- To which companies / establishments, the payment of bonus act shall be applicable?
The Act is applicable to Factories employing 10 or more persons and other establishments employing 20 more persons on any day during the financial year.
When once applicable, the Act will continue to be applicable even when the numbers of persons employed have reduced in the subsequent financial year.
- Is Payment of Bonus Act is applicable to newly established factories and establishments?
Yes. The Act is applicable to newly established factories and establishments from the date of profits being derived as stipulated under the Act irrespective of completing 5 years or not.
For Clarity, the financial year in which the first invoice is raised is taken as the year of commencement of business. After the said year, during the first five years, bonus will become payable only for the financial years in which the new factory or establishment derives profit. If the company has not derived profit during the first 5 years of its existence after completion of the financial year in which first invoice has been raised, the company is not required to pay bonus under the Act.
- One company may have different units established at different times. Some unit may be profitable and some other units may be incurring losses. Whether all the units are entitled for bonus or not?
As long as separate accounts and individual balance sheets are maintained for distinct units, bonus is payable in accordance with profit derived by the respective units.
In the matter of workmen of Modern Mills Vs General Manager [1986 (2) LLJ 329] it has been held that where a separate profit and loss account and balance sheet has been maintained by the employer as regards any unit or branch thereof, employees of that unit would be entitled to bonus on the basis of the financial statements of that unit but the requirement being that he has done so in the previous year also.
The Supreme Court in the matter of workmen of HMT Vs National Tribunal [AIR 1973 SC 2300] held that in case where the different units have been treated separately for the purpose of computation of bonus and separate balance sheet, profit and loss accounts have been prepared in respect thereof the unit would not lose their separate identity as establishment.
- Is employer liable to pay bonus even when the company has not made any profits?
After completion of first 5 years from the financial year in which first invoice is raised, the company is liable to make payment of bonus to its eligible employees at a rate of 8.33 percent of the wages or salary earned during the financial year subject to other conditions stipulated in this regard even though the company does not have allocable surplus in the accounting year.
This article is contributed by Partners of SBS and Company LLP – Chartered Accountant Company You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.
