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Unit 9: Payment of Bonus Act, 1965

Introduction Notes

In the previous unit, we dealt with the rules regarding the Workmen’s Compensation Act.
Annual Bonus is an important component of wage payable to workers. This forms 8 to 10% of the
total earnings of workers. As its payment can now be claimed as a legal right, it is looked upon
by the working class as a great hope and expectation. Again, as real wages payable to most of the
workers in India have not reached even the prewar (1939) level, the annual bonus will continue to
play the part of tilling the gap between the existing and the living wage. Though views have been
expressed for the total abolition of bonus claim, and instead for raising the wage level, it appears
that such a radical step has no chance of acceptance at least till the whole wage policy undergoes
a rational and planned formulation in place of its present haphazard growth. The purpose of this
Unit is to enable the students to comprehend basic expressions. At the end of this unit you should
be able to understand various concepts regarding the Payment of Bonus Act.

9.1 An Overview of Payment of Bonus Act

The Payment of Bonus Act, 1965 was enacted to provide for the payment of bonus to persons
employed in certain establishments on the basis of profits or productivity and for the matters
connected therewith. The Act applies to:- (i) every factory as defined under the Factories Act, 1948;
and (ii) every other establishment in which twenty or more persons are employed on any day
during an accounting year. However, the Government may, after giving two months’ notification
in the Official Gazette, make the Act applicable to any factory or establishment employing less
than twenty but not less than ten persons.
The Act is enforced through the Central Industrial Relations Machinery (CIRM). CIRM is an
attached office of the Ministry of Labour and is also known as the Chief Labour Commissioner
(Central) [CLC(C)] Organisation. It is headed by the Chief Labour Commissioner (Central).

9.1.1 Concept of Bonus

Concept of annual profit bonus has a long history behind it. Originally bonus was regarded as a
gift or an ex-gratia payment by any employer to his employees in cash or kind to motivate their
efforts on important festivals like Diwali, Durga Puja and Onam. Before the First World War
some European firms used to given free Dhoties and other household articles on festivals, while
Indian firms gave gifts in cash and kind by way of bonus. In Bengal there was a system of paying
bonus at the time of Durga Puja irrespective of profit and loss. In large concerns extra payments
were made which were called bonus. A proper system of paying bonus was started during the
First World War. In 1917 the textile industry in Bombay and Ahmedabad gave 10 recent increase
in wages calling it a war bonus, and this was increased to 15 per cent in 1918. After the war when
some concerns stopped paying bonus. Workers claimed it (fit as a right, and went on strike. The
matter was referred to a committee headed by the Chief Justice of Bombay in February, 1924. The
Committee observed that the employees had not established any enforceable claim, customary,
legal or equitable. However, workers continued to receive bonus as an ex-gratia payment in
concerns which were making profit. During the years that followed bonus ceased to be a serious
industrial relations problem due to economic recession.
During the 2nd World War, bonus again became a live issue when industries started making
extra-ordinary profits. Though some employers paid bonus voluntarily, many disputes regarding
bonus were referred to ad-hoc Industrial Courts of Tribunals for adjudication under the Defence
of India Rules. Some of these disputes went upto the Supreme Court also. The adjudicators took
the view that profits were made possible by the joint efforts of both capital and labour. The latter
therefore had a right to share in the increased profits. This position continued until the Bombay
High Court laid down that the payment of Bonus could be demanded by workers as a right,
that is to say, a payment which could be made by the employer as extra remuneration for work

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