Is It Compulsory To Give Bonus - CiteHR
Kamalkantps
Advocate
Abbasiti
Assistant Engineer, Indian Telephone Industries,
Pulipaka_ramarao
Manager - Hr & Ir
+6 Others

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Dear all,
Recently my company has been converted into pvt. ltd company (march-2013).
Before that company was not registered.
As per my knowledge, company is not liable to pay bonus of first five year...
Is it true or not?
is our company is liable to pay?

Dear Rakesh MBA,
Instead of being anonymous, reveal yourself ; so that our colleagues will get enthusiasm to attend the query.
Your knowledge that company is not liable to pay bonus of first five year...is correct. I shall quote Section 16 (1A) of Bonus Act as under.
16. Special provisions with respect to certain establishments.-
(1A) In the first five accounting years following the accounting
year in which the employer sells the goods produced or manufactured by
him or renders services, as the case may be, from such establishment,
bonus shall be payable only in respect of the accounting year in which
the employer derives profit from such establishment and such bonus
shall be calculated in accordance with the provisions of this Act in
relation to that year, but without applying the provisions of section 15.
Abbas.P.S

I agree with Mr.Abbas views and legal position is very clear as per Bonus Act. Any one asking for queries can be open to make discussions live and interesting, Thanks B.Dakshina Murty
I also agree with Mr. Abbas but like to add here that the period of first 5 years will be counted from the start of the business of the establishment and not from the date on which company is converted as pvt ltd company. Bonus Act is applicable not only to the companies but also to the proprietorship firms, partnership firms having such numbers of employees/workers as specified under the payment of bonus act.
Pl refer to your query to the above subject, pl go through the contents u/s 16 and also Schedule 4 of Payment of Bonus Act. Regards, V R RAO PULIPAKA
Dear Friends and Fellow Members,
I would like to add one more thing to it that if a company or a proprietaryship firm or any other employer newly formed gains profit in its first year or in any year for that matter before 5 th year the company shall become liable to pay bonus to its employees from that year itself. Otherwise after 5 year it becomes madatory for a company or a proprietaryship firm or any other employer to pay bonus to its employees regardless of the fact that they made profit or loss. 5 years infancy is only for those who do not make profit in first 5 years of their starting the business.

What Mr Kamal Kant has stated is very important. Everyone must take note of his remarks. You cannot plainly say that No Bonus for first five years, if company is New. If Company makes any profit, in any of the year since its startup, it has to pay Bonus.
Many thanks to Mr Kamal Kant for pointing out this rule, in his short and simple words, which gives more clarity,

Dear Seniors ,
On the same topic , had one more query , Is bonus compulsary of all companies especially those registed under shop and establishment act (as I understand , lot of IT - ITES companies have not been extending this benefit to their employees )
Also if a company is in losses - can it not pay the statutary bonus component
Regards
Ruchi Shah

Dear Ruchi,

This act applies to all the factories and establishments wherein 20 or more workers were employed on any day in an accounting year. Even it applies to IT and ITES Companies also.

Please see the below Section 1 from the act for more clarity.

1. Short title extent and application.-

(1) This Act may be called the Payment of Bonus Act, 1965.

(2) It extends to the whole of India 2***.

(3) Save as otherwise provided in this Act, it shall apply to--

(a) every factory; and

(b) every other establishment in which twenty or more persons are employed on any day during an accounting year:

3*[Provided that the appropriate Government may, after giving not less than two months' notice of its intention so to do, by notification in the Official Gazette, apply the provisions of this Act with effect from such accounting year as may be specified in the notification, to any establishment or class of establishments [including an establishment being a factory within the meaning of subclause (ii) of clause (m) of section 2 of the Factories Act, 1948 (63 of 1948)] employing such number of persons less than twenty as may be specified in the notification; so, however, that the number of persons so specified shall in no case be less than ten.]

(4) Save as otherwise provided in this Act, the provisions of this Act shall, in relation to a factory or other establishment to which this Act applies, have effect in respect of the accounting year commencing on any day in the year 1964 and in respect of every subsequent accounting year:

In case if a company made profit in any year in first 5 years, the act shall become applicable since that year itself. Also once if the act becomes applicable it stays applicable even if your employee strength falls less than 20 or you made loss in any year.

If you are making loss for first five years then you are not liable to pay bonus to your employees but from 6th year onwards even if you are making losses you have to give the minimum statutory bonus to employees.

Feel free to revert in case of any doubt...

Dear , you have stated that your establishment has been converted to company and registered prior to registration it was firm be it proprietary or partnership if it had 20 or more employees on any day during an accounting year and POB Act was applicable, it was liable to pay bonus.(Sec.3(b) of POB Act 1965
This reply is based on the contents of your quarry
RL Dhingra,
Labour Law Consultant,Delh-9818309937,e-mail:rld_498@rediffmail.com


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