The Payment of Bonus Act, 1965 is the law that makes an annual bonus a right rather than a favour for lower-paid employees. It sets who is eligible, the minimum and maximum bonus, how it is calculated from company profits, and by when it must be paid. The statutory bonus that appears in Indian payrolls comes from this Act.

Key provisions

• Coverage: every factory, and every other establishment with 20 or more employees on any day in the year. Once covered, the Act keeps applying even if numbers fall.
• Eligibility: employees drawing wages up to Rs 21,000 a month who worked at least 30 days in the accounting year.
• Quantum: minimum 8.33% of annual wages, maximum 20%, based on allocable surplus. The 8.33% floor applies even with no profit.
• Calculation ceiling: wages are taken as Rs 7,000 a month or the applicable minimum wage, whichever is higher.
• Set-on and set-off: surplus above the 20% cap is carried forward, and a shortfall below 8.33% is carried forward, for up to four years.
• Timing: payment within eight months of the close of the accounting year.

Disqualification

An employee dismissed for fraud, riotous or violent conduct on the premises, or theft or sabotage of the employer’s property, can be denied bonus for that year.

Frequently asked questions

Are all employees covered by the Act?

No. Only those within the Rs 21,000 wage ceiling. Employees above it have no statutory entitlement, though ex-gratia is common.

Does the Act require registers and returns?

Yes. Employers maintain registers of allocable surplus, set-on and set-off, and bonus paid, and file an annual return in Form D.

Is the Act changing under the labour codes?

Bonus provisions are being subsumed into the Code on Wages, 2019, which is not yet fully in force. Until it is notified, the 1965 Act continues to apply.

Estimate an individual entitlement with the Statutory Bonus Calculator. For the related minimum-pay rules, see minimum wages, and for the software that tracks these obligations, payroll software for India.