In the realm of employment law, the regime with regard to payment of bonus is often misconceived. The concept is erroneously considered as boon or gift and is described as an ‘ex gratia’ payment. However, bonus is not, as its etymological meaning would suggest, a mere matter of bounty gratuitously made by the employer to his employees, nor is it a matter of deferred wages. The term has gradually acquired a changed meaning in the sphere of industrial relations whereby notions of stimulus and incentive for extra effort showing the fruits of a common enterprise, augmenting of loyalty and reward for services well rendered, etc. have been added to the connotation of that word.
Simply put, bonus is referred to a cash payment made in addition to wages. It generally represents the cash incentive given conditionally on certain standards of attendance and efficiency being attained. The foundational premise is that both labour and capital contribute to the earnings of the industrial concern and so it is, but fair, that labour should derive some benefit, if there is surplus available for that purpose. Expressed differently, the grant of bonus is not an act of charity but it is to be regarded in some measure, as a right of the workmen to share the profits of the industry. Today, payment of bonus by an employer to its employees is legally regulated by the provisions of a Central legislation, i.e, the Payment of Bonus Act, 1965.