Statutory bonus calculation is an annual exercise that catches many employers off guard, often because it is assumed to be discretionary. It is not. The Payment of Bonus Act, 1965 required eligible employees to receive at least 8.33% of their wages as bonus every year, and since 21 November 2025 these provisions sit within the Code on Wages, 2019. The structure is familiar: an eligibility ceiling, a calculation ceiling, a minimum of 8.33% and a maximum of 20% linked to the employer's allocable surplus. This guide explains each element and works through examples for individual employees and a whole establishment.
Which Establishments Must Pay Statutory Bonus
Bonus provisions have applied to factories and establishments employing 20 or more persons, with some states extending coverage to establishments with 10 or more. Under the Code on Wages, coverage is determined by the Code and the rules notified by the appropriate government. Certain categories, such as some public sector entities and non-profit institutions, are excluded. Confirm your establishment's position, especially if your headcount recently crossed a threshold.
New establishments
Under the earlier Act, new establishments had a limited exemption in their initial years until they made a profit. Check how the Code and its rules treat new establishments before relying on any exemption.
Which Employees Are Eligible
- Wage ceiling for eligibility: employees drawing wages up to ₹21,000 a month have been eligible. Under the Code on Wages, the ceiling is as notified by the government. Check the current figure.
- Minimum working days: at least 30 working days in the accounting year.
- Disqualification: employees dismissed for fraud, violent behaviour on the premises, theft, misappropriation or sabotage of property may be disqualified.
"Wages" for bonus follow the Code's definition, which includes the 50% rule. Read our guide to the Code on Wages 50% rule before testing eligibility, because a higher wage base can move employees above the ceiling.
The Bonus Formula
Bonus = bonus percentage × wages for the year (subject to the calculation ceiling)
- Minimum percentage: 8.33%, payable whether or not the employer has a profit (subject to the rules on new establishments).
- Maximum percentage: 20%, payable where the allocable surplus permits.
- Calculation ceiling: where an employee's monthly wages exceed ₹7,000 or the applicable minimum wage, whichever is higher, bonus is calculated as if wages were that higher figure. Check the current ceiling under the Code.
Worked Examples: Individual Employees
Assume the applicable minimum wage for the employees' category is ₹11,000 a month, so the calculation ceiling is ₹11,000 (higher than ₹7,000). The eligibility ceiling is ₹21,000. The employer pays the minimum 8.33%.
| Employee | Monthly wages | Eligible? | Bonus base (annual) | Bonus at 8.33% |
|---|---|---|---|---|
| A | ₹11,000 | Yes | ₹1,32,000 | ₹10,996 |
| B | ₹18,000 | Yes | ₹1,32,000 (capped) | ₹10,996 |
| C (joined 1 October) | ₹11,000 | Yes, worked more than 30 days | ₹66,000 | ₹5,498 |
| D | ₹25,000 | No | Nil |
Workings: ₹1,32,000 × 8.33% = ₹10,995.60, rounded to ₹10,996. ₹66,000 × 8.33% = ₹5,497.80, rounded to ₹5,498. Employee B's wages exceed the calculation ceiling, so the base is capped at ₹11,000 a month. Employee D is above the eligibility ceiling.
At the maximum 20%, Employee A would receive ₹1,32,000 × 20% = ₹26,400.
Days not worked
Bonus is proportionate to wages earned in the year. Employees with loss-of-pay days have a smaller base. Days on paid leave, maternity leave and lay-off are generally treated as days worked.
Allocable Surplus: Deciding Between 8.33% and 20%
The percentage above the minimum depends on the employer's profit, computed through a prescribed method:
- Start with gross profit computed as prescribed.
- Deduct prior charges (depreciation, direct taxes, development rebate and a return on capital as prescribed) to arrive at the available surplus.
- The allocable surplus is a prescribed share of available surplus (67% for companies other than banking companies that have not made arrangements for declaring dividends in India, and 60% in other cases, under the earlier Act).
- Compare the allocable surplus with the minimum bonus liability.
Establishment example
An establishment has 40 eligible employees, each with a bonus base of ₹1,32,000, so total base is ₹52,80,000.
- Minimum bonus at 8.33%: ₹4,39,824.
- Maximum bonus at 20%: ₹10,56,000.
- Allocable surplus for the year: ₹7,00,000.
- Since ₹7,00,000 lies between the minimum and maximum, bonus is paid at ₹7,00,000 ÷ ₹52,80,000 = 13.26% (rounded), so each employee receives about ₹17,500.
Set-on and set-off
If allocable surplus exceeds the 20% maximum, the excess (within limits) is carried forward as set-on for use in later years. If allocable surplus falls short of the 8.33% minimum, the shortfall is carried forward as set-off against future surpluses. These carry-forwards are typically limited to a few years. Keep a bonus register that records set-on and set-off by year.
When Bonus Must Be Paid
- Within eight months of the close of the accounting year. For a 31 March year end, that is by 30 November.
- Where there is a dispute, within the prescribed period after the dispute is settled.
- Bonus is usually paid as a single amount, though some employers pay advance bonus during the year (for example, before festivals) and adjust it against statutory bonus, which is permitted.
Include the date in your payroll compliance calendar.
Bonus vs Performance Incentives
| Basis | Statutory bonus | Performance bonus or incentive |
|---|---|---|
| Legal basis | Code on Wages | Contract or policy |
| Eligibility | Wages within the notified ceiling | As per policy |
| Amount | 8.33% to 20% of capped wages | As per plan |
| Can it replace the other? | Customary or performance bonus can be adjusted against statutory bonus only where the law permits | Statutory bonus is in addition unless adjusted lawfully |
Some employers pay statutory bonus monthly as part of salary. If you do, document it as advance statutory bonus and reconcile at year end, since the annual eligibility and percentage still apply.
Tax, PF and Accounting
- Income tax: bonus is fully taxable salary in the year received, under both regimes. Recompute TDS in the month of payment.
- PF: statutory bonus is excluded from PF wages, subject to the 50% rule on overall exclusions.
- ESI: annual bonus is generally excluded from ESI wages.
- Accounting: accrue bonus monthly (8.33% of eligible wages at minimum) so the year-end payout does not hit one month's results.
Common Mistakes
- Treating statutory bonus as optional in a loss year.
- Calculating on actual wages instead of the capped base.
- Ignoring the 50% rule when testing eligibility.
- Missing employees who left during the year but worked more than 30 days.
- Paying after the eight-month deadline.
- Not keeping a set-on and set-off register.
Advance and Festival Bonus Adjustments
Many employers pay a festival advance before Diwali or another festival and adjust it against the statutory bonus. For example, Employee A receives a ₹5,000 festival advance in October. Statutory bonus at 8.33% is ₹10,996, so the balance payable by the deadline is ₹5,996. To keep this clean:
- Label the advance in the payslip as "advance against statutory bonus", not as a gift.
- Record it in the bonus register against the employee and year.
- If the advance exceeds the final bonus (for example, the employee leaves early), check whether your policy and the law allow recovery before deducting it.
Bonus Register and Records
Keep a bonus register for each accounting year showing:
- The computation of gross profit, available surplus and allocable surplus.
- Set-on and set-off carried forward from earlier years and used this year.
- Each eligible employee's wages, days worked, bonus base and bonus percentage.
- Advances and deductions adjusted.
- Amount paid and date of payment.
Inspectors under the Labour Codes may ask for this register, and it is the first document reviewed if an employee or union disputes the bonus percentage. The Code also allows the appropriate government to prescribe the form; use the current format.
Worked check of a register line
Employee B: monthly wages ₹18,000, 365 days on rolls, no LOP. Bonus base: ₹11,000 × 12 = ₹1,32,000 (capped). At the establishment rate of 13.26%: ₹17,503 (₹1,32,000 × 13.26% = ₹17,503.20). Advance paid: ₹5,000. Balance paid: ₹12,503.
Bonus in Fininvo Payroll
Fininvo Payroll lists bonus under the Payment of Bonus framework among its compliance features, alongside gratuity and labour welfare fund. See payroll compliance.
Frequently Asked Questions
Who is eligible for statutory bonus?
Employees whose wages are within the notified eligibility ceiling (₹21,000 a month under the earlier Act) and who worked at least 30 days in the year, in a covered establishment.
How is statutory bonus calculated?
At 8.33% to 20% of annual wages, with monthly wages capped at ₹7,000 or the applicable minimum wage, whichever is higher.
Is bonus payable if the company makes a loss?
The minimum 8.33% is generally payable regardless of profit, subject to the rules for new establishments.
When is the deadline for paying bonus?
Within eight months of the end of the accounting year, so by 30 November for a March year end.
Is this legal advice?
No. This is general information. Thresholds under the Code on Wages are set by notification; check current figures and consult a professional.
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