Background
The Payment of Bonus Act, 1965 was enacted to ensure that employees received a statutory share of the profits or productivity of an establishment by way of bonus. It introduced the concept of minimum and maximum bonus, defined eligibility based on wage ceilings, and created a uniform method for calculating allocable surplus and bonus distribution. Over time, however, differing state amendments, multiple definitions across labour laws, and fragmented enforcement mechanisms created inconsistency and compliance complexity.
Comparison between the Payment of Bonus Act, 1965 and the Code on Wages, 2019
Sr. No. | Point of Difference | Payment of Bonus Act, 1965 | Code on Wages, 2019 |
1 | Applicability Based on Wages | Applied only to employees earning up to ₹21,000 per month. | Applies to all establishments employing 20 or more persons, and employees become eligible if their wages do not exceed the amount notified by the Central or State Government. |
2. | Definitions | Wages: Defined wages with components including basic pay and allowances, but applicable only for bonus computation. Statutory bonus was not included in wages.
Employer: Defined employer as a person employing individuals, including contractors and legal representatives.
Employee: Covered employees earning up to ₹21,000 per month (Section 2(13)). Limited to non-managerial workforce for bonus purposes.
| There has been a significant change in certain definitions under the Code which will be applicable for all the Chapters and has unified the definition: Wages. Employer, employee, appropriate government, etc |
3. | Eligibility for Bonus | Only employees within the wage ceiling were entitled to statutory bonus. | Employees earning above the notified wage threshold may also be eligible for bonus, calculated on minimum wages or wage amount notified whichever is higher. |
4. | Grounds for Disqualification | Bonus could be denied for misconduct such as fraud, theft, riotous behaviour, or sabotage. | Includes all previous grounds and adds “conviction for sexual harassment” as a new ground for disqualification. |
5 | Allocable Surplus Calculation | Allocable surplus = 60% of available surplus in most establishments. | Allocable surplus increased to 67%, except for banks, where it remains at 60%. |
6 | Mode of Bonus Payment | Bonus had to be paid in cash within 8 months from the close of the accounting year. | Bonus must be credited directly to the employee’s bank account within the same 8-month period. |
7 | Bonus During Pending Disputes | Bonus payment could be delayed until the dispute was resolved. | Employer must pay minimum bonus (8.33%) within 8 months, even if a dispute exists. Any balance due after the dispute resolution must be paid within 1 month of the award or settlement. |
8 | Inspection System | Relied on traditional “Inspectors” with authority to conduct surprise checks and enforce compliance. | Introduces Inspector-cum Facilitators, who focus on guidance, digital inspections, and compliance support rather than punitive enforcement. |
9 | Limitation Period for Claims | Employees had 6 months to 2 years to file claims. | Limitation extended to 3 years, making it easier for employees to raise claims. |
10 | Burden of Proof | Not explicitly placed on the employer. | The employer now carries the burden to prove that employee claims have already been settled. |
11 | Penalties | Imprisonment up to 6 months + fines (up to ₹2,00,000). | Penalties are mostly monetary and more lenient. Repeat offences within 5 years may lead to up to 3 months’ imprisonment and higher fines (up to ₹1,00,000). |
Similarities between the Acts
Both the Payment of Bonus Act, 1965 and the Code on Wages, 2019 share several foundational principles:
Objective of Bonus
Both frameworks aim to ensure workers receive a share in the profits or productivity gains of the establishment through a statutory bonus.
Government Oversight
In both laws, the Central and State Governments are empowered to:
Notify wage thresholds
Frame rules for computation
Decide eligibility criteria
Computation Mechanism
The basic structure for computing:
Available surplus
Allocable surplus
Minimum bonus (8.33%)
Maximum bonus (20%)
remains aligned in both legislations.
Protection of Worker Rights
Both Acts safeguard employee interests by:
Preventing unjustified denial of bonus
Ensuring timely payment
Providing mechanisms to address disputes
Conclusion
The comparison clearly shows that while the Code on Wages, 2019 preserves the core principles of the Payment of Bonus Act, 1965, it introduces substantial changes aimed at modernization and wider coverage. The Code broadens eligibility, strengthens the computation framework, modernizes payment methods, enhances the limitation period for claims, and shifts toward a facilitative rather than punitive inspection system. At the same time, it retains essential elements such as minimum and maximum bonus limits, surplus-based calculations, and government oversight.
Overall, the Code represents a structural shift from a stand-alone law to a consolidated and uniform wage framework, intended to improve clarity, reduce compliance burdens, and extend social security benefits to a larger workforce while maintaining the foundational intent of the original legislation.
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