Who Pays Bonus to a Contract Worker?

The rule: the contractor is the worker's employer

A contract worker is, by definition, a worker hired in or in connection with the work of an establishment by or through a contractor (Code on Social Security, 2020, section 2). The contractor is therefore the direct employer. Statutory bonus under the Code on Wages, 2019, Chapter IV is an employer obligation, so the contractor who engages the contract worker is the party legally bound to pay that bonus, a minimum of 8.33% and a maximum of 20% of wages, with eligibility and the wage ceilings as notified. This mirrors the OSH Code, which makes the contractor responsible for payment of wages to each contract worker it employs (OSH Code, 2020, Chapter XI, section 55).

Bonus is not part of 'wages', which changes the backstop

The Code on Wages defines 'wages' to expressly exclude any bonus payable under any law for the time being in force which does not form part of the remuneration payable under the terms of employment (Code on Wages, 2019, section 2). This matters. OSH Code section 55(3) makes the principal employer a backstop when the contractor fails to pay 'wages', and lets the principal employer recover that amount from the contractor or from the licence security deposit. Because statutory bonus sits outside the 'wages' definition, treat the primary and clear liability as the contractor's, and do not assume the wage backstop automatically transfers statutory bonus to the principal employer. Confirm the exact reach of the backstop for bonus against the notified rules.

The exception that usually applies: contractor default

In practice, the exception that pulls the principal employer in is contractor default. Under OSH Code Chapter XI the principal employer is liable to pay amounts due to the contract labour if the contractor fails, and may recover what it pays from the contractor, including by deduction from sums payable under the contract or from the licence security deposit (OSH Code, 2020, section 55(3) and 55(4)). So the working answer is: the contractor pays, unless the contractor defaults, in which case the principal employer pays and recovers. Building this recovery route into the commercial contract is what protects both sides.

Legal liability versus who funds the cost

Separate two questions. Legally, the contractor must pay the bonus to the worker. Commercially, the cost is usually funded by the principal employer through the manpower supply invoice, the same way wages, PF, ESI and margin are billed. When bonus is billed this way it forms part of the taxable value of the supply, and GST at 18% (SAC 9985) applies on the full billed amount, not only on the margin. State clearly in the service agreement that statutory bonus is a pass-through cost so there is no dispute at year end.

What to do (action step)

Cost the statutory bonus into every rate you quote, at least 8.33% of wages and up to 20% as notified. Name it as a separate pass-through line in your agreement with the principal employer. Pay it to eligible workers through the same bank or electronic channel you use for wages, and keep the bonus register and payment proof. Then check the current bonus eligibility wage ceiling, the ceiling used to calculate bonus, and the exact register and form numbers against your state's notified rules before you run the payout, because these are set by notification and vary.

Illustrative example

Illustrative example. A firm supplies 40 packers to a factory at monthly wages of Rs 15,000 each. The contractor, as the direct employer, must pay statutory bonus. At the 8.33% minimum on wages, that is about Rs 1,250 per worker per bonus period, which the contractor builds into its quoted rate and bills to the factory as a pass-through line, with 18% GST charged on the full invoice value. If the contractor were to default, the factory as principal employer could be made to pay the amounts due to the workers and recover them from the contractor or the licence security deposit. Figures are illustrative only; use the notified ceilings and your actual wages.

Sources, last verified and disclaimer

Last verified: 20 September 2026. The labour codes came into force on 21 November 2025 and the Central Rules were notified on 8 May 2026, so state rules and thresholds are still being notified and should be checked. Sources: Code on Wages, 2019 (Chapter IV on bonus and the section 2 definition of wages); Occupational Safety, Health and Working Conditions Code, 2020 (Chapter XI, Part I, sections 45 and 55); Code on Social Security, 2020 (section 2 definitions of contract labour and contractor); and GST law on manpower supply services (18%, SAC 9985). This page is general information for staffing and manpower firm owners and is not legal advice; apply it to your own facts and your state's notified rules. Reviewer: pending named legal review.

Key points

• The contractor, as the contract worker's direct employer, is primarily liable to pay statutory bonus under the Code on Wages, 2019 (a minimum of 8.33% and a maximum of 20% of wages).
• Statutory bonus is expressly excluded from the definition of 'wages' in the Code on Wages, so the OSH Code wage-payment backstop is framed around wages, not bonus, and contractor liability is the clear rule.
• If the contractor defaults, the principal employer can be made to pay amounts due to the contract labour and can recover from the contractor or the licence security deposit (OSH Code, 2020, Chapter XI, section 55).
• Legal liability sits with the contractor, but the cost is usually funded by the principal employer through the invoice, where it forms part of the taxable value and attracts 18% GST (SAC 9985).
• Bonus eligibility, the wage ceilings and the register and form numbers are set by notification and vary by state, so verify them before paying.

Related questions

Check for your state

• Whether the OSH Code principal-employer backstop (section 55, framed around 'wages') extends to statutory bonus is not settled by the statutory text alone, because bonus is excluded from the 'wages' definition; the verified position describes the backstop as covering wages and benefits. Confirm the reach for bonus against the notified rules and any clarification.
• The bonus eligibility wage ceiling and the ceiling used to calculate bonus under the Code on Wages are set by notification and are not stated in the source pack; verify the current figures before publishing.
• The exact bonus register and form numbers, and any state-specific variation, are set by the notified rules and must be confirmed for the relevant state.
• The precise Code on Wages section numbers for minimum and maximum bonus were not in the source pack (only Chapter IV is cited); confirm the section references before publishing.
• State thresholds for principal-employer registration and contractor licensing (widely reported as raised to 50 workers under the OSH Code but varying by state) affect which establishments this applies to; verify against the state's notified rule.