An ex-gratia payment is money an employer chooses to pay with no legal obligation behind it, literally “out of grace.” It looks similar to a bonus on a payslip, but the legal footing underneath it is completely different, and that difference is what actually matters.

How it differs from statutory bonus

Statutory bonus under the Payment of Bonus Act is a legal entitlement for eligible employees, between 8.33% and 20% of wages, with fixed eligibility criteria and a wage ceiling. Ex-gratia has none of that structure: no legally mandated minimum, no fixed ceiling, and no statutory eligibility test. Employers commonly use it in two situations: as a goodwill payment to employees who earn above the statutory bonus eligibility ceiling and therefore have no legal bonus claim, or as a discretionary top-up beyond the 20% statutory maximum for employees who are covered.

Because it’s discretionary, an employer can pay ex-gratia one year and not the next without breaching any obligation, something that isn’t true of statutory bonus once eligibility is met.

Frequently asked questions

Is ex-gratia taxable?

Yes, it’s taxed as salary income like any other cash payment from an employer, with no special exemption.

Can ex-gratia replace statutory bonus?

No. Where an employee is legally eligible for statutory bonus, that obligation exists independently. Ex-gratia can be paid on top of it, not instead of it.

Is ex-gratia the same as a performance bonus?

Not usually. A performance bonus is typically tied to specific targets under a documented scheme, while ex-gratia is a one-off goodwill gesture without that structure, even though both are discretionary in the sense of not being legally required.

Check statutory bonus eligibility and amounts with the Statutory Bonus Calculator.