Payment of Bonus Act – Bonus Rules, Eligibility & Complete Guide

Key Insights 

1. The Payment of Bonus Act applies to businesses with more than 20 employees and requires them to pay a minimum bonus of 8.33%, even if the company is not making a profit.

2. Employers must pay the bonus within eight months. Only employees who earn ₹21,000 per month or less are eligible.

3. The Code on Wages, 2019, will soon replace this Act and could change how “wages” are defined for bonus calculations.

The Payment of Bonus Act applicability, requiring companies to share yearly profits with employees who qualify. The Payment of Bonus Act 2023 update changes who is eligible and how bonuses are figured out. Section 8 of the Payment of Bonus Act 1965 makes sure bonuses are paid on time, which helps both employees and employers.

How to Use the Payment of Bonus Act?

Not sure if you qualify under the Payment of Bonus Act 1965 Ipleaders? Start by checking your salary and the size of your company. If you want to skip confusion, grab these easy Payment of Bonus Act 1965 notes or a simple guide to the latest rules and Payment of Bonus Act amendment.

The Payment of Bonus Act 1961 is a law that requires employers to share profits with employees by paying a bonus based on salary and company profits. Payment of Bonus Act amendment to the Act updates these rules from time to time, so using resources like Payment of Bonus Act 1965 Ipleaders helps employers stay up to date and respectful.

Example:

An HR manager works out bonus liability by following the Payment of Bonus Act 1961. HR manager wants to apply the latest Payment of Bonus Act amendment correctly, the manager checksthe  official Payment of Bonus Act 1965 notes and a Payment of Bonus Act 1965 Ipleaders article. This helps eligible employees get their bonuses quickly and without conflicts.

Highlights of the Payment of Bonus Act

The Payment of Bonus Act requires companies to share part of their profits with employees. Its purpose is to support workers and keep businesses stable by setting clear rules for paying bonuses.

• Every factory and any other establishment employing 20 or more persons on any day during an accounting year.
• Employees earning up to ₹21,000 per month, according to the 2015 amendment, are eligible if they have worked at least 30 days in the year.
• A minimum bonus of 8.33% of the yearly salary or wage, or ₹100 (whichever is higher), must be paid even if the company has a loss.
• The highest bonus allowed is 20% of the salary or wage.
• If an employee earns more than ₹7,000 per month, the bonus is calculated using ₹7,000 or the minimum wage, whichever is higher.

These are the key highlights of the Payment of Bonus Act, and you can now see the recent changes for 2024-2025.

• The Code on Wages, 2019, will replace the 1965 Act. Although the new code has been approved, it is not yet fully in effect.
• Trade unions are still calling for all salary limits on eligibility and calculation to be removed. This has been a key demand in several general strikes.
• The Ministry of Labour continues to enforce the ₹21,000 eligibility limit. Annual returns (Form D) must also be filed online.
• The new labour codes may come into effect in 2025. If this happens, the definition of “wages” could become 50% of CTC, which might affect how bonuses are calculated.

The Act is still an important rule for fair profit-sharing and will soon be updated with new labour codes.

Bonus Tip: When employees are hired through contractors, the Principal Employer is not responsible for paying bonuses because bonuses are not considered 'wages.' However, the contractor may still be liable.

History and Background of the Payment of Bonus ACT

Wondering if the Payment of Bonus Act, 1965, applies to your workplace? If your factory or establishment has 20 or more employees, it does. Here’s what you need to know: every eligible employee gets at least 8.33% of their wages as a bonus. If you earn up to ₹3,500 per month, you qualify. Even if your salary is higher but not more than ₹10,000 per month, your bonus will still be calculated as if you earn ₹3,500. For most central government industries, the Central Government is the authority in charge.

Features & Importance of Payment of Bonus ACT

Think your salary is all you get from your company? The Payment of Bonus Act actually gives you a share of company profits as a bonus, not just your regular pay.

Here are the key features and the importance of the Payment of Bonus Act:
 

The Act says companies must share profits with employees in a fair and structured way, so workers receive real benefits from the company’s earnings.

Conclusion

The Payment of Bonus Act encourages shared prosperity by making sure profits are fairly divided between owners and workers. As it becomes part of today’s labour laws, its focus on turning company earnings into employee rewards remains important for fair workplaces.

FAQs

If someone reviewed their offer letter but didn't find any clause regarding that. Can they take legal action within the law? 

If an offer letter does not mention a clear penalty for not joining, it is usually difficult for the company to take legal action. Companies might send legal notices for wasting their time or resources, but unless there is a signed agreement, sometimes on stamp paper, depending on the location, that lets them claim damages, they generally cannot force you to join or ask for compensation.

What should I do if my company cheated me out of my bonus? 

If your company has not paid you a bonus you have earned, begin by gathering important documents like your employment contract, bonus policy, performance reviews, and any related emails. Write a formal request for the payment. If that does not work, bring the issue to HR or a manager. If you still do not get your bonus, you can file a complaint with the labour commissioner, ask a lawyer to send a demand letter, or take legal action for breach of contract.

Will the payment of a bonus be applicable to private companies? 

The Payment of Bonus Act, 1965, applies to private companies with 20 or more employees at any time during an accounting year. If the Act becomes applicable, it continues to apply even if the employee count drops below 20 later. It covers employees who earn up to ₹21,000 per month and have worked at least 30 days in the year.

Can you please explain Section 16 of the Payment of Bonus Act, 1956?  

Section 16 of the Payment of Bonus Act, 1965, sets out special rules for new businesses about bonus payments. If a new company does not make a profit in its first years, it can get a partial exemption from paying bonuses.

Which types of payments count toward bonus calculations?

When calculating bonuses, only your basic salary and dearness allowance are included. Payments such as overtime, travel allowance, or gratuity do not count toward the bonus.