CMA Laws and Ethics Payment Of Bonus Act 1965 Question and Answers

Payment Of Bonus Act 1965

Question 1. Applicability and Objective of the Payment of Bonus Act, 1965
Answer:

• The Act extends to the whole of India and applies to
• Factory defined under Factories Act, 1948
• Another establishment in which twenty or more persons are employed on any day during an accounting year.
• The objective of the Payment of Bonus Act, of 1965 is the timely payment of bonuses to the employees.
• The Payment of Bonus Act contains provisions relating to applicability, valuation, set off, set on, payment, calculation of allocable surplus, etc. which ensures that the employers do not exploit the employees while making the payment.

Question 2.Employee
Answer:

• Any person employed on a salary or wage not exceeding 7,21,000 per month in any industry to do any skilled or unskilled manual, supervisory, managerial, administrative, technical, or clerical work for hire or reward whether the terms of employment be express or implied.
• Does not include an apprentice.

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Question 3. Classes of employees not covered by the Payment of Bonus Act
Answer:

Following are the classes of persons not governed by the Payment of Bonus Act, of 1965:

• Employees employed by the Life Corporation of India.
• Seamen as per Section 3(42) of the Merchant Shipping Act, 1958.
• Employees registered or listed under any scheme made under the Dock Workers (Regulation of Employment) Act, 1948.
• Employees employed by an establishment engaged in any industry called or by or under the authority of any department of Central Government a State Government or a local authority.
• Employees employed by:
  • the Indian Red Cross Society or any other institution of a like nature.
  • universities and other educational institutions.
  • institutions established not for profit.
• Employees employed by RBI
• Employees employed by
  1. IFCI
  2. SFC (State Financial Corporation)
  3. Deposit Insurance Corporation
  4. NABARD (National Bank for Agriculture & Rural Development)
  5. UTI (Unit Trust of India)
  6. IDBI (Industrial Development Bank of India)
  7. SIDBI (Small Industries Development Bank of India)
  8. NHB (National Housing Bank)
  9. Any other financial institution (other than a Banking Company) being an establishment in the public sector, which the central government may by notification specify.

Question 4. What is Allocable Surplus
Answer:

• About the employer is a company (not being a banking company) that has not made the arrangements prescribed under the Income for the declaration and payments of the dividends within India: 67% of the available surplus in an accounting year.
• Other Employers: 60% of the available surplus

Question 5.Meaning of Salary Or Wage as per Bonus Act
Answer:

All remuneration (other than remuneration in respect of overtime work) capable of being expressed in terms of money, which would, if the terms of employment, express or implied, were fulfilled, be payable to an employee in respect of his employment

Includes-

• Dearness Allowance (DA)

Excludes-

• Any other allowance which the employee is for the time being entitled to.
• Value of any house accommodation or supply of light, water, medical attendance, or other amenity
• Travelling concession
• Bonus (including incentive, production, and attendance bonus)
• Contribution paid or payable by the employer to any pension or provident fund
• Retrenchment compensation or any gratuity or other retirement benefit payable to the employee
• Commission payable to the employee.

Note:

• Free food allowance or free food by his employer shall be deemed to form part of the salary or wage of such employee.
• Retaining allowance and dearness allowance paid to the workman are also included in the definition of salary or wage.
• Lay-off compensation is also included within the ambit of wages.
• Subsistence allowance given during suspension is not included in wages.

Question 6. Calculation of Amount payable as Bonus
Answer:

Gross profit is calculated as per the First or Second Schedule.

Computation of Gross Profits

The gross profits derived by an employer from an establishment in respect of any accounting year shall:

• In the case of a banking company, be calculated in the manner specified in the First Schedule.
• In any other case, be calculated in the manner specified in the Second Schedule.
• From this Gross profit, the sum deductible under Section 6 is deducted.

Sums Deductible from Gross Profits

• any amount by way of depreciation admissible under the provisions of sub-section (1) of Section 32 of the Income-tax Act
• any amount by way of development rebate or investment allowance or development allowance which the employer is entitled to deduct from his income under IT Act.
• Any direct tax that the employer is liable to pay for the accounting year in respect of his income, profits, and gains during that year
• Any other sums as are specified in respect of the employer in the Third Schedule.
  • Add the sum equal to the difference between the direct tax calculated on gross profit for the previous year and the direct tax calculated on gross profit arrived at after deducting the bonus paid or payable to the employees.
  • The figure so arrived is available surplus.
  • Of this surplus, 67% in the case of a company (other than a banking company) and 60% in all other cases shall be the “allocable surplus” which is the amount available for Payment of bonuses to employees.

Question 7. Who is Eligible for Bonus
Answer:

Every employee shall be entitled to be paid by his employer an accounting year, bonus, under the provisions of this Act, provided he has worked in the establishment for not less than thirty working days in that year.

Question 8. When is an employee disqualified for a Bonus
Answer:

An employee shall be disqualified from receiving a bonus if he is dismissed from service for:

• Fraud
• Riotous or Violent behavior while on the premises or the establishment.
• Theft, misappropriation, or sabotage of any property of the establishment.

Question 9. Concept of Minimum Bonus
Answer:

• Where in respect of any accounting year, the allocable surplus exceeds the amount of minimum bonus payable to the employees under that section the employer shall, instead of such minimum bonus, be bound to pay to every employee in respect of that accounting year bonus which shall be an amount in proportion to the salary or wage earned by the employee during the accounting year subject to a maximum of twenty percent of such salary or wage.
• Where the salary or wage of an employee exceeds three thousand and five hundred rupees per mensem, the bonus payable to such employee shall be calculated as if his salary or wage were three thousand and five hundred rupees per mensem.

Question 10.The time limit for payment of Bonus
Answer:

• Where there is a dispute regarding payment of bonus pending before any authority: Within a month from the date on which the award becomes enforceable ‘
• In any other case: Within eight months from the close of the accounting year.

Payment Of Bonus Act 1965 Descriptive Question And Answers

Question 1. Comment on the following based on legal provisions:  ABC Ltd. which incurred heavy loss during 2011-12 has not paid Bonus to any of its employees.
Answer:

• As per the Payment of Bonus Act, of 1965, the employer should pay a minimum bonus of 8.33% to the employee for his salary or wages earned during the accounting year. The minimum bonus should not be less than INR 100 otherwise INR 100 will be paid. Minimum bonus will have to be paid even if
• the employer, does not have any allocable surplus in the concerned accounting year. If the employee has not attained fifteen years of age at the beginning of the year, the minimum bonus will not be less than INR 60.

Question 2. The workers of a factory were paid a lump sum Bonus during the Id festival, which was not at a fixed time of the year. When the statutory bonus becomes due, can the employer adjust the festival bonus from it? What other dues, if any, may be deducted from the statutory bonus?
Answer:

• It is very customary these days to pay interim bonuses in the form of puja bonuses or other customary bonuses, then the employer is entitled to deduct the amount of bonus so paid from the amount of bonus payable by him to the employee under this Act in respect of that accounting year and the employee will be entitled to receive only the balance.
• Moreover, if an employee is found guilty of misconduct causing financial loss to the employer, then the employer can 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.
• If an employee has not worked for all the working days in an accounting year, the minimum bonus of one hundred rupees or, as the case may be, of sixty rupees, if such bonus is higher than 8.33 percent of his salary or wage for ‘the days he has worked in that accounting year, is proportionately reduced.

Question 3. A worker was caught red-handed for theft and was suspended for four days after a proper inquiry. Is he entitled to a bonus payable to an employee under The Payment of Bonus Act, of 1965? 
Answer:

Notwithstanding anything contained in this Act, an employee shall be disqualified from receiving a bonus under this Act, if he is dismissed from service for:

1. Fraud; or
2. Riotous or violent behavior while on the premises of the establishment; or
3. Theft, misappropriation, or sabotage of any property of the establishment
4. Hence, the worker is not entitled to a bonus.

Question 4. What procedure shall an employee adopt for the recovery of the amount of bonus due to him from his employer under the Payment of Bonus Act, 1965?
Answer:

Recovery of bonus due from an employer:

• In those cases where any money by way of bonus is due to an employee from his employer under a settlement or an award or agreement, the employee is entitled to recover the same by following the procedure prescribed in Section 21 of the Act.
• It is important to note here that the mode of recovery of the bonus prescribed under this section shall be available only if the bonus sought to be recovered is due under a settlement an award or an agreement.
• It will not apply to the recovery of the bonus which is payable under the act.

The provisions relating to the recovery of the bonus, as contained in Section 21, are as under:

1. The bonus due to an employee from his employer under a settlement orawardard’ or agreement, can be recovered by him by making an application to the Appropriate Government for the recovery of the same.
2. The application may be made by the employee himself or by any person
   authorized by him in writing. In case of the death of the employee, such an application may be made by his assignee or heirs. ‘
3. On receipt of the application, if the Appropriate Government is satisfied that any money is so due to the employee, it shall issue the certificate for that amount to the collector, and the collector shall proceed to recover the same in the same manner as an arrear of land revenue.
4. The application to the Appropriate Government should be made within one year from the date on which the money became due to the employee from the employer. However, the Government may entertain such application even after the expiry of said one year, if it is satisfied that the applicant had sufficient cause for not making the application within the prescribed period of one year.

Question 5. Explain the “time limit for payment of bonus’ to the employees in different circumstances under the provisions of the Payment of Bonus Act, 1965.
Answer:

The time limit for payment of bonus:

Section 19 of the Payment of Bonus Act, 1965 prescribes the time limit for the payment of bonuses under the following conditions:

1. Under Section 19 (1) (a) of the said Act, where the dispute is between the employer and the employees regarding the payment of a bonus and such dispute is under reference to the prescribed authority, the employer is bound to pay his employee bonus in cash within one month from the date on which the award becomes enforceable or the settlement comes into operation, in respect of such dispute.
2. Under Section 19 (1) (b) of the said Act, in all other cases, the payment of the bonus is to be made within 8 months from the closing of the accounting year. But this period of 8 months may be extended up to a maximum of 2 years by the Appropriate Government or by any authority prescribed by the Appropriate Government only on an application to it by the employer and is satisfied that sufficient reasons exist for granting an extension. Moreover, the extension can be made only by an order.

Question 6. Discuss the procedure for the recovery of a bonus due from an employer.
Answer:

Procedure for the Recovery of Bonus Due from an Employer Section 21 of the Act provides the procedure for the recovery of a bonus in case the employer has not paid under a settlement or an award or agreement. In such cases:

• The employee himself or
• Any other person authorized by him in writing on this behalf or
• In the case of the death of the employee, his assignee or heirs may make an application to the appropriate Government for the recovery of the money due to him.
• If the appropriate Government or such authority authorized is satisfied that any money is due, it shall issue a certificate to the Collector for that amount to the Collector who shall proceed to recover the said amount in the same manner as an arrear of land revenue.
• It may be noted that every such application shall be made within one year from the date on which the money becomes due to the employee from the employer.
• As such application may be entertained after the expiry of the said period of one year; if the Appropriate Government is satisfied that the applicant had sufficient cause for not making the application within the said period.

Payment Of Bonus Act, 1965 Practical Question And Answers

Question 1. All the employees who are covered under the Bonus Act were paid a Holi Bonus of  500/- each. Later on, due to loss, the Employer paid a minimum Bonus of 8.33% but after a deduction of said $ 500/-. Whether Employer was justified.
Answer:

Yes, the Employer was justified as per provisions of Section 17the the Payment of Bonus Act, 1965. The Employer is entitled to deduct the amount of any Puja Bonus or other customary Bonus (here Holi Bonus) so paid from the amount of bonus payable to the employees m respect of that accounting year.

Question 2. Comment tho following based on legal provisions Mr, E joined as Supervisor on a monthly salary of INR 6/50 on 1 Feb 2013 and resigned on 28 Feb 2013. His employer paid a Bonus of 10% (to all the eligible employees. Hence Mr. E is entitled to a Bonus for the tho period of his service.
Answer:

The following conditions should be satisfied for entitlement of bonus under the Payment of Bonus Act.

1. He has worked for less than 30 days
2. His salary Wages does not exceed  21,000 per month [Section 2(13))
3. Provided such establishment comes under the Payment cf Bcnus Act. Mr. E is not entitled to the bonuses because he has not worked for a minimum period of 30 days.

Question 3. A company having its registered head office in Kolkata has three departments in Delhi, Chennai, and Mumbai. The company paid minimum bonus under the Payment or Bonus Act, to all its entitled employees or head office except tho employees or departments located outside Kolkata. Stale whether the employer was right.
Answer:

The employer Is wrong. As per Section 3 of the Pnymont of Bonus Act, 1965, the purpose of computation of bonus, an establishment shall include departments, undertakings, and branches. It is important whether they are situated in Sano Placolaco or not.

Exception: A branch, department o ultra shift not be treated as a pad of an establishment if the following 2 cohorts are satisfied:

• A separate B/S and PSL A/c has been p?  prepared for such branch, department, or undertaking.
• Such branch, department, or undertaking has never even* been treated as part of the establishment for computation of bonus
• But since the question is silent regarding the returned exceptions, we may assume that the establishment consists of different departments, undertakings, and branches, and all such units are treated as part of the same establishment for computer on to bonus.

Hence, the employer’s contention is not correct and the employees of ah the three departments are entitled to bonuses.

Question 4. Mr. Sharma is a supervisor in a factory drawing a salary of 77,000 pm. In a particular accounting year, he is on one month’s leave with a salary. Ha, the employer declared the minimum bonus payable as per the Payment 0! Bonus Act. 1955. to a!! eligible employees State in this connection:

1. What shall: be the salary that should” be taken into account for the cash-out bonus payable to him?
2. What shall be the total bonus payable to him? m that accounting year?
3. What would be your answer if the company suffered losses in that accounting year?
4. Is the bonus payable to him if he was illegally terminated?

Answer:

1. The bonus will be calculated at 77,000 even if the employee earns a higher salary. Where the salary or wage of an employee exceeds 77,000 per mensem, the bonus payable to such employee under Section 10 or. as the case may be under Section 11, shall be calculated as if his salary and wage were 77,000 per mensem (Section 12). This means employees getting a salary or wage up to 71,000 will be covered by the Act. but for payment of bonus, the* salary will be taken as 77.000. Amendment of Calculation of Bonus through Amendment of Sec. 12.
   • Sec. 12 of the Principal Act, provided that the bonus payable to an employee shall be in proportion to his/her salary. However, where an employee’s salary was over INR 3,500 per month, to calculate a bonus, the salary was assumed to be? 3,500 per month. To maximize bonus earnings, the Amendment Act has increased the wage ceiling from $ 3,500 per month to $ 7,000 per month or the minimum wage for the scheduled employment as fixed by the appropriate government, whichever is higher.
     Again of this section, the Scheduled Employment shall have the same meaning as assigned to it in Clause of Sec. 2 of the Minimum Wages Act, 1948.
2. The total bonus payable to him in that accounting year should be (7,000 x 12 x 8.33) = $ 6,997 To calculate the total working days, leave with salary or wages shall be deemed to be working days for the employee. Therefore, Mr. Sharma would be eligible for 12 months bonus.
3. The bonus shall have to be paid by the employer notwithstanding
   anything contained in Section 10(1), but this payment is subject to the other provisions of the Act. Even if the employer suffers a loss during the accounting year, he is bound to pay the minimum bonus as prescribed in Section 10 (State vs Sardar Dalip Singh Majhithia, 1979).
4. Disqualifications for payment of Bonus: (Section  9)’ notwithstanding anything contained in the Act, an employee shall be disqualified from receiving bonus under the Act, if he is dismissed from services for:

• • Fraud
  • Riotous or violent behavior while on the premises of the establishment; or
  • Theft, misappropriation,tion, or sabotage of any property of the establishment.
  • If an employee is illegally terminated from service, illegal remains qualified and eligible to receive a bonus.
  • If an employee was prevented from work because of an illegal order, he would be eligible for the bonus.

Question 5. A workshop is employing 50 workmen. A shop- supervisor draws monthly wages of? 9,000. HRD paid bonuses to all employees except the supervisor. The supervisor contends that he is also entitled to the bonus. Referring to the provisions of the Payment of Bonus Act, 1965, decide whether HRD’s action is cor. ect?
Answer:

• No, HRD’s action is not correct. The upper limit of sales is fixed in Section 2 (13) by the Payment of Bonus (Amendment) Act, 2015.
• Every employee whose gross salary is less than $ 21,000 shall be entitled to be paid an aid bonus by his employer provided he has worked in the establishment for not less than thirty working days
• Given this, the supervisor draws ing monthly salary of $ 9,000 and is entitled to receive five bonuses from the company.

Question 6. Kelson Limited has two separate units in Delhi and Mumbai in India. Every unit of the said company prepares and maintains its separate Balance Sheet and Profit and Loss Account. Delhi unit is incurring continuous losses and hence bonus is not paid to the employees of this unit. Decide, under the Payment of Bonus Act, 1965 whether the employees of the said unit can claim an aim bonus on the ground that the unit incurring loss is a part of one single establishment. NT?
Answer:

All the two units shall be treated as two separate establishments since all the two units maintain separate B/S and accounts.

Employees of the nuthatch are incurring losses:

• Are not entitled to claim a bonus on the ground sound that the unit incurring loss is a part of one single establishment;
• Are entitled to a minimum bonus per the provisions of Sections 10,12,13 and 14 of the Payment of Bonus Act, 1965, the new minimum bonus is payable whether or not there is any allocable surplus (and whether the establishment has made a profit or incurred a loss).

However, for computation of bonus, the amount of allocable surplus shall be taken for that particular unit only, and not of all the two units taken together.