Statutory bonus is not a reward for good work. It is a payment the law requires, on a formula, to people who may have had an ordinary year. Treating it as discretionary is where most of the trouble starts.
Who does the Act cover?
The Ministry of Labour and Employment says the Act applies to "(i) Every Factory; and (ii) Every other establishment in which 20 or more persons are employed on any day during an accounting year subject to the exemptions under section 32."
So a 20-person firm is covered, and a factory is covered at any size. The headcount test is "on any day during an accounting year", not an average, which catches seasonal operations that peak above 20.
How much is owed, at minimum?
The Ministry says "The minimum bonus of 8.33% is payable by every industry and establishment under section 10 of the Act."
That floor applies whether or not the business made a profit. An employer with losses still owes the 8.33%. The link to profit only decides how far above the minimum you go.
Is there a maximum?
Yes. The Ministry says "The maximum bonus including productivity linked bonus that can be paid in any accounting year shall not exceed 20% of the salary/wage of an employee under the section 31 A of the Act."
So the statutory range is 8.33% to 20%. Anything you pay above that is not statutory bonus. It is an ex-gratia payment, and it should be labelled that way on the payslip, because the two are treated differently.
Who qualifies, and on what wage?
| Test | Figure |
|---|---|
| Eligibility limit | Monthly wages up to 21,000 |
| Calculation ceiling | 7,000, or the scheduled minimum wage if higher |
| Minimum service in the year | 30 working days |
| Minimum bonus | 8.33% |
| Maximum bonus | 20% |
The two ceilings do different jobs, and conflating them is the most common payroll error here. The first decides whether someone qualifies at all. The second caps the wage figure the percentage is applied to.
Why are there two different numbers?
Because the amendment raised them separately. The Press Information Bureau says the change enhanced "the eligibility limit under section 2(13) from Rs.10,000/- per month to Rs.21,000/- per month and the calculation ceiling under section 12 from Rs. 3500 to Rs.7000 or the minimum wage for the scheduled employment, as fixed by the appropriate Government, whichever is higher."
In practice: someone earning 18,000 a month qualifies, but their bonus is computed on 7,000 or the scheduled minimum wage, whichever is higher. Someone earning 25,000 does not qualify at all under the Act, though you may still choose to pay ex-gratia.
When must it be paid?
Within 8 months of the close of the accounting year. Most Indian employers pay before the festival season, which is custom rather than law, but the statutory deadline is the one that matters if challenged.
Keep the computation sheet, not just the payment. The register showing wages, the ceiling applied, the percentage and the days worked is what an inspector asks for.
What about the Code on Wages?
The Code on Wages, 2019 contains its own bonus chapter, with the minimum again at 8.33% and the wage threshold tied to a government notification. Commencement has been staged, so confirm the position that applies to your establishment before you rely on the 1965 Act alone.
This is worth a specific check rather than an assumption. The figures above are the long-standing position under the Payment of Bonus Act, 1965 as amended in 2016, and that is what most Indian payrolls currently run on.
How does this sit with PF and ESI?
Bonus is a separate statutory stream from provident fund and state insurance, with its own register and its own deadline. PF runs at 12% with a wage ceiling of 15,000, held by the Employees Provident Fund Organisation. ESI runs at 3.25% employer and 0.75% employee up to 21,000, held by the Employees State Insurance Corporation.
Three streams, three registers, one payroll. Running them off one employee record is the only way the figures reconcile without a manual cross-check each cycle, which is what 247HRM statutory compliance and payroll are built to do.