Statutory Bonus under the Payment of Bonus Act
Last updated: 13 July 2026. General explainer, not legal or tax advice.
At a glance
Who the Payment of Bonus Act covers
The Payment of Bonus Act, 1965 applies to factories and to establishments with 20 or more employees. An employee is eligible if they draw monthly wages up to 21,000 rupees and have worked at least 30 days in the accounting year. This makes the bonus a legal minimum for covered staff, not a gift the employer may skip.
How the amount is set, 8.33 to 20 percent
The bonus is between 8.33 percent and 20 percent of the employee's annual wages. The exact figure inside that band depends on the employer's allocable surplus for the year, so a profitable year moves it toward the top and a lean year toward the floor. For the calculation, wages are taken up to a ceiling set by the Act, commonly 7,000 rupees a month or the applicable minimum wage where that is higher, rather than the full salary in every case.
Timing and how it is paid
Statutory bonus is meant to be paid within eight months of the close of the accounting year. It is shown as a separate payment and is taxable as part of salary income in the year it is received. Registers of the bonus paid are part of the record an inspection may ask for.
Statutory bonus versus ex gratia
An employee who earns above the 21,000 rupee ceiling is outside the Act, so no bonus is compelled for them. Many employers still reward such staff, and that payment is called ex gratia because it rests on the employer's choice rather than the Act.
Records and common mistakes
The frequent mistake is paying a flat 8.33 percent to everyone and treating the matter as closed. The Act ties the figure to the allocable surplus, so a good year can owe more, up to 20 percent, and defaulting to the floor can understate what is due. The other slip is missing the eligibility test, either paying staff above the ceiling as if the Act applied, or skipping someone who worked the qualifying 30 days.
The registers matter here. The Act expects the bonus computation and payment to be recorded, and the eight month deadline to be met. Keeping the wage data and the surplus working together is what makes the yearly bonus a quick calculation rather than a scramble.
Worked example
Take an employee earning 18,000 rupees a month, so within the eligibility ceiling. If the calculation wage is 7,000 rupees a month, the yearly base is 84,000 rupees. The minimum bonus at 8.33 percent of that base is about 7,000 rupees for the year, and a strong surplus year could lift it toward 20 percent.
Related terms
Frequently asked questions
What is the minimum statutory bonus?
8.33 percent of the annual wages used for the calculation. The maximum is 20 percent, set by the employer's allocable surplus for the year.
Who is eligible for statutory bonus?
Employees drawing monthly wages up to 21,000 rupees who have worked at least 30 days in the year, in an establishment with 20 or more employees.
When must statutory bonus be paid?
Within eight months of the end of the accounting year. It is taxable as salary in the year it is received.
Is the bonus calculated on full salary?
Not always. The Act caps the calculation wage, commonly at 7,000 rupees a month or the applicable minimum wage where that is higher, so the bonus is worked on that capped figure.
What about staff earning above the ceiling?
The Act does not compel a bonus for them. Employers who still want to reward them usually pay an ex gratia amount at their discretion.
Can I just pay everyone 8.33 percent bonus?
That is the minimum. In a year with a larger allocable surplus, the Act can require more, up to 20 percent, so a flat floor payment may understate what is due.
Is there a deadline to pay statutory bonus?
Yes, within eight months of the close of the accounting year, and the computation and payment should be recorded in the bonus register.
Sources and official references
The rules and figures on this page trace to the official sources below. Statutory amounts and dates change, so confirm the current number on the source before you act on it.
How Offrd helps
Offrd keeps salary and wage records in one place, so working out who is eligible and what base to use is straightforward.