Statutory bonus is an annual payment that lower-paid employees are legally entitled to, over and above their salary, under the Payment of Bonus Act, 1965. It is not a discretionary performance bonus; it is a floor set by law, linked to the company’s profits within a defined range.

Who is eligible

An employee is covered if they draw wages, meaning basic plus DA, of Rs 21,000 a month or less, and have worked at least 30 days in the accounting year. The Act applies to establishments with 20 or more employees. Employees above the Rs 21,000 wage ceiling are outside the statutory scheme, though many employers pay them an ex-gratia amount in its place.

How much

The bonus is between 8.33% and 20% of the employee’s annual wages, with the actual percentage depending on the employer’s allocable surplus for the year. A minimum of 8.33% is payable even in a loss year. For the calculation, wages are capped at Rs 7,000 a month or the minimum wage for the work, whichever is higher. So an employee earning Rs 18,000 a month is still assessed on Rs 7,000 (or the applicable minimum wage), not Rs 18,000.

At the 8.33% minimum on a Rs 7,000 ceiling, the yearly bonus works out to about Rs 6,997. At 20% it is roughly Rs 16,800. Bonus must be paid within eight months of the close of the accounting year.

Frequently asked questions

Is statutory bonus taxable?

Yes, it is taxable as salary income in the year it is received.

Can an employer pay bonus monthly instead of yearly?

Some do, as an advance against the annual liability, but the legal obligation is an annual payment within eight months of year end.

Does a new company have to pay statutory bonus?

There is an infancy protection: a newly set-up establishment pays bonus only from the year it earns a profit, within the first five years, then normal rules apply.

Work out the figure with the Statutory Bonus Calculator, and see where it sits in total employer cost using the Payroll Cost Calculator. Our note on incentive plans covers discretionary bonuses by contrast.