Introductory reference note for the Payment of Bonus Act, 1965, explaining its statutory purpose, coverage and key compliance themes for Indian labour-law research.
Overview #
The Payment of Bonus Act, 1965 is a central labour welfare legislation dealing with the statutory payment of bonus to eligible employees in specified establishments. The Act links bonus payment to the profits of an establishment, and also recognises bonus based on production or productivity where applicable.
The Act was enacted after the recommendations of a Tripartite Commission constituted by the Government of India to examine the question of profit-based bonus. The Payment of Bonus Ordinance, 1965 was first promulgated on 29 May 1965, and the Act received the President’s assent on 25 September 1965 as Act 21 of 1965.
Object of the legislation #
The main object of the Act is to provide a statutory framework for payment of bonus to persons employed in certain establishments. It seeks to convert what had earlier developed through industrial practice and disputes into a legally enforceable scheme, with rules for applicability, eligibility, computation, minimum and maximum bonus, allocation of surplus, set-on and set-off, and payment within prescribed time.
The long title of the Act states its purpose as providing for payment of bonus to persons employed in certain establishments on the basis of profits or on the basis of production or productivity, and for matters connected with it.
Scope and relevance #
Under section 1, the Act applies to every factory and to every other establishment in which twenty or more persons are employed on any day during an accounting year. The appropriate Government may also extend the Act, by notification, to establishments employing fewer persons, subject to the statutory minimum threshold mentioned in the proviso.
For employers, HR departments, labour-law practitioners and compliance teams, the Act is relevant for determining whether bonus is payable, which employees are covered, how allocable surplus is calculated, when bonus must be paid, and what records or explanations may be required in a labour dispute or inspection. For employees and trade unions, it provides a statutory basis for claiming bonus where the establishment is covered and the eligibility conditions are satisfied.
Selected important provisions and themes #
- Section 1 sets out the short title, extent and application of the Act, including its application to factories and establishments employing twenty or more persons, and the power to extend it to smaller establishments by notification.
- Section 2 contains key definitions used throughout the Act, including expressions relevant to accounting year, employee, employer, establishment and salary or wage.
- Eligibility and disqualification provisions determine which employees can claim bonus and when an employee may lose entitlement because of specified misconduct.
- The Act fixes a statutory minimum bonus and a maximum bonus, making bonus liability not merely discretionary once the Act applies.
- Computation provisions deal with gross profits, available surplus and allocable surplus, which are central to calculating bonus linked with establishment profits.
- The set-on and set-off mechanism adjusts surplus or deficiency across accounting years, preventing bonus computation from being treated as an isolated one-year exercise.
- The Act contains provisions on time for payment of bonus, settlement of disputes, inspection, offences and penalties for non-compliance.
- Certain classes of employees and establishments are excluded or specially treated under the Act, so coverage must always be checked against the exemption and applicability provisions.
How to use this Bare Act #
- First check whether the establishment is a factory or an establishment covered by the employee-threshold rule under section 1, or by a Government notification extending the Act.
- Verify whether the individual worker falls within the statutory definition of employee and satisfies the eligibility conditions for the relevant accounting year.
- Use the computation provisions only with current wage ceilings, accounting records and applicable amendments; older bare-act PDFs may not reflect later statutory changes.
- For wage-payment disputes, read this Act with the Payment of Wages Act, 1936 and other labour welfare statutes applicable to the establishment.
- For current compliance, also check the status of the Code on Wages, 2019, relevant rules, notifications and State-specific labour administration practice.
Related Bare Acts and statutes #
- Payment of Wages Act, 1936
- Payment of Gratuity Act, 1972
- Code on Wages, 2019
- Child Labour (Prohibition and Regulation) Act, 1986
This page is a bare-act reference and the linked PDF may contain an older consolidated text. Users should verify the latest amendments, wage ceilings, notifications, commencement status of labour codes, and applicable Central or State rules before using the Act for litigation, compliance or advisory work.
