Statutory bonus under the Code on Wages, explained

Statutory bonus is an annual payment the law requires covered employers to make to eligible employees, loosely linked to profit. Since 21 November 2025 it is governed by Chapter IV of the Code on Wages, 2019, which replaced the Payment of Bonus Act, 1965. The 8.33% minimum and 20% maximum, the allocable surplus method and the eight-month payment deadline carried over.

Who the bonus provisions cover

Every establishment in which 20 or more persons are employed on any day of the accounting year, including factories. Once covered, it stays covered even if headcount later falls below 20. Within a covered establishment, bonus is a statutory right for eligible employees, not a discretionary payout.

Who is eligible

An employee is eligible when:

• their wages do not exceed the amount the appropriate Government notifies for bonus (₹21,000 a month as last notified, the figure carried from the 1965 Act), and
• they worked at least 30 working days in the accounting year.

An employee dismissed for fraud, riotous or violent behaviour on the premises, theft, misappropriation or sabotage of property, or sexual harassment is disqualified. The Code added sexual harassment to the list.

How much bonus is payable

Item	Value
Minimum bonus	8.33% of wages earned, or ₹100, whichever is higher
Maximum bonus	20% of wages earned
Eligibility limit	As notified; ₹21,000 a month as last notified
Calculation ceiling	As notified; ₹7,000 a month or the minimum wage, whichever is higher, as last notified

Where an employee's wages exceed the calculation ceiling, the bonus is worked out as if their wages were the ceiling. "Wages" follows the Code's single definition, including the 50% add-back for excluded allowances.

Confirm both figures in the notification your appropriate Government has issued under the Code before you run the year's bonus, and record the reference with the run.

Worked example

An eligible employee with monthly wages of ₹18,000, a calculation ceiling of ₹7,000, 12 months worked and a bonus rate of 8.33%:

• Calculation wage = min(₹18,000, ₹7,000) = ₹7,000 a month
• Annual bonus = ₹7,000 × 12 × 8.33% = ₹6,997

At the 20% maximum the same employee receives ₹16,800. If the state minimum wage for the employee's skill were ₹12,000, the ceiling would be ₹12,000 and the minimum bonus ₹11,995.

Use the bonus calculator to check a figure.

Allocable surplus: what sets the rate

Whether you pay 8.33% or more depends on the allocable surplus, computed from gross profit under the schedules to the Code: subtract the prior charges (depreciation, direct taxes, return on capital and the other items listed), then apply the allocable percentage. A loss-making unit still pays the minimum. Set-on and set-off carry surplus or shortfall across years, which is why the year-by-year record matters.

Records and payment

• Pay within eight months of the close of the accounting year, unless the authority extends the time.
• Keep the computation of allocable surplus, the set-on and set-off record, and the bonus paid to each employee, with the annual return. These are the registers known as Forms A to D under the earlier Bonus Rules; the Ministry of Labour has said rules under the old Acts continue during the transition to the extent they are consistent with the Codes, so check the forms your state has notified under the Code.

Common mistakes

• Treating statutory bonus as discretionary.
• Calculating on full wages instead of the calculation ceiling.
• Using a stale eligibility or ceiling figure instead of the current notification.
• Missing employees who worked 30 days but left during the year.
• Citing the repealed 1965 Act in policies.

FAQs

When is bonus paid? Within eight months of the close of the accounting year.

Do joiners and leavers get bonus? Yes, in proportion to the wages earned, if they worked at least 30 working days.

Is statutory bonus taxable? Yes, it is salary income.

Can we pay a performance bonus instead? A performance or ex-gratia payment does not replace the statutory minimum for eligible employees unless it is paid as, and adjusted against, the statutory bonus under the Code's rules.

Key takeaways

• Statutory bonus is now under the Code on Wages, 2019.
• 8.33% to 20%, on wages up to the notified calculation ceiling.
• Eligibility and ceiling are notified amounts: ₹21,000 and ₹7,000 or minimum wage, as last notified.
• Pay within eight months and keep the surplus and payment records.

NeevHR runs the annual bonus on the configured eligibility limit and calculation ceiling, previews every eligible employee, pays it through payroll, and produces the computation and payment registers. See variable pay and bonus.

This article provides general information for educational purposes. Statutory rules, thresholds, rates and filing requirements may change; verify with the relevant authority or a qualified professional. Last reviewed: 03 Nov 2026.