—Guide
Payment of Bonus Act: Who Is Covered and How to Calculate Statutory Bonus
Which employers and employees are covered by statutory bonus rules, the 8.33% minimum and 20% maximum, the wage ceilings, allocable surplus, and the payment deadline.
Statutory bonus is an annual payment that covered employers must make to eligible employees. The Payment of Bonus Act, 1965 has been consolidated into the Code on Wages, 2019, which retains the core rules. This guide explains them.
Who Is Covered
- Establishments employing 20 or more people.
- Employees earning wages up to ₹21,000 a month.
- Employees who have worked at least 30 working days in the year.
How Much
The minimum bonus is 8.33% of wages (or ₹100, whichever is higher), payable whether or not the business makes a profit. The maximum is 20%. Where the business has allocable surplus above the minimum, a higher bonus becomes payable up to the maximum.
Wage Ceiling for Calculation
Bonus is calculated on wages capped at ₹7,000 a month, or the applicable minimum wage, whichever is higher. So even for employees earning ₹21,000, the calculation uses the capped figure.
Allocable Surplus
The allocable surplus is worked out from the gross profits, after deducting prescribed amounts like depreciation, tax and a return on capital. A set percentage is available for bonus. Excess or shortfall is carried forward under set-on and set-off rules.
New Establishments
New establishments have historically had some relief from bonus in their early years, unless they make a profit. Check the current rules under the Code on Wages.
Timing
Bonus must be paid within eight months of the close of the accounting year.
Common Mistakes
- Treating a Diwali or performance bonus as statutory bonus without meeting the calculation.
- Ignoring employees who crossed the ceiling mid-year.
- Missing employees who left during the year.
Getting Help
Think Filing calculates statutory bonus and maintains the required records.