxes, environmental damage, etc. By subjecting directors
to such liabilities and fiduciary, directors are forced to make
decisions and establish policies in a way that minimizes risks.