Bonus Payment to Employees: Meaning, Calculation, Act

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“Bonus”, the word is enough to brighten the day of every salaried employee. So, we thought of making a blog post around it. The blog will tell you the way to calculate bonuses, check eligibility, and the act related to Payment of Bonus. Take a look.

What is a bonus?

It is a reward that is paid to a working professional for the dedication and enthusiasm he has shown towards his work or in a particular project. Put simply, a bonus is that part of the company profit that is being shared by the employees.

What is Payment of Bonus Act?

The payment of bonus in India is governed by law and the act is known as payment of bonus act, 1965. Every factory and establishment that has 20 or more employees in the accounting year has to abide by this act. Such businesses should pay the bonus even if the number of employees fall down in the year later.

The bonus must be paid in a span of 8 months after the accounting book has been closed.

Is the Payment of Bonus act applied to every business?

The payment of bonus act is applied to every establishment, factory or company. Here are the provisions:

  • The Payment of Bonus Act 1965 applies to every establishment with 20 or more employees.
  • The act is also applicable in public sectors in certain scenarios.
  • Not just full-time but part-time employees should also be paid according to this act.
  • For the factories, guidelines are mentioned in clause section 2 of the factories act of 1948.

Are all the employees eligible for the bonus?

Every employee who draws Rs. 21,000 or more every month and has worked for not less than 30 days in a financial year is eligible for a bonus. So, in accordance with the act, the establishment should pay the bonus to the employee.

Calculation of Bonus as per Bonus Act (Amendment of 2015)

When the gross earning of employees is less than Rs. 21,000; they should get a bonus. The right way to do the bonus calculation is:

  • The basic+DA is less than Rs.7000, the bonus would be the actual amount.
  • The basic+DA is more than Rs. 7000, the bonus would be calculated on Rs. 7000.

Are some employees ineligible for the bonus?

The payment of Bonus Act doesn’t consider the following kinds of employees eligible for payment.

  • The workforce in Life insurance company
  • The employees registered or listed under the Dock Workers Act of 1948.
  • Employees of an industry controlled by state or central government.
  • Employees of Indian red cross society, NGOs or educational institutes.
  • Employees of RBI
  • Employees involved in building operation by a contractor.
  • The people working in inland water transport.

There are some other employees also that are not considered eligible. Hope this blog helped you.

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Sukriti Saini

Sukriti Saini works as a content marketing strategist at HROne. She has done Bachelors in Journalism from Delhi University and carries several years of experience in content development. HR trends, Productivity, Performance and topics related to Employee Engagement garner most of her writing interest here. During leisure, she loves to write and talk about fashion, food & life.

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