Statutory Bonus: Eligibility, Ceiling and Calculation

Statutory bonus at three wage levels

The minimum bonus is 8.33% and the maximum is 20% of the wages earned in the year. Two ceilings, both fixed by government notification, decide who is eligible and on what wage the bonus is calculated. The table shows how the calculation ceiling caps the payout as wages rise.

Illustration. The eligibility ceiling and the calculation ceiling are both fixed by the appropriate government by notification; Rs 7,000 calc ceiling and a Rs 21,000-type eligibility ceiling are used here only to show the mechanism. Use the current notified figures.

The rule in plain words

Under section 26, every employee who has worked at least thirty days in an accounting year and draws wages up to a ceiling notified by the appropriate government is entitled to an annual bonus. The minimum is 8.33% of the wages earned, or Rs 100, whichever is higher. The maximum is 20% of wages. Where an employee's wages are above the calculation ceiling, the bonus is worked out as if the wages equalled that ceiling amount, or the applicable minimum wage, whichever is higher, which is why the payout stops climbing past the ceiling.

How the two ceilings work

There are two separate numbers. The eligibility ceiling decides who is covered at all; earn above it and you fall outside the statutory bonus. The calculation ceiling decides the wage figure used to compute the bonus for those who are covered. Both are set by notification, so the exact rupee values must be read from the current notification rather than assumed.

Exceptions and fine print

• An employee dismissed for fraud, riotous or violent conduct, or theft or sabotage of the establishment's property, is disqualified from bonus.
• Bonus above the statutory minimum, based on production or productivity, can be agreed, but total bonus still cannot exceed 20% of wages.
• New establishments get a phased treatment in their first accounting years.
• Bonus is paid out of allocable surplus, with set-on and set-off carried across years.

What an employer must do

• Read the current eligibility and calculation ceilings from the notification, not from memory.
• Pay at least 8.33% to every eligible employee, even in a loss-making year.
• Compute above-ceiling employees on the calculation ceiling or minimum wage, whichever is higher.
• Pay within the statutory time limit and record it in the bonus register.

What a worker can do

• Check whether your wages are within the eligibility ceiling; if so, a minimum 8.33% bonus is due.
• Thirty days of work in the accounting year is enough to qualify.
• If bonus is withheld without a disqualifying reason, it can be claimed.

When bonus must be paid

Under section 39, bonus must be credited to the employee's bank account within eight months of the close of the accounting year, though the appropriate government or a notified authority can extend that period. Payment by bank credit is the default the code sets, which matters for record-keeping and proof.

Disqualification and the productivity ceiling

An employee dismissed for fraud, for riotous or violent conduct on the premises, or for theft, misappropriation or sabotage of the establishment's property, is disqualified from bonus. Separately, employers and employees can agree a bonus above the 8.33% minimum linked to production or productivity, but the total, minimum plus productivity, can never exceed 20% of the wages earned in the year.

Allocable surplus, set-on and set-off

Statutory bonus is paid out of an allocable surplus computed from the employer's gross profits, with amounts set on in surplus years and set off in lean years so the liability is smoothed across time. New establishments get a phased treatment in their first accounting years. None of this reduces the floor: the 8.33% minimum is payable to eligible employees whether or not there is any allocable surplus.

Frequently asked questions