The Payment of Bonus Act, 1965: Notes | Corporate & Other Laws for CA Intermediate PDF Download

 Page 1


3 
The Payment of Bonus Act, 1965 
Learning Objectives 
In this Chapter, the students will understand the- 
? Applicability and non-applicability of the Act to certain classes of establishments and 
employees  
? Computation of profits for the purpose of calculation of allocable and available surplus 
for the purpose of determination of bonus 
? Set on and Set off of allocable surplus 
? Percentage limits for minimum and maximum bonus  
? Other miscellaneous provisions 
3.1  Introduction 
This is an Act intended to provide for the 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 therewith. It came into force from September 25, 1965. The Payment of 
Bonus Act, 1965 has undergone several amendments. This Act extends to the whole of India 
The Act is designed to: 
(i) impose a statutory obligation on an employer of every establishment covered by the Act 
to pay bonus to employees in the establishment; 
(ii) lay down principle and formula for calculation of bonus; 
(iii) provide for payment of minimum and maximum bonus and linking the payment of bonus 
with the scheme of set-on and set-off; and 
(iv) provide machinery for enforcement of liability for payment of bonus.  
3.2 Applicability of the Act 
Unless it is provided otherwise in this Act, it shall apply to:  
(a) every factory; and  
(b) every other establishment in which 20 or more persons are employed on any day during 
an accounting year.  
Page 2


3 
The Payment of Bonus Act, 1965 
Learning Objectives 
In this Chapter, the students will understand the- 
? Applicability and non-applicability of the Act to certain classes of establishments and 
employees  
? Computation of profits for the purpose of calculation of allocable and available surplus 
for the purpose of determination of bonus 
? Set on and Set off of allocable surplus 
? Percentage limits for minimum and maximum bonus  
? Other miscellaneous provisions 
3.1  Introduction 
This is an Act intended to provide for the 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 therewith. It came into force from September 25, 1965. The Payment of 
Bonus Act, 1965 has undergone several amendments. This Act extends to the whole of India 
The Act is designed to: 
(i) impose a statutory obligation on an employer of every establishment covered by the Act 
to pay bonus to employees in the establishment; 
(ii) lay down principle and formula for calculation of bonus; 
(iii) provide for payment of minimum and maximum bonus and linking the payment of bonus 
with the scheme of set-on and set-off; and 
(iv) provide machinery for enforcement of liability for payment of bonus.  
3.2 Applicability of the Act 
Unless it is provided otherwise in this Act, it shall apply to:  
(a) every factory; and  
(b) every other establishment in which 20 or more persons are employed on any day during 
an accounting year.  
3.2 Business Law, Ethics and Communication 
(c) the appropriate Government may also apply the provisions of this Act with effect from 
such accounting year as may be notified in the official Gazette, to any establishment or 
class of establishments [including an establishment as defined by Section 2(m) (ii) of the 
Factories Act, 1948] employing persons less than 20 but not less than 10 in number 
[Proviso to Section 1(3)].  
(d) The provision of this Act shall also apply to certain public sector establishments [Section 
20(1)]. 
An establishment in which 20 or more persons are employed on any day during an accounting 
year, must continue to be governed by this Act, inspite of the fact that the number of persons 
employed therein falls below 20 [Section 1(5)].  
A part-time employee is also an employee for the purpose of calculating the number of 
employees i.e., 20 or more under Section 1(3)(b).[Automobile Karamchari Sangh Vs. Industrial 
Tribunal, (1976) 38 FLR 268(All)] 
3.3 Act not to apply to certain classes of Employees (Section 32) 
The following are the categories of employees who are excluded from the operation of the Act: 
(i) Employees employed by the Life Insurance Corporation of India; 
(ii) Seamen as defined under Section 3(42) of the Merchant Shipping Act, 1958; 
(iii) Employees registered or listed under any scheme made under the Dock Workers (Regulation 
of Employment) Act, 1948 and employed by registered or listed employers; 
(iv) Employees employed by an establishment engaged in any industry carried on by or 
under the authority of any department of the Central Government or a State Government 
or a local authority; 
(v) Employees employed by- 
(a)  the Indian Red Cross Society or any other institution of a like nature (including its 
branches); 
(b) Universities and other educational Institutions; 
(c) Institutions (including hospitals, chambers of commerce and social welfare 
institutions) established not for purposes of profit; 
(vi)  Employees employed by the Reserve Bank of India; 
(vii) Employees employed by the financial and other institutions such as;  
(a) the Industrial Finance Corporation of India;  
(b) any Financial Corporation established under Section 3, or any Joint Financial 
Corporation established under Section 3A, of the State Financial Corporations Act, 
1951;  
(c) the Deposit Insurance Corporation;  
(d) the National Bank for Agriculture and Rural Development ; 
Page 3


3 
The Payment of Bonus Act, 1965 
Learning Objectives 
In this Chapter, the students will understand the- 
? Applicability and non-applicability of the Act to certain classes of establishments and 
employees  
? Computation of profits for the purpose of calculation of allocable and available surplus 
for the purpose of determination of bonus 
? Set on and Set off of allocable surplus 
? Percentage limits for minimum and maximum bonus  
? Other miscellaneous provisions 
3.1  Introduction 
This is an Act intended to provide for the 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 therewith. It came into force from September 25, 1965. The Payment of 
Bonus Act, 1965 has undergone several amendments. This Act extends to the whole of India 
The Act is designed to: 
(i) impose a statutory obligation on an employer of every establishment covered by the Act 
to pay bonus to employees in the establishment; 
(ii) lay down principle and formula for calculation of bonus; 
(iii) provide for payment of minimum and maximum bonus and linking the payment of bonus 
with the scheme of set-on and set-off; and 
(iv) provide machinery for enforcement of liability for payment of bonus.  
3.2 Applicability of the Act 
Unless it is provided otherwise in this Act, it shall apply to:  
(a) every factory; and  
(b) every other establishment in which 20 or more persons are employed on any day during 
an accounting year.  
3.2 Business Law, Ethics and Communication 
(c) the appropriate Government may also apply the provisions of this Act with effect from 
such accounting year as may be notified in the official Gazette, to any establishment or 
class of establishments [including an establishment as defined by Section 2(m) (ii) of the 
Factories Act, 1948] employing persons less than 20 but not less than 10 in number 
[Proviso to Section 1(3)].  
(d) The provision of this Act shall also apply to certain public sector establishments [Section 
20(1)]. 
An establishment in which 20 or more persons are employed on any day during an accounting 
year, must continue to be governed by this Act, inspite of the fact that the number of persons 
employed therein falls below 20 [Section 1(5)].  
A part-time employee is also an employee for the purpose of calculating the number of 
employees i.e., 20 or more under Section 1(3)(b).[Automobile Karamchari Sangh Vs. Industrial 
Tribunal, (1976) 38 FLR 268(All)] 
3.3 Act not to apply to certain classes of Employees (Section 32) 
The following are the categories of employees who are excluded from the operation of the Act: 
(i) Employees employed by the Life Insurance Corporation of India; 
(ii) Seamen as defined under Section 3(42) of the Merchant Shipping Act, 1958; 
(iii) Employees registered or listed under any scheme made under the Dock Workers (Regulation 
of Employment) Act, 1948 and employed by registered or listed employers; 
(iv) Employees employed by an establishment engaged in any industry carried on by or 
under the authority of any department of the Central Government or a State Government 
or a local authority; 
(v) Employees employed by- 
(a)  the Indian Red Cross Society or any other institution of a like nature (including its 
branches); 
(b) Universities and other educational Institutions; 
(c) Institutions (including hospitals, chambers of commerce and social welfare 
institutions) established not for purposes of profit; 
(vi)  Employees employed by the Reserve Bank of India; 
(vii) Employees employed by the financial and other institutions such as;  
(a) the Industrial Finance Corporation of India;  
(b) any Financial Corporation established under Section 3, or any Joint Financial 
Corporation established under Section 3A, of the State Financial Corporations Act, 
1951;  
(c) the Deposit Insurance Corporation;  
(d) the National Bank for Agriculture and Rural Development ; 
 The Payment of Bonus Act, 1965 3.3 
(e) the Unit Trust of India;  
(f) the Industrial Development Bank of India;  
(g)  the Small Industries Development Bank of India established under Section 3 of the 
Small Industries Development Bank of India Act,1989;  
(h)  the National Housing Bank ; 
(i) any other financial institution (other than a banking company) being an 
establishment in public sector, which the Central Government may, by notification 
in the Official Gazette, specify; while so specifying the Central Government shall 
have regard to its capital structure, its objectives and the nature of its activities and 
the nature and extent of financial assistance or any concession  given to it by the 
Government and any other relevant factor; 
(viii) Employees employed by inland water transport establishment operating on routes 
passing through any other country. 
3.4 Application of the Act to establishments in Public Sector in 
certain cases [Section 20] 
In following two conditions, this Act will be applied on the public sector establishments(PSEs)- 
(i)  If in any accounting year an establishment in public sector sells any goods produced or 
manufactured by it or renders any services ,in competition with an establishment in 
private sector, and 
(ii)  The income from such sale or services or both is not less than twenty percent of the 
gross income of the establishment in public sector for that year,  
then, the provisions of this Act shall apply in relation to such establishment in public sector as they 
apply in relation to a like establishment in private sector[ Sub-section(1)]. 
Save as otherwise provided in Sub-section (1), nothing in this Act shall apply to the employees 
employed by any establishment in the public sector [Sub-section (2)]. 
3.5 Definitions: (Section 2) 
Accounting year [Section 2(1)]: It means, (i) in relation to a corporation, the year ending on 
the day on which the books and accounts of the corporation are to be closed and balanced; 
(ii) in relation to a company, the period in respect of which any profit and loss account of the 
company laid before it in  annual general meeting is made up, whether that period is a year or 
not; 
(iii) in any other case- (a) the year commencing on the first day of April; or (b) if the accounts 
of an establishment maintained by the employer thereof are closed and balanced on any day 
other than the 31st day of March, then, at the option of the employer, the year ending on the 
day on which its accounts are so closed and balanced. 
Provided that an option once exercised by the employer under clause (iii)(b) shall not again be 
Page 4


3 
The Payment of Bonus Act, 1965 
Learning Objectives 
In this Chapter, the students will understand the- 
? Applicability and non-applicability of the Act to certain classes of establishments and 
employees  
? Computation of profits for the purpose of calculation of allocable and available surplus 
for the purpose of determination of bonus 
? Set on and Set off of allocable surplus 
? Percentage limits for minimum and maximum bonus  
? Other miscellaneous provisions 
3.1  Introduction 
This is an Act intended to provide for the 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 therewith. It came into force from September 25, 1965. The Payment of 
Bonus Act, 1965 has undergone several amendments. This Act extends to the whole of India 
The Act is designed to: 
(i) impose a statutory obligation on an employer of every establishment covered by the Act 
to pay bonus to employees in the establishment; 
(ii) lay down principle and formula for calculation of bonus; 
(iii) provide for payment of minimum and maximum bonus and linking the payment of bonus 
with the scheme of set-on and set-off; and 
(iv) provide machinery for enforcement of liability for payment of bonus.  
3.2 Applicability of the Act 
Unless it is provided otherwise in this Act, it shall apply to:  
(a) every factory; and  
(b) every other establishment in which 20 or more persons are employed on any day during 
an accounting year.  
3.2 Business Law, Ethics and Communication 
(c) the appropriate Government may also apply the provisions of this Act with effect from 
such accounting year as may be notified in the official Gazette, to any establishment or 
class of establishments [including an establishment as defined by Section 2(m) (ii) of the 
Factories Act, 1948] employing persons less than 20 but not less than 10 in number 
[Proviso to Section 1(3)].  
(d) The provision of this Act shall also apply to certain public sector establishments [Section 
20(1)]. 
An establishment in which 20 or more persons are employed on any day during an accounting 
year, must continue to be governed by this Act, inspite of the fact that the number of persons 
employed therein falls below 20 [Section 1(5)].  
A part-time employee is also an employee for the purpose of calculating the number of 
employees i.e., 20 or more under Section 1(3)(b).[Automobile Karamchari Sangh Vs. Industrial 
Tribunal, (1976) 38 FLR 268(All)] 
3.3 Act not to apply to certain classes of Employees (Section 32) 
The following are the categories of employees who are excluded from the operation of the Act: 
(i) Employees employed by the Life Insurance Corporation of India; 
(ii) Seamen as defined under Section 3(42) of the Merchant Shipping Act, 1958; 
(iii) Employees registered or listed under any scheme made under the Dock Workers (Regulation 
of Employment) Act, 1948 and employed by registered or listed employers; 
(iv) Employees employed by an establishment engaged in any industry carried on by or 
under the authority of any department of the Central Government or a State Government 
or a local authority; 
(v) Employees employed by- 
(a)  the Indian Red Cross Society or any other institution of a like nature (including its 
branches); 
(b) Universities and other educational Institutions; 
(c) Institutions (including hospitals, chambers of commerce and social welfare 
institutions) established not for purposes of profit; 
(vi)  Employees employed by the Reserve Bank of India; 
(vii) Employees employed by the financial and other institutions such as;  
(a) the Industrial Finance Corporation of India;  
(b) any Financial Corporation established under Section 3, or any Joint Financial 
Corporation established under Section 3A, of the State Financial Corporations Act, 
1951;  
(c) the Deposit Insurance Corporation;  
(d) the National Bank for Agriculture and Rural Development ; 
 The Payment of Bonus Act, 1965 3.3 
(e) the Unit Trust of India;  
(f) the Industrial Development Bank of India;  
(g)  the Small Industries Development Bank of India established under Section 3 of the 
Small Industries Development Bank of India Act,1989;  
(h)  the National Housing Bank ; 
(i) any other financial institution (other than a banking company) being an 
establishment in public sector, which the Central Government may, by notification 
in the Official Gazette, specify; while so specifying the Central Government shall 
have regard to its capital structure, its objectives and the nature of its activities and 
the nature and extent of financial assistance or any concession  given to it by the 
Government and any other relevant factor; 
(viii) Employees employed by inland water transport establishment operating on routes 
passing through any other country. 
3.4 Application of the Act to establishments in Public Sector in 
certain cases [Section 20] 
In following two conditions, this Act will be applied on the public sector establishments(PSEs)- 
(i)  If in any accounting year an establishment in public sector sells any goods produced or 
manufactured by it or renders any services ,in competition with an establishment in 
private sector, and 
(ii)  The income from such sale or services or both is not less than twenty percent of the 
gross income of the establishment in public sector for that year,  
then, the provisions of this Act shall apply in relation to such establishment in public sector as they 
apply in relation to a like establishment in private sector[ Sub-section(1)]. 
Save as otherwise provided in Sub-section (1), nothing in this Act shall apply to the employees 
employed by any establishment in the public sector [Sub-section (2)]. 
3.5 Definitions: (Section 2) 
Accounting year [Section 2(1)]: It means, (i) in relation to a corporation, the year ending on 
the day on which the books and accounts of the corporation are to be closed and balanced; 
(ii) in relation to a company, the period in respect of which any profit and loss account of the 
company laid before it in  annual general meeting is made up, whether that period is a year or 
not; 
(iii) in any other case- (a) the year commencing on the first day of April; or (b) if the accounts 
of an establishment maintained by the employer thereof are closed and balanced on any day 
other than the 31st day of March, then, at the option of the employer, the year ending on the 
day on which its accounts are so closed and balanced. 
Provided that an option once exercised by the employer under clause (iii)(b) shall not again be 
3.4 Business Law, Ethics and Communication 
exercised except with the previous permission of the prescribed authority in writing and on 
such terms as the authority may think to impose. 
Allocable surplus [Section 2(4)]: Allocable surplus means: 
(i) In case where company is employer- Where a company (other than a banking company) 
which has not made the arrangements prescribed under the Income-tax Act, 1961 for the 
declaration and payment within India of the dividends payable out of its profits in accordance 
with the provisions of Section 194 of that Act- there 67% of the allocable surplus in an 
accounting year shall  be the allocable surplus,  
(ii) In any other case of employer- the allocable surplus means 60% of such available 
surplus. 
Appropriate Government [Section 2(5)] : In relation to an establishment in respect of which 
the appropriate Government under the Industrial Disputes Act, 1947 is the Central 
Government, the Appropriate Government means the Central Government. But in relation to 
any other establishment, the expression means the Government of the State in which the 
other establishment is situated. 
Available Surplus [Section 2(6)]: It means the available surplus in an accounting year as 
defined and computed under Section 5 of the Act. Available surplus shall be the gross profit 
for that year after deduction of prior charges(mentioned in Section 6) and by addition of the 
amount equal to the difference of certain items(mentioned in section 7).  
Therefore, available surplus can be calculated with the following equation:  
Gross profit for the purpose of bonus – Amount of prior charges + amount equal to the 
differences between the amount of direct taxes on the gross profit [for the immediately 
preceding accounting year and of the immediate preceding accounting year after deduction of 
the amount of bonus which the employer has paid/liable to pay for that year( as calculated in 
accordance with the provisons of section 7 )] = available surplus. 
Award [Section 2(7)]: It means an interim or a final determination of any industrial dispute or 
of any question relating thereto by any Labour Court, Industrial Tribunal, or National Tribunal 
constituted under the Industrial Disputes Act, 1947, or by any other authority constituted under 
any corresponding law, relating to investigation and settlement of industrial disputes in force in 
a state and includes an arbitration award made under Section 10A of that Act or under that 
law. 
Employee [Section 2(13)] : It means any person (other than an apprentice) employed – 
(i) On a salary or wage not exceeding ` 10,000 per mensem in any industry, 
(ii) To do any skilled or unskilled, manual, supervisory, managerial, administrative, technical 
or clerical work, 
(iii) for hire or reward,  
(iv) Under  the express /implied terms of employment  
 
Page 5


3 
The Payment of Bonus Act, 1965 
Learning Objectives 
In this Chapter, the students will understand the- 
? Applicability and non-applicability of the Act to certain classes of establishments and 
employees  
? Computation of profits for the purpose of calculation of allocable and available surplus 
for the purpose of determination of bonus 
? Set on and Set off of allocable surplus 
? Percentage limits for minimum and maximum bonus  
? Other miscellaneous provisions 
3.1  Introduction 
This is an Act intended to provide for the 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 therewith. It came into force from September 25, 1965. The Payment of 
Bonus Act, 1965 has undergone several amendments. This Act extends to the whole of India 
The Act is designed to: 
(i) impose a statutory obligation on an employer of every establishment covered by the Act 
to pay bonus to employees in the establishment; 
(ii) lay down principle and formula for calculation of bonus; 
(iii) provide for payment of minimum and maximum bonus and linking the payment of bonus 
with the scheme of set-on and set-off; and 
(iv) provide machinery for enforcement of liability for payment of bonus.  
3.2 Applicability of the Act 
Unless it is provided otherwise in this Act, it shall apply to:  
(a) every factory; and  
(b) every other establishment in which 20 or more persons are employed on any day during 
an accounting year.  
3.2 Business Law, Ethics and Communication 
(c) the appropriate Government may also apply the provisions of this Act with effect from 
such accounting year as may be notified in the official Gazette, to any establishment or 
class of establishments [including an establishment as defined by Section 2(m) (ii) of the 
Factories Act, 1948] employing persons less than 20 but not less than 10 in number 
[Proviso to Section 1(3)].  
(d) The provision of this Act shall also apply to certain public sector establishments [Section 
20(1)]. 
An establishment in which 20 or more persons are employed on any day during an accounting 
year, must continue to be governed by this Act, inspite of the fact that the number of persons 
employed therein falls below 20 [Section 1(5)].  
A part-time employee is also an employee for the purpose of calculating the number of 
employees i.e., 20 or more under Section 1(3)(b).[Automobile Karamchari Sangh Vs. Industrial 
Tribunal, (1976) 38 FLR 268(All)] 
3.3 Act not to apply to certain classes of Employees (Section 32) 
The following are the categories of employees who are excluded from the operation of the Act: 
(i) Employees employed by the Life Insurance Corporation of India; 
(ii) Seamen as defined under Section 3(42) of the Merchant Shipping Act, 1958; 
(iii) Employees registered or listed under any scheme made under the Dock Workers (Regulation 
of Employment) Act, 1948 and employed by registered or listed employers; 
(iv) Employees employed by an establishment engaged in any industry carried on by or 
under the authority of any department of the Central Government or a State Government 
or a local authority; 
(v) Employees employed by- 
(a)  the Indian Red Cross Society or any other institution of a like nature (including its 
branches); 
(b) Universities and other educational Institutions; 
(c) Institutions (including hospitals, chambers of commerce and social welfare 
institutions) established not for purposes of profit; 
(vi)  Employees employed by the Reserve Bank of India; 
(vii) Employees employed by the financial and other institutions such as;  
(a) the Industrial Finance Corporation of India;  
(b) any Financial Corporation established under Section 3, or any Joint Financial 
Corporation established under Section 3A, of the State Financial Corporations Act, 
1951;  
(c) the Deposit Insurance Corporation;  
(d) the National Bank for Agriculture and Rural Development ; 
 The Payment of Bonus Act, 1965 3.3 
(e) the Unit Trust of India;  
(f) the Industrial Development Bank of India;  
(g)  the Small Industries Development Bank of India established under Section 3 of the 
Small Industries Development Bank of India Act,1989;  
(h)  the National Housing Bank ; 
(i) any other financial institution (other than a banking company) being an 
establishment in public sector, which the Central Government may, by notification 
in the Official Gazette, specify; while so specifying the Central Government shall 
have regard to its capital structure, its objectives and the nature of its activities and 
the nature and extent of financial assistance or any concession  given to it by the 
Government and any other relevant factor; 
(viii) Employees employed by inland water transport establishment operating on routes 
passing through any other country. 
3.4 Application of the Act to establishments in Public Sector in 
certain cases [Section 20] 
In following two conditions, this Act will be applied on the public sector establishments(PSEs)- 
(i)  If in any accounting year an establishment in public sector sells any goods produced or 
manufactured by it or renders any services ,in competition with an establishment in 
private sector, and 
(ii)  The income from such sale or services or both is not less than twenty percent of the 
gross income of the establishment in public sector for that year,  
then, the provisions of this Act shall apply in relation to such establishment in public sector as they 
apply in relation to a like establishment in private sector[ Sub-section(1)]. 
Save as otherwise provided in Sub-section (1), nothing in this Act shall apply to the employees 
employed by any establishment in the public sector [Sub-section (2)]. 
3.5 Definitions: (Section 2) 
Accounting year [Section 2(1)]: It means, (i) in relation to a corporation, the year ending on 
the day on which the books and accounts of the corporation are to be closed and balanced; 
(ii) in relation to a company, the period in respect of which any profit and loss account of the 
company laid before it in  annual general meeting is made up, whether that period is a year or 
not; 
(iii) in any other case- (a) the year commencing on the first day of April; or (b) if the accounts 
of an establishment maintained by the employer thereof are closed and balanced on any day 
other than the 31st day of March, then, at the option of the employer, the year ending on the 
day on which its accounts are so closed and balanced. 
Provided that an option once exercised by the employer under clause (iii)(b) shall not again be 
3.4 Business Law, Ethics and Communication 
exercised except with the previous permission of the prescribed authority in writing and on 
such terms as the authority may think to impose. 
Allocable surplus [Section 2(4)]: Allocable surplus means: 
(i) In case where company is employer- Where a company (other than a banking company) 
which has not made the arrangements prescribed under the Income-tax Act, 1961 for the 
declaration and payment within India of the dividends payable out of its profits in accordance 
with the provisions of Section 194 of that Act- there 67% of the allocable surplus in an 
accounting year shall  be the allocable surplus,  
(ii) In any other case of employer- the allocable surplus means 60% of such available 
surplus. 
Appropriate Government [Section 2(5)] : In relation to an establishment in respect of which 
the appropriate Government under the Industrial Disputes Act, 1947 is the Central 
Government, the Appropriate Government means the Central Government. But in relation to 
any other establishment, the expression means the Government of the State in which the 
other establishment is situated. 
Available Surplus [Section 2(6)]: It means the available surplus in an accounting year as 
defined and computed under Section 5 of the Act. Available surplus shall be the gross profit 
for that year after deduction of prior charges(mentioned in Section 6) and by addition of the 
amount equal to the difference of certain items(mentioned in section 7).  
Therefore, available surplus can be calculated with the following equation:  
Gross profit for the purpose of bonus – Amount of prior charges + amount equal to the 
differences between the amount of direct taxes on the gross profit [for the immediately 
preceding accounting year and of the immediate preceding accounting year after deduction of 
the amount of bonus which the employer has paid/liable to pay for that year( as calculated in 
accordance with the provisons of section 7 )] = available surplus. 
Award [Section 2(7)]: It means an interim or a final determination of any industrial dispute or 
of any question relating thereto by any Labour Court, Industrial Tribunal, or National Tribunal 
constituted under the Industrial Disputes Act, 1947, or by any other authority constituted under 
any corresponding law, relating to investigation and settlement of industrial disputes in force in 
a state and includes an arbitration award made under Section 10A of that Act or under that 
law. 
Employee [Section 2(13)] : It means any person (other than an apprentice) employed – 
(i) On a salary or wage not exceeding ` 10,000 per mensem in any industry, 
(ii) To do any skilled or unskilled, manual, supervisory, managerial, administrative, technical 
or clerical work, 
(iii) for hire or reward,  
(iv) Under  the express /implied terms of employment  
 
 The Payment of Bonus Act, 1965 3.5 
Employer [Section 2(14)]: includes- 
(1) In relation to an establishment which is a factory – the owner or occupier of the factory, 
including the agent of such owner or such occupier, the legal representative of a 
deceased owner or occupier and where a person has been named as a manager of that 
factory under Section 7(1)(f) of the Factories Act, 1948, the person so named are termed 
as employer.  
(2) In relation to any other establishment which is not a factory – the person or the authority 
which, has the ultimate control over the affairs of the establishment and if the said affairs 
are entrusted to a  manager, managing director, or managing agent then such manager, 
managing director or managing agent are termed as employer. 
Establishment in private sector [Section 2(15)]: This expression means any establishment 
other than an establishment in public Sector. 
Establishment in public Sector [Section 2(16)]: It means an establishment owned, 
controlled or managed by- 
(a) a Government company as defined in Section 617 of the Companies Act, 1956;  
(b) a corporation in which not less than 40% of its capital is held (whether singly or taken 
together) by: 
(i)  the Government; or  
(ii)  the Reserve Bank of India; or  
(iii)  a corporation owned by the Government or the Reserve Bank of India. 
Salary or wage [Section 2(21)]: It means- (i) all remuneration (other than remuneration in 
respect of over-time work) capable of being expressed in terms of money,  (ii) all remuneration 
which will be payable to an employee in respect of his employment or of work done, if the 
terms of employment, express or implied, were fulfilled,.(iii) It includes dearness allowance, 
i.e., all cash payments by whatever name called, paid to an employee on account of a rise in 
the cost of living.  
But the term excludes: 
(i) any other allowance which the employee is for the time being entitled to; 
(ii) the value of any house accommodation or of supply of light, water, medical attendance or 
other amenity or of any service or of any concessional supply of foodgrains or other 
articles; 
(iii) any travelling concession; 
(iv) any bonus (including incentive, production & attendance bonus); 
(v) any contribution paid or payable by the employer to any pension fund or provident fund 
or for the benefit of the employee under any law for the time being in force; 
(vi) any retrenchment compensation or any gratuity or other retirement benefit payable to the 
employee or any ex-gratia payment made to him; and