5 Examples to Calculate Bonus for Employees

When Diwali or the year end comes round, one topic is on every employee’s mind: the bonus. How much will it be, and how is it worked out?

The answer depends on which bonus it is. The statutory bonus follows a formula set by law. A performance or festival bonus follows the company’s own policy.

This page shows how each one is calculated, with five worked examples, for employees checking their own bonus and for HR and owners running the sheet. I would always work out the statutory bonus first, because it is the part the law can ask you to prove.

How Is Bonus Calculated?

It depends on the type of bonus. Most employees in India get one or more of these three, and each has its own sum.

Type of bonus	Who decides it	How it is usually calculated
Statutory bonus	The law, for wages up to ₹21,000 a month, where 20 or more people are employed	8.33% to 20% of the year’s bonus wage
Performance bonus	Company policy	A share of CTC, adjusted for rating and company results
Festival bonus	Company policy	A fixed amount or a month’s basic pay, often pro-rated

The statutory bonus is the only one with a formula fixed by law, so most of this page is about it. The two policy bonuses get a worked example each.

A company can pay both. Where it pays a customary festival bonus, the Code lets it count that amount towards the statutory bonus.

One limit applies to staff covered by the statutory bonus. A productivity bonus agreed with them, added to the 8.33% minimum, cannot take the total past 20% of their wages.

The Bonus Calculation Formula

One formula covers every statutory bonus. Only the three inputs change from person to person.

Bonus = bonus wage for a month × months earned × the rate.

Input in the formula	What to put in
Bonus wage	Wages as the Code defines them. Past ₹7,000 a month, use ₹7,000 or the minimum wage, whichever is higher
Months earned	The months the employee was paid for in the accounting year
The rate	8.33% at the least, and up to 20% when the year’s surplus allows

The two rates are set by the bonus chapter of the Code on Wages, 2019, which replaced the Payment of Bonus Act, 1965. The Labour Ministry’s compliance handbook gives them as a minimum of 8.33% and a maximum of 20% of the wages earned.

One detail saves a small error on every line. The Code’s own figure is 8⅓%, which is exactly one twelfth.

So at the least, a full year’s bonus equals one month of the bonus wage. On a ₹84,000 year that is ₹7,000. Typing 8.33% into a spreadsheet gives ₹6,997.20, which is ₹2.80 short.

Which Salary Is Bonus Calculated On?

Not on gross salary or CTC. The statutory bonus runs on wages as the Code defines them. Once those wages pass ₹7,000, it runs on ₹7,000 or the minimum wage instead.

What Counts as Wages for Bonus

The Code on Wages defines wages once, and the same definition is used for bonus. All pay counts as wages unless the Code leaves it out.

Basic pay, dearness allowance and retaining allowance are always counted. Retaining allowance is pay to keep staff on through an off season.

The Code leaves out a set list of items. The ones most payslips carry are these:

• House rent allowance.
• Conveyance allowance.
• Overtime pay.
• Commission.
• The employer’s provident fund contribution.

Any other allowance, such as a shift allowance, is not on that list. So it counts as wages.

There is also a limit on how much can be left out. If the left-out items come to more than half of total pay, the extra is added back into wages.

Take a salary of ₹18,000 with ₹7,500 as basic pay and dearness allowance (an example). The other ₹10,500 is house rent, conveyance and overtime, and half of ₹18,000 is ₹9,000.

Those items are ₹1,500 over that half. So ₹1,500 is added back, and wages for bonus become ₹9,000, not ₹7,500.

The Labour Ministry’s Code on Wages FAQ says this add-back raises the base for bonus. Both limits below are tested on this figure, not on basic pay alone.

The ₹21,000 and ₹7,000 Limits

Two notified figures decide the rest, and they do different jobs:

1. ₹21,000 a month is the gate. An employee whose wages are at or under it is owed a statutory bonus. The Labour Ministry notified this figure on 25 August 2026.
2. ₹7,000 a month is the base. Where wages are higher than that, the bonus is worked out as if they were ₹7,000, or the minimum wage if that is higher. A second notification of the same date sets it.

Both notifications come from the Central Government. For most private businesses the state is the regulating government, and where a state has notified nothing, the repealed Act’s amounts carry on. They are ₹21,000 and ₹7,000 as well.

The minimum wage is where central and state positions can differ. If the state rate and the central rate differ for a job, ask your labour consultant which one to compare against. Minimum wages by state shows where to look.

5 Examples to Calculate Bonus

Every case below is invented (an example). The first three are statutory bonuses. The last two are policy bonuses.

Example 1: Statutory Minimum

Take a front desk assistant at a salon chain, earning ₹9,800 a month (an example). Suppose the minimum wage for her job is under ₹7,000.

Her wages are over ₹7,000, so the base is ₹7,000. Twelve months come to ₹84,000, and one twelfth is a bonus of ₹7,000.

In most states the minimum wage is above ₹7,000, so most employees will use the minimum wage as the base, as Example 2 does.

Example 2: Joined Mid-Year

Take a helper who joins a fabrication unit on 1 October. The accounting year runs from 1 April to 31 March (an example). He has worked more than thirty days, so a bonus is owed.

His wages are above ₹7,000 and the minimum wage for the job is ₹11,250, so that is his base. Six months come to ₹67,500, and one twelfth is ₹5,625.

Unpaid leave works the same way: add up the bonus wage actually earned. A working days calculator helps you count a broken month.

Example 3: A 20% Year, Diwali Advance

Take a housekeeping supervisor at a hotel, with a base of ₹11,250 and so ₹1,35,000 for the year (an example). The hotel had a strong year, and its surplus supports the top rate.

20% of ₹1,35,000 is ₹27,000. She was paid ₹10,000 at Diwali as an advance, which the Code lets the employer take off. The balance to pay is ₹17,000.

Example 4: A Performance Bonus on CTC

Take a software engineer at an IT services firm on a CTC of ₹9,00,000 (an example). Her wages are above ₹21,000 a month, so no statutory bonus applies.

Her offer letter sets a target bonus of 10% of CTC, which is ₹90,000. The policy pays it in line with company results, and this year the company’s results came in at four-fifths of target.

Her rating met expectations, so it adds nothing either way. With results at that level, the bonus is ₹90,000 × 0.8, which is ₹72,000.

Example 5: A Festival Bonus, Pro-Rated

Take an accounts executive at a coaching institute, on a basic of ₹15,000 a month (an example). The institute’s policy pays one month’s basic at Diwali, pro-rated for staff who joined during the year.

He joined four months before Diwali. Four twelfths of ₹15,000 is ₹5,000.

If his wages are ₹21,000 a month or less and the institute has 20 or more staff, this festival bonus counts towards his statutory bonus. The institute still pays any shortfall.

Example	Type	How it was worked out	Bonus
Example 1	Statutory	₹7,000 × 12 ÷ 12	₹7,000
Example 2	Statutory	₹11,250 × 6 ÷ 12	₹5,625
Example 3	Statutory	20% of ₹1,35,000 (₹17,000 after the advance)	₹27,000
Example 4	Performance	10% of ₹9,00,000 × 0.8	₹72,000
Example 5	Festival	₹15,000 × 4 ÷ 12	₹5,000

So before you check the amount, check which bonus you are owed.

When Does the Bonus Rate Pass 8.33%?

The rate passes 8.33% when the year’s profits leave enough surplus to pay more. The higher rate is not a choice. The steps to reach it are fixed.

The central wage rules notified on 8 May 2026 set out the working. It runs in this order:

1. Start with the year’s gross profit, worked out the way the rules lay down.
2. Take off the prior charges, which are sums the business keeps first. For a company other than a bank these include depreciation, direct tax, 8.5% of paid-up equity share capital and 6% of reserves.
3. What is left is the available surplus. 67% of it can be paid out as bonus, or 60% in a banking company. That share is the allocable surplus.
4. If that share is more than the 8.33% total, the bonus rises in step with it, up to 20%.

Take an IT services firm whose bonus wages for the year total ₹30,00,000 (an example). The least it owes is ₹2,50,000 and the most is ₹6,00,000.

Its allocable surplus comes to ₹4,20,000. That is 14% of ₹30,00,000, so every eligible employee gets 14% of their own year’s bonus wage.

Set-On and Set-Off in Plain Words

A very good year can leave more surplus than the 20% top needs. The extra is carried forward, which the rules call set-on, and it can top up a lean year.

That carry is limited to 20% of the year’s wage bill, and it can be used for up to four years.

A bad year works the other way. The business still pays 8.33%, and the shortfall is carried forward as set-off against a later good year.

This part is accounts work, usually done with your auditor from the profit and loss account, not on the payroll sheet.

Bonus Calculation for HR and Owners

For HR teams and owners, the bonus sheet runs in seven steps, and the order matters.

1. Check the business is covered: the statutory bonus applies where 20 or more people were employed on any day of the year.
2. Split your staff in two: wages up to ₹21,000 a month are owed a statutory bonus, and anyone above it is on policy only.
3. For the statutory group, fix each person’s bonus wage and the months they earned.
4. Agree the rate for the year with your auditor: 8.33% at least, more if the allocable surplus allows.
5. Add any performance or festival bonus your policy promises, and count a customary festival bonus towards the statutory one if you pay both.
6. Take off any advance already paid against the bonus.
7. Pay the statutory part into each employee’s bank account within eight months of the year’s close.

Bonus Mistakes That Change the Amount

1. Running the rate on gross salary. The rate applies to wages as the Code defines them, and to the lower base once wages pass ₹7,000.
2. Using ₹21,000 as the base. It only decides who gets a statutory bonus. The sum runs on ₹7,000 or the minimum wage.
3. Paying the statutory amount in cash. The bonus chapter requires a bank credit.
4. Dropping the 8.33% in a loss year. It is owed with or without a surplus. Only a new business is let off, for its first five accounting years after it starts selling, and only in a year without profit.
5. Mixing an incentive into the statutory bonus. An incentive calculation follows your own scheme, and an ordinary incentive cannot be counted towards the statutory bonus.

Keeping Bonus Calculation Records

The sum is only as good as the records behind it. Two of them matter most: the days each person worked, and what each person was paid.

Pulling those two records together by hand is the slow part of a bonus sheet, and it is where software helps.

So, How Much Bonus Is Due?

Start with the type. A statutory bonus is the bonus wage, times the months earned, times a rate between 8.33% and 20%. A performance or festival bonus is whatever the policy says.

If you are an employee, check whether your wages are under ₹21,000 a month, then ask HR which bonuses your company pays. If you run payroll, work one employee by hand before you run the whole sheet.

Attendo keeps attendance and pay together, so next year’s sheet starts from records you already have, at attendohr.com.

Frequently Asked Questions