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Payment of Bonus Act, 1965 & 2026 Compliance Manual

The Payment of Bonus Act, 1965 is a central statutory enactment mandating sharing of profits and financial surpluses by employers with their operational workforce. It guarantees an annual statutory bonus to eligible employees based on profits, or at a statutory minimum baseline regardless of whether the establishment earned a profit or incurred a loss.

Under the consolidated Code on Wages and Occupational Safety, Health and Working Conditions (OSH) Code (2026), bonus compliance is strictly monitored through digital return filings, synchronized with annual financial accounting closes.

Statutory Act Reference

Governing Statute: The Payment of Bonus Act, 1965
Regulatory Authority: Central / State Labour Commissionerate
Eligibility Wage Threshold: Monthly salary/wages up to ₹21,000 per month
Calculation Wage Ceiling: ₹7,000 per month or notified State Minimum Wage (whichever is higher)

📊 Statutory Bonus Percentages & Wage Ceilings (2026)​

ParameterStatutory Rate / LimitStatutory Rule
Minimum Statutory Bonus8.33%Mandatory payable even in case of operational net loss
Maximum Statutory Bonus20.00%Payable when allocable surplus exceeds minimum bonus requirements
Eligibility Wage Ceiling₹21,000 / monthEmployees drawing Basic + DA exceeding ₹21,000 are ineligible for statutory bonus
Calculation Wage Base₹7,000 / month (or Minimum Wage)Calculation is capped at ₹7,000/month or the scheduled state minimum wage for that employment, whichever is higher
Minimum Service Condition

To qualify for a statutory bonus in an accounting year, an employee must have worked in the establishment for not less than 30 working days in that financial year.

🧮 How to Calculate Statutory Bonus (Step-by-Step)​

Case 1: Employee Earning Below ₹7,000 Basic + DA​

  • Employee: Unskilled helper earning ₹6,500/month
  • Basis: Bonus is calculated directly on actual earnings: 
    Minimum Annual Bonus (8.33%) = 8.33% × (₹6,500 × 12) = ₹6,497.40

Case 2: Employee Earning Between ₹7,000 and ₹21,000 Basic + DA​

  • Employee: Operational executive earning ₹18,000/month
  • State Scheduled Minimum Wage: ₹10,200/month
  • Calculation Rule: Because ₹10,200 (minimum wage) is higher than the ₹7,000 statutory calculation floor, the calculation base is pegged at ₹10,200/month: 
    Minimum Annual Bonus (8.33%) = 8.33% × (₹10,200 × 12) = ₹10,195.92
    Maximum Annual Bonus (20%)   = 20% × (₹10,200 × 12)   = ₹24,480.00

Case 3: Employee Earning Above ₹21,000 Basic + DA​

  • Employees drawing a basic salary + DA exceeding ₹21,000 per month fall outside the purview of the Payment of Bonus Act. Any bonus paid to such employees is categorized as Ex-Gratia or performance incentive at management discretion.

🏢 Establishment Applicability & "Set-On / Set-Off" Mechanism​

  1. Applicability Threshold:
    • Any factory or establishment employing 20 or more persons (or 10+ in states like Maharashtra that amended Section 1(3)).
  2. New Establishment 5-Year Holiday Rule:
    • In the first 5 accounting years following the commencement of commercial production/business, bonus is payable only if the employer derives net profit in that accounting year.
    • From the 6th accounting year onwards, the standard provisions—including compulsory payment of the 8.33% minimum bonus and allocable surplus rules—apply in full.
  3. Set-On and Set-Off (Section 15):
    • Set-On: When allocable surplus exceeds the 20% maximum bonus, the excess surplus (up to 20% of total wage bill) is carried forward to subsequent accounting years (up to 4 years).
    • Set-Off: When there is no allocable surplus or surplus is insufficient for the 8.33% minimum bonus, the deficit is carried forward to be deducted from future profits (up to 4 years).

📅 Statutory Timeline for Bonus Disbursement & Filing​

  • Payment Deadline (Section 19): All bonus payments must be disbursed in cash/bank transfer within 8 months from the close of the financial/accounting year (e.g., for FY 2025–26 ending 31st March 2026, the statutory payment deadline is 30th November 2026).
  • Statutory Registers to Maintain:
    • Form A: Register showing computation of the Allocable Surplus.
    • Form B: Register showing set-on and set-off of the Allocable Surplus.
    • Form C: Register showing details of bonus paid to each employee.
  • Annual Return Filing: Form D must be submitted to the Inspector within 30 days from the expiry of the 8-month payment deadline.

⚠️ Disqualification & Forfeiture (Section 9)​

An employee is completely disqualified from receiving statutory bonus if dismissed from service for:

  1. Fraud or misappropriation of company funds.
  2. Riotous, violent, or disorderly behavior on the premises of the establishment.
  3. Theft, misappropriation, or sabotage of any property of the establishment.

❓ Frequently Asked Questions (FAQs)​

Can an employer refuse to pay bonus if the company suffered financial losses?​

No. Section 10 of the Act mandates that an employer must pay a minimum bonus of 8.33% of the wages earned during the accounting year, regardless of whether the business generated a profit or sustained an operational loss.

What is the difference between Statutory Bonus and Performance Bonus?​

Statutory Bonus is a legal right for employees earning up to ₹21,000/month, strictly regulated by formula and caps. Performance Bonus is a discretionary variable payout governed by corporate employment contracts for mid-to-senior executives.