The Payment of Bonus act 1965, is a privilege for workers employed under any establishment or factory wherein the considerable amount for payment of bonus is based upon productivity and ratio of profit. The act is applicable for establishments, employing 20 or more employees on any day of the year. And is a mandatory requirement to pay the bonus.
The bonus act and its rules and guidelines are applicable for pan India. The law is not applicable to the establishments such as LIC, hospitals, (excluded under section 32), and at entities where employees have signed an agreement with employer, to non-profit making organizations or to the organizations that are exempted by the government.
Contractual employees are not liable for the payment of bonus. Considering the exceptional case of startup, where if the organization is incurring profits in its initial years, they are bound to pay the bonus from profits. Whereas if the organization has incurred losses, then they are required to pay the bonus amount after completing 5 years irrespective of losses or profits.
The objective of bonus act is to regularize the payment of bonus under the legal framework. Herein, the bonus act encloses the mechanism to calculate the bonus, stipulates the minimum and maximum percentage of bonus, and redresses the bonus matters.