How statutory bonus actually works
Two different ceilings do two different jobs here, and mixing them up is the single most common error we see in in-house payroll.
The eligibility ceiling decides who gets a bonus. An employee drawing wages up to ₹21,000 a month is covered by the bonus provisions of the Code on Wages, 2019. Above that, the law does not compel you to pay, though many employers still do as a matter of policy.
The calculation ceiling decides what the bonus is computed on. That is ₹7,000 a month, or the applicable minimum wage for the scheduled employment if it is higher. It is not the employee's actual salary.
A worked example
An employee earns ₹18,000 a month. They are under the ₹21,000 ceiling, so they are eligible.
- The bonus is not calculated on ₹18,000. It is calculated on the ₹7,000 cap (or the higher minimum wage, if one applies)
- Minimum bonus at 8.33 percent: ₹7,000 × 12 × 8.33% = about ₹6,997 for the year
- Maximum bonus at 20 percent: ₹7,000 × 12 × 20% = ₹16,800 for the year
Where you land between those two figures is decided by allocable surplus, and by the set-on and set-off carried from previous years. It is not a free choice.
Now take an employee on ₹25,000. They sit above the eligibility ceiling, so the law does not require a bonus at all. If you pay one anyway, it is contractual, not statutory, and it should be documented as such so it does not create an expectation you cannot withdraw.
Set-on and set-off, without the jargon
In a good year you may generate more allocable surplus than the 20 percent maximum requires. The excess is carried forward, up to a limit, and is called set-on. In a bad year, when surplus does not cover even the 8.33 percent minimum, the shortfall is carried the other way as set-off. The point of the mechanism is that the minimum is payable whether or not you made a profit.
Timing and eligibility details that catch people out
- An employee must have worked at least 30 days in the accounting year to qualify
- Bonus must be paid within eight months of the close of the accounting year
- Employees who joined or left mid-year are entitled on a pro-rata basis for the days worked
- An employee dismissed for fraud or violent misconduct can be disqualified, but the ground has to be real and documented
- Apprentices are outside the bonus rules
Check the minimum wage for your state and scheduled employment before you compute. Where the minimum wage exceeds ₹7,000, that higher figure becomes the calculation base, and using ₹7,000 by default will understate the liability.
Statutory bonus questions
Is statutory bonus payable even if the company made a loss?
Yes. The 8.33 percent minimum is payable regardless of profit. That is the whole purpose of the set-on and set-off mechanism.
Is the bonus calculated on gross salary?
No, and this is the most common mistake. It is calculated on ₹7,000 a month or the applicable minimum wage if higher, not on what the employee actually earns.
Who is excluded from statutory bonus?
Employees drawing above ₹21,000 a month are outside the Act's mandate, as are apprentices. Anyone with fewer than 30 working days in the year does not qualify.
When does bonus have to be paid?
Within eight months of the end of the accounting year. Late payment is a recoverable claim and attracts penalty exposure.
Do employees who resigned mid-year still get a bonus?
Yes, pro-rata for the period worked, provided they completed at least 30 working days in that year.
