A PROJECT REPORT OF

“Labour Law”

“PAYMENT OF MINIMUM BONUS”

SCHOOL OF LAW
MANIPAL UNIVERSITY JAIPUR

IN PARTIAL FULFILLMENT OF THE REQUIREMENT PRESCRIBED FOR

B.A. LL.B. (HONS.) V SEMESTER

UNDER SUPERVISION OF: SUBMITTED BY:

Mr. Ajay Baranwal Prachi Sharma
Assistant Professor 151301061
Manipal University Jaipur Section B

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 CERTIFICATE

This is to certify that Prachi Sharma of B.A. LL.B. (hons) 5th semester school of law MANIPAL
UNIVERSITY JAIPUR has completed the research work under my supervision and guidance. It
is further certified that the candidate has made sincere efforts for the completion of this project
work.

SUPERVISOR’S NAME

Mr. Ajay Baranwal

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 ACKNOWLEDGEMENT

I express deep sense of gratitude & ineptness to our teacher Mr. Ajay Baranwal under whose
guidance, valuable suggestions, constant encouragement and kind supervision, the present
research work was carried out. I am also grateful to college faculty of law for their feedback and
for keeping us on schedule.

I also wish to express my sincere thanks to my friends who helped directly or indirectly by giving
their valuable suggestions.

Prachi Sharma

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Contents
INTRODUCTION ........................................................................................................................................ 5
THE PAYMENT OF BONUS ACT, 1965 ................................................................................................... 6
THE SCOPE AND EXTENT OF THE ACT : ............................................................................................. 6
Application of the Act: .................................................................................................................................. 7
OBJECTIVE: .................................................................................................................................................... 8
PAYMENT OF MINIMUM BONUS: ......................................................................................................... 8

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 INTRODUCTION

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The practice of paying bonus in India appears to have originated during First World War when
certain textile mills granted 10% of wages as war bonus to their workers in 1917. In certain cases
of industrial disputes demand for payment of bonus was also included. In 1950, the Full Bench of
the Labour Appellate evolved a formula for determination of bonus. A plea was made to raise that
formula in 1959. At the second and third meetings of the Eighteenth Session of Standing Labour
Committee (G. O.I.) held in New Delhi in March/April 1960, it was agreed that a Commission be
appointed to go into the question of bonus and evolve suitable norms. A Tripartite Commission
was set up by the Government of India to consider in a comprehensive manner, the question of
payment of bonus based on profits to employees employed in establishments and to make
recommendations to the Government. The Government of India accepted the recommendations of
the Commission subject to certain modifications. To implement these recommendations the
Payment of Bonus Ordinance, 1965 was promulgated on 29th May, 1965. To replace the said
Ordinance the Payment of Bonus Bill was introduced in the Parliament.

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S.B. Rao’s Concept of Bonus , Law Publishing House , Eighth Edition

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THE PAYMENT OF BONUS ACT, 1965

The Payment of Bonus Act, 1965 provides for the payment of bonus to persons employed in certain
establishments, employing 20 or more persons, on the basis of profits or on the basis of production
or productivity and matters connected there with.

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THE SCOPE AND EXTENT OF THE ACT :

The preamble of the Act states that the main objective of the Act is to provide for the payment of
bonus, persons in certain establishments on the basis of profits just to maintain peace and harmony
between labour and capital. The scheme of the Act, broadly stated, is four- dimensional i.e.-
(i) To impose statutory liability upon the employer of an establishment covered by this Act to pay
bonus to employees of the establishment;

(ii) To define the principle of payment of bonus according to the prescribed formula;

(iii) To provide for minimum and maximum bonus and liking the payment of bonus with the ‘set
on’ and ‘set off scheme; and

(iv) To provide machinery for the enforcement of the liability for payment of bonus.

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H.L Kumar’s Payment of Bonus Act and Rule, Seventh edition,Universal Law Publishing

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Application of the Act:

According to section 1(2), the payment of Bonus Act extends to whole of India and applies to
every factory and other establishment in which 20 or more persons are employed on any day
during an accounting year. The Act came into force w.e.f. September 25, 1965.

A provision in Sec. 1(3) by the Amendment Act of 1976 now empowers the appropriate
government to make the provisions of this Act applicable to any establishment employing less
than twenty but not less than ten persons.

The appropriate government can do so after giving notice of not less than two months by issuing
a notification in the official gazette and specifying therein the accounting year from which the
enforcement of the provisions will be made.

This amendment has benefited the employees of smaller concerns which were not formerly
covered by the Act. Once the Act has been made irrespective of the fact that the number of
persons employed therein falls below twenty or below the number specified in the notification as
the case may be at a later stage

In deciding the number of persons employed in an establishment, all employees even those
drawing more than Rs. 3500 must be taken into consideration. The strength of the employees of
an establishment would be taken into consideration irrespective of their place of work.

The Act has been made applicable with effect from an accounting year commencing on any day
in the year 1964 and with respect to every subsequent accounting year. But in the case of the state
of Jammu and Kashmir, the reference to the accounting year commencing on any day in the year!
964 and every subsequent accounting year shall be construed as reference to the accounting year
1968 and every subsequent year.

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3OBJECTIVE:

1. To improve statutory liability to pay bonus [reward for good work] in case of profits or
losses.
2. To prescribe formula for calculating bonus
3. To prescribe Minimum & Maximum percentage bonus
4. To provide of set off/set on mechanism
5. To provide redressal mechanism

PAYMENT OF MINIMUM BONUS:

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Section 10. Payment of minimum bonus.—Subject to the other provisions of this Act, every
employer shall be bound to pay to every employee in respect of the accounting year commencing
on any day in the year 1979 and in respect of every subsequent accounting year, a minimum bonus
which shall be 8.33 per cent. of the salary or wage earned by the employee during the accounting
year or one hundred rupees, whichever is higher, whether or not the employer has any allocable
surplus in the accounting year: Provided that where an employee has not completed fifteen years
of age at the beginning of the accounting year, the provisions of this section shall have effect in
relation to such employee as if for the words “one hundred rupees”, the words “sixty rupees” were
substituted.

 Bonus should be paid along with the salary

 Every year, every employer shall be bound to pay bonus to every employee.
 a minimum bonus which shall be 8.33% cent of the salary or wage earned by the employee
during the accounting year or 100/- rupees, whichever is higher.
 Bonus shall be payable in case of profits or losses in the accounting year.

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S.B. Rao’s Concept of Bonus , Law Publishing House , Eighth Edition

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Taxmann’s Payment of Bonus Act, 1965

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5Jalan Trading Co.(Private Ltd.) V. Mill Mazdoor Union 1966 SC
The case debated on whether Section 10, 33, 36 and 37 of the Payment of Bonus Act, 1965 were
discriminatory and whether application of Section 10 of the Act in the case had resulted in
deprivation of property - It was held that the legislation was within the legislative competence of
the parliament and was not a colourable exercise of power or a fraud on the Constitution of India
and Section 36 of the Act was valid, as there was no excessive delegation of powers to the
Government under its provisions - Further, Section 10 of the Act could not be challenged under
Article 14 of the Constitution merely on the ground of denial of equality however, the same had
resulted in deprivation by authority of the Law in the present case - Further, the provisions of
Section 33, 34 and 37 of the Act had not made any discrimination

6Central Coal Washery Vs. Workmen and Anr.

Tribunal held that Appellant derived profit from its three coal washeries in year 1964-65 and
workmen were, therefore, entitled to be paid bonus under Act from that year under Section 16(1)(a)
of Act - Hence, this Appeal - Whether, Appellants were entitled to be paid bonus to workmen -
Held, Appellant followed straight line method of calculating depreciation and on that basis Balance
Sheets and Profit and Loss Accounts of Appellant showed profit - However, method of
computation of depreciation followed by employer, depreciation made to be deducted with
provisions of Income-tax Act and it was only if any profit remains after adjusting such depreciation
that employer could be said to have derived profit for purpose of Section 16(1)(a) - Hence,
depreciation was required to be deducted for purpose of determining whether Appellant derived
profit from three coal washeries was not depreciation according to straight line method followed
by Appellant, but depreciation admissible under Section 32 (1) of Income-tax Act - Thus, if this
was correct interpretation of Section 16 (1)(a), it was obvious that it could hardly be disputed, that
Appellant did not derive profit from three coal washeries - Therefore, workmen were not entitled
to be paid bonus under the Act - Appeal allowed. Ratio decidendi :
"Bonus shall be paid to party if employer derives profit from establishment."

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Manupatra.co.in
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Manupatra.co.in

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 BIBLIOGRAPHY

1. Taxmann’s Payment of Bonus Act, 1965

2. S.B. Rao’s Concept of Bonus , Law Publishing House , Eighth Edition
3. Manupatra.co.in
4. H.L Kumar’s Payment of Bonus Act and Rule, Seventh edition,Universal Law Publishing

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