The Payment of Bonus Act, 1965 mandates that employer of every factory and every establishment in which twenty or more persons are employed on any day during the accounting year, to pay every employee, who has been earning wages up to Rs. 21,000/- per month, prescribed minimum bonus, in respect of every accounting year. However, the Act provides a concession in respect of newly set up establishments for first five accounting years, following the year in which the establishment is set up.
As per the concession, in respect of first five accounting years, the newly set-up establishment needs to pay bonus only from the accounting year in which the employer derives profit from such establishment or from the sixth accounting year following the accounting year in which the establishment is set up, whichever is earlier. To reckon the period of commencement of such infancy protection, the date on which the Company commences its commercial operations or sells the goods produced or manufactured and renders service to the customers is taken into account by the employer. The concession reduces the financial burden on the newly set up establishments and provides them with gestation period to raise production or services to a level where they are able to sustainably earn profits.