Statutory bonus is a compulsory annual payment employers make to eligible employees, historically governed by the Payment of Bonus Act, 1965. From 21 November 2025 these provisions were subsumed into Chapter IV of the Code on Wages, 2019, which consolidates bonus, wages, minimum wages and equal remuneration into a single law. Eligibility thresholds and the calculation method remain substantially unchanged, so the practical rules below continue to apply during the transition to the new Code.
Who is covered
The obligation applies to every factory and to establishments employing 20 or more persons on any day of the accounting year (some state governments extend it to 10 or more). Once covered, an establishment stays covered even if its headcount later falls below the threshold.
- The employee must draw wages (Basic + Dearness Allowance) of ₹21,000 or less per month.
- The employee must have worked for at least 30 days in the accounting year.
- Apprentices engaged under the Apprentices Act, 1961 are excluded.
How the bonus is calculated
Bonus is linked to the employer's allocable surplus, but every eligible employee is guaranteed a floor regardless of profits. For the calculation, wages above ₹7,000 per month (or the applicable minimum wage for that scheduled employment, whichever is higher) are capped at that figure.
| Parameter | Amount / rate |
|---|---|
| Eligibility wage ceiling | ₹21,000 per month (Basic + DA) |
| Wage ceiling for calculation | ₹7,000/month or minimum wage, whichever is higher |
| Minimum bonus | 8.33% of wages, or ₹100, whichever is higher |
| Maximum bonus | 20% of wages |
For example, an employee earning ₹18,000 is eligible; the bonus is worked out on the capped ₹7,000 (or the higher minimum wage), giving roughly ₹6,997 a year at 8.33% and up to ₹16,800 at 20%.
Payment timeline and records
- Bonus must be paid within 8 months of the close of the accounting year (extendable, on application for sufficient cause, up to two years by the appropriate authority).
- Where a bonus dispute is pending, payment falls due within one month of the award or settlement becoming enforceable.
- Maintain the prescribed registers of allocable surplus, set-on and set-off, and bonus paid, and file the annual return with the labour authorities.
Set-on and set-off
Because profits fluctuate, the law smooths bonus liability across years:
- Set-on: when the allocable surplus exceeds the amount needed for the maximum 20% bonus, the excess is carried forward up to the fourth succeeding accounting year.
- Set-off: when the surplus falls short of even the minimum 8.33%, the deficiency is met from amounts previously set on, with any remaining gap carried to later years.
Common mistakes to avoid
- Assuming loss-making units are exempt — the minimum 8.33% is payable even in a loss year, subject to the set-off rules.
- Computing bonus on gross salary instead of the ₹7,000 / minimum-wage capped figure.
- Forgetting that an employee dismissed for fraud, theft or riotous conduct can be disqualified from bonus.
- Treating an ad-hoc Diwali or festival payment as a replacement — a customary bonus can be adjusted against the statutory bonus only if it is properly documented.