Bonus Act: Who Qualifies and How Much

Somebody asks why their bonus was worked out on a figure well below their salary. Somebody earning a little more asks why they got no statutory bonus at all.

Both answers sit in the same Act, and they turn on two different rupee figures that look interchangeable and are not.

This guide covers the two rupee figures and what each one decides, how much is owed at the floor and at the top, who falls outside the Act, and when payment falls due.

Who the Bonus Act Covers

Start with the establishment. If the Act does not reach you, the rest is academic.

Section 1(3) of the Payment of Bonus Act, 1965 applies it to two kinds of workplace:

1. Every factory. No headcount test at all.
2. Every other establishment in which twenty or more persons are employed on any day during an accounting year.

Read the second one carefully. It is on any day, not an average and not a year-end count. A packaging unit in Vapi that ran 24 people for one busy fortnight and 14 the rest of the year is inside the Act for that year.

Clause (a) reaches a manufacturing unit only if it is a factory, and section 2(17) borrows that definition from the Factories Act, 1948. A small workshop outside it is an ordinary establishment, and needs the twenty-person count like a retail chain or a hotel.

Section 32 then takes whole classes back out, whatever the headcount. The Act does not apply to employees of:

1. Universities and other educational institutions. A school or a college is outside the Act however many people it employs.
2. Institutions not established for profit, including hospitals, chambers of commerce and social welfare institutions.
3. Government departments and local authorities, and industry carried on under their authority.
4. Named financial and public bodies, among them the Reserve Bank of India, LIC and general insurers, NABARD and SIDBI, plus seamen and listed dock workers.

The second one turns on purpose, not on activity. A private hospital run for profit is inside the Act; a charitable one is outside it.

Who Qualifies for a Statutory Bonus

The second gate is the person, not the workplace, and this is where the first rupee figure appears.

Section 2(13) defines an employee as any person other than an apprentice on a salary or wage not exceeding ₹21,000 per month. The work can be skilled or unskilled manual, supervisory, managerial, administrative, technical or clerical.

Two things follow that people get wrong:

1. It is not only for workmen. The clause names managerial and administrative staff too. Take a supervisor at a private diagnostic lab on ₹19,000: covered.
2. Above ₹21,000, there is no statutory entitlement at all. Anything paid is the employer’s own policy, not this Act.

Section 8 adds the service test. An employee is entitled provided they have worked in the establishment for not less than thirty working days in that year.

Section 14 sits beside it and is worth reading precisely. It deems an employee to have worked on days of lay-off, leave with wages, absence through an employment injury, and maternity leave with wages. But it opens for the purposes of section 13, the proportionate reduction rule, not the section 8 eligibility test.

So those deemed days govern how far the minimum is cut, not who qualifies. Reading section 14 as if it relaxed the thirty-day threshold is a common misreading. A working days calculator settles either count faster than a spreadsheet.

When an Employee Loses the Bonus

There is one route out, and it is narrower than most people assume.

Section 9 disqualifies an employee who is dismissed from service on any of three grounds:

1. Fraud.
2. Riotous or violent behaviour while on the premises of the establishment.
3. Theft, misappropriation or sabotage of any property of the establishment.

That is the whole list of disqualifications. Losing the entitlement and having the amount cut are different things. The deductions are covered with the amount, below.

The operative word is dismissed. Misconduct that ends in a warning, a suspension or a resignation does not trigger section 9. Neither does poor performance, absenteeism or a notice-period dispute.

How Much Bonus: The Floor and the Ceiling

That settles who qualifies. The Payment of Bonus Act, 1965 then sets a floor and a ceiling, and the gap between them is where the employer’s accounts decide the answer.

The line in section 10 that surprises people is the last one: the minimum is due whether or not the employer has any allocable surplus in the accounting year. A loss-making year does not remove it, with one exception below. That is a budgeting fact as much as a legal one, because you have to provide for 8.33% of the annual wage bill before anybody knows whether the year was good.

Separately, two sections let an employer reduce what is finally paid, without disqualifying anybody. Under section 17, a puja or other customary bonus already paid, or part of the statutory bonus paid early, comes off what is owed. Under section 18, where an employee is found guilty of misconduct causing financial loss, the employer may deduct that loss and the employee receives the balance, if any.

Section 18 is worth knowing because it needs no dismissal and the balance can come to nothing. It is a deduction against a proven loss, though, not a penalty an employer sets.

One exception matters most to a young business. Section 10 opens subject to the other provisions of this Act, and section 16 is one of them. Take a newly set up establishment. For the first five accounting years after it first sells goods or renders services, bonus is payable only in a year the employer derives profit.

So the floor that survives a loss at an established business does not survive one at a new one. Inside that window, a year without profit carries no bonus at all.

Two smaller rules sit alongside the floor:

1. Where an employee has not completed fifteen years of age at the start of the year, the ₹100 floor reads as ₹60.
2. Under section 13, an employee who has not worked all the working days gets that minimum reduced in proportion.

The Second Ceiling, and Why the Bonus Looks Small

This is the part that produces the question in the first line of this guide, and it is worth its own section.

Section 12 sets a second figure: ₹7,000, or the minimum wage for the scheduled employment as fixed by the appropriate Government, whichever is higher. Where salary exceeds that, the bonus is calculated as if the salary were that amount.

So the two figures are doing entirely different jobs:

1. ₹21,000 is the gate. Earn above it and the Act does not reach you.
2. ₹7,000 or the minimum wage is the base. Earn above that but below ₹21,000, and you qualify, but the sum runs on the lower figure.

Take an employee on ₹18,000 in a state where the relevant minimum wage is ₹11,000. The Act covers them, and their 8.33% runs on ₹11,000 rather than ₹18,000, because the minimum wage is the higher of the two section 12 figures. Getting that comparison the wrong way round is the most common arithmetic error in the whole Act.

When the Bonus Must Be Paid, and What to File

The Act fixes the deadline. The rules made under it fix the paperwork.

Section 19 requires bonus to be paid in cash, within eight months of the close of the accounting year. Where a dispute is pending before an authority, the period is a month from the date the award becomes enforceable.

Eight months from a year ending 31 March lands on 30 November, which is the date most Indian employers work to.

The Payment of Bonus Rules, 1975 then set out the records. Rule 4 requires three registers:

1. Form A, the computation of allocable surplus.
2. Form B, the set-on and set-off.
3. Form C, the bonus due to each employee, the deductions, and what was actually paid.

Rule 5 then requires the Form D return to reach the Inspector within thirty days after the section 19 deadline.

Those are the documents an inspection asks for. Keeping them with your other statutory registers is the difference between producing them and reconstructing them.

What This Bonus Guide Does Not Cover

One honest limit, because the Act is longer than any single guide.

Everything above concerns who qualifies and what the rate is. The figure between 8.33% and 20% depends on allocable surplus, computed under sections 4 to 7, and on the set-on and set-off carried between years under section 15. That is accounting work, usually done with your auditor, and it is a separate subject.

Section 31A is the other thing left out. Where employees and employer have agreed a bonus linked to production or productivity in lieu of profit-based bonus, that agreement governs, though any term giving up the section 10 minimum is void.

What matters for payroll is that the Act fixes both the floor and the ceiling. The number in between is an accounts question, not an HR one.

What to Check in Your Bonus Records This Week

Four checks, and each one takes minutes.

1. Confirm whether you are a factory or hit twenty people on any single day this year.
2. List everybody drawing ₹21,000 a month or less. That is your starting list, before the thirty-day test.
3. For each of them, compare ₹7,000 against your state’s minimum wage and use the higher figure as the base.
4. Check that your 8.33% provision is in the accounts rather than waiting on the year’s result, unless you are still inside the section 16 window.

The third one is where the money moves. Getting the base wrong by a few thousand rupees a head is small per person and large across a workforce, and it is the item an inspector recalculates first. A salary per day calculator helps where wages are not a flat monthly figure.

Bonus is also the payment most often confused with a discretionary one. Where you also run performance payouts, keep them separate in the records, because an incentive calculation has nothing to do with this Act. Do not net one against the other.

Attendo (formerly Petpooja Payroll) is a complete workforce management system. It runs everything from attendance at the door through to salary, in one place. The days that decide the thirty-day test and the wages that decide the base come from one record. Where attendance already feeds the attendance to salary workflow, the covered list is a filter rather than a fresh spreadsheet.

Frequently Asked Questions