According to Section 16(1-A) of the Payment of Bonus Act, in the accounting year that the employer sells the goods produced or manufactured by him he is exempt from paying Bonus for that accounting year under this Act. The Bonus Act also exempts an employer from paying Bonus to his employees during the following 5 accounting years, however, if in any of these 5 years the employer earns a profit, Bonus shall be payable by him only in respect of the accounting year in which the employer earns a ‘profit’. Such Bonus shall be calculated in accordance with the provisions of this Act in relation to that year.
The quantum of Bonus payable is calculated on the basis of Allocable Surplus. Therefore, if there is an Allocable Surplus in the 5th year, i.e. AY 2016 – 2017, then Bonus will have to be paid on it as per the provisions of this Act.
If Allocable Surplus is less than the minimum Bonus payable to the employees under Section 10 of the Act, then the employer will have to pay Bonus at the rate of 8.33% of the respective employee’s wages for that accounting year. If Allocable Surplus in the 5th year exceeds the amount of minimum Bonus payable to the employees under Section 10, then the employer shall have to pay Bonus in excess of 8.33% and in proportion to the salary or wage earned by the employee during the accounting year subject to a maximum of 20% as provided in Section 11 of the Payment of Bonus Act.
For example, let us say that the amount of minimum Bonus payable to the employees calculated at 8.33% in an accounting year is Rs 40,000/-. However, the Allocable Surplus for that accounting year is Rs 70,000/-, i.e. an amount more than the minimum Bonus payable to the employees. In such a case, the employer is bound to pay Bonus to each employee at a rate higher than 8.33%. Such higher rate of Bonus shall be calculated in proportion to the salary or wages of such employee, subject to a maximum of 20% of the employee’s salary or wages. This, therefore, means that where employees are earning different salaries/wages, the rates at which Bonus shall be paid to them shall be different, and always higher than 8.33%, in case Allocable Surplus exceeds minimum Bonus payable.
According to Section 12 of the Payment of Bonus Act, 1965 where the salary or wages of an employee exceeds Rs 3500/- per month, the Bonus payable to such employee under Section 10 or, as the case may be, under Section 11, shall be calculated as if his salary or wage were Rs 3500/- per month.
Therefore the ceiling on salary or wages on which Bonus is to be paid to employees under the Payment of Bonus Act is Rs 3500/- only.