9-minutes read ● Updated: 18th March, 2025
The statutory bonus in India is paid according to the Bonus Payment Law (1965). The bonus is a deferred benefit; some companies pay it in advance.
Eligibility for the bonus has been increased to include employees’ income up to INR 21,000 per month (up from INR 10,000 per month before).
Increase in the premium ceiling: previously, for the calculation of the statutory bonus, a salary ceiling of INR 3,500 per month was applied. If an eligible employee’s salary exceeded INR 3,500 per month, the bonus was still calculated based on INR 3,500. This ceiling has now been increased to INR 7,000 per month or the minimum wage as per the Minimum Wages Act, 1948, whichever is higher.
A statutory bonus is a mandatory payment made for eligible employees per labour laws, typically based on company profits or employee wages. It is usually paid annually and aims to reward employees for their service. This bonus enhances employee motivation and financial well-being, contributing to job satisfaction. It can also improve an employee’s overall compensation and career prospects.
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What is a Statutory Bonus?
‘Statutory Bonus‘ is the term used to refer to a bonus that is required to be paid by an employer to an employee under the Payment of Bonus Act 1965 in India. It is a form of incentive calculated using the employee’s basic salary plus a dearness allowance. The amount is multiplied by the number of days the employee works during an accounting year.
The formula to calculate the statutory bonus is:
(Salary/30) x Number of days worked in the year
Statutory bonuses are awarded to eligible employees under the Payment of Bonus Act of 1965. However, there are exceptions to this law. Employees convicted of sabotage, dishonesty, or violent behaviour are not entitled to this bonus.
A statutory bonus is computed based on an employee’s total earnings in a particular financial year. This figure typically ranges from 8.33% to 20% of the employee’s salary. The amount also depends on the profits the employer earns in that financial year.
The minimum statutory bonus is 8.33% of an employee’s basic salary. To be eligible, the employee must have earned a gross monthly salary of up to Rs. 21,000 and worked in the company for at least 30 days during the accounting year.
What is an Advance Statutory Bonus in Salary?
An advance statutory bonus refers to the portion of the statutory bonus paid to employees before the actual calculation or final settlement for the financial year. Some employers prefer to distribute a part of the bonus in advance to help employees with their financial needs, particularly during festive seasons like Diwali or Christmas.
However, when the final statutory bonus is computed at the end of the financial year, the advance payment is deducted from the total amount due. If the advance paid is higher than the actual statutory bonus, the employer cannot recover the excess from the employee, ensuring a fair compensation structure.
Usually, employers use bonuses as an incentive to boost employee morale and performance. These bonuses can be in the form of a deferred salary or an attendance bonus. Depending on the type of bonus, it can be paid outright or in advance.
Who is Eligible for a Statutory Bonus?
Eligibility for receiving a statutory bonus is governed by the Payment of Bonus Act, 1965, which lays down specific criteria, including:
- Employment Type: The Act applies to employees working in factories and establishments with 20 or more employees.
- Salary Limit: Employees earning a monthly salary of up to ₹21,000 (basic salary + dearness allowance) are eligible for the bonus.
- Service Period: An employee must have worked for at least 30 days in the financial year to be eligible for the bonus.
- Profitability Condition: The organization must have earned a profit, as determined by the Act’s calculation method. However, even loss-making organizations are required to pay a minimum bonus.
It is a method of sharing profits with the company’s employees. Some organizations choose to pay the bonus in advance.
Statutory Bonus Calculation
It is calculated as a percentage of the employee’s salary, subject to minimum and maximum limits:
- Minimum Bonus: 8.33% of the employee’s basic salary + dearness allowance, or ₹100, whichever is higher.
- Maximum Bonus: 20% of the employee’s basic salary + dearness allowance.
- Wage Ceiling for Calculation: If an employee earns more than ₹7,000 per month or the minimum wage (whichever is higher), the bonus is calculated on ₹7,000 or the applicable minimum wage.
Using an automated payroll system can help businesses calculate and disburse statutory bonuses accurately and on time.
Example Calculation:
If an employee’s basic salary + dearness allowance is ₹9,000 per month and the applicable minimum wage is ₹7,500:
- Bonus Calculation Base: ₹7,500 (since it is higher than ₹7,000)
- Minimum Bonus: ₹7,500 × 8.33% = ₹624.75 per month (₹7,497 per year)
- Maximum Bonus: ₹7,500 × 20% = ₹1,500 per month (₹18,000 per year)
Thus, the employee will receive ₹7,497 to ₹18,000 annually, depending on the company’s profitability.
What is the Time Limit for Payment of the Bonus?
The payment of bonuses in India is governed by the Payment of Bonus Act, 1965. According to the Act, employers must pay the statutory bonus within eight months from the close of the financial year. However, the government can extend this period under special circumstances.
For instance, if a company’s financial year ends on March 31st, the bonus payment should ideally be made by November 30th of the same year. And, if an employer fails to comply with this timeline, they may face legal consequences, including penalties and interest on the delayed payment. Employees are entitled to raise complaints if their bonus is not disbursed within the stipulated time.
It’s essential for businesses to maintain proper records of bonus calculations and ensure timely payments to avoid legal consequences.
Ways in Which Statutory Bonuses Can Be Paid
Employers can distribute statutory bonuses through different methods, ensuring compliance with legal requirements and employee convenience. The most common payment modes include:
- Bank Transfer: The most common method is where the bonus is credithe employee’s salary account to ensure transparency and record-keeping.
- Cheque Payment: Some employers issue cheques to employees for easy tracking.
- Cash Payment: Though less common due to compliance concerns, some employers still use this method.
- Salary Slip Adjustment: The bonus amount is included in the monthly salary slip and paid along with the regular salary.
- Gift Vouchers or Other Benefits: In some cases, companies may provide bonuses in non-monetary forms, such as gift vouchers, additional paid leave, or stock options.
Employers must maintain proper records of bonus payments and ensure compliance with labour laws to avoid penalties.
Difference Between Bonus & Statutory Bonus
While both terms refer to employee benefits, there are significant differences between a bonus and a statutory bonus:
| Aspect | Bonus | Statutory Bonus |
|---|---|---|
| Definition | Any additional payment that is given to employees as an incentive or reward. | A legally mandated bonus that employers must pay under the Payment of Bonus Act, 1965 in India. |
| Applicability | Voluntarily – provided by employers based on company policies or performance. | Mandatory – applicable to organizations covered under the Payment of Bonus Act. |
| Eligibility | All or selected employees, as decided by the employer based on company policy. | Employees who earn up to ₹21,000 per month and work for at least 30 days in an organization with 20+ employees. |
| Calculation Basis | Can be based on performance, profits, or a fixed amount decided by the employer. | Based on salary & profits – Minimum 8.33% and Maximum 20% of an employee’s basic salary. |
| Time of Payment | Anytime, usually based on a company performance review. | Annually, within 8 months of the financial year-end. |
| Legal Obligation | Not mandatory under labour laws. | Legally required if the company meets the profit criteria under the Bonus Act. |
| Taxability | Taxable as per income tax rules. | Taxable as per income tax rules. |
| Purpose | A motivational tool to reward employees for good performance or loyalty. | To ensure equitable distribution of profits among employees. |
Conclusion
The statutory bonus is a crucial part of employee compensation. It is legally mandated and ensures that workers receive a fair share of their organization’s success, helping to boost their income and promote workplace motivation.
Employers must follow statutory bonus regulations to stay compliant and avoid legal issues. While organizations may offer additional performance-based bonuses, the statutory bonus remains a basic right for eligible employees. By understanding the calculation, eligibility, and payment regulations, both employers and employees can make informed decisions about statutory bonuses in the workplace.
FAQs on Statutory Bonus
1. What is a Statutory Bonus, and why is it important?
A Statutory Bonus is a legally mandated financial reward given to eligible employees under the Payment of Bonus Act, 1965. It ensures that employees receive a share of the company’s profits, promoting fair wealth distribution.
2. Who qualifies for a Statutory Bonus?
Employees who earn up to ₹21,000 and have worked for at least 30 days in a company with 20 or more employees are eligible.
3. How is the Statutory Bonus calculated?
The statutory bonus is calculated at a rate of 8.33% to 20% of an employee’s salary. For this purpose, the salary is capped at ₹7,000 per month or the applicable minimum wage, whichever is higher. This calculation ensures compliance with the Payment of Bonus Act in India.
Bonus calculations can often take time and lead to errors, especially when done manually.
If you’re struggling with calculating bonuses, try our nitso HRMS software to simplify your payroll process and ensure accurate bonus payouts every time.
4. When should the bonus be paid?
The employer must pay the statutory bonus within 8 months after the end of the financial year. Delays may lead to legal action.
5. I resigned last month. Will I still get my bonus?
Yes! If you’ve worked for at least 30 days in a financial year, you are still eligible for the bonus, even after your resignation.
6. Is the Statutory Bonus taxable?
Yes, it is fully taxable as part of your salary income under the Income Tax Act.
7. Can an employer deny the Statutory Bonus?
Only if the company has incurred losses for the financial year and can provide financial records to prove it. Otherwise, the employer must pay the bonus.
8. What if my employer doesn’t pay my statutory bonus?
You can file a complaint with the Labor Commissioner. Employers failing to pay bonuses can face fines and imprisonment.
9. Are part-time and contract workers eligible for a bonus?
Yes, If they meet the eligibility criteria and work under a company covered by the Bonus Act.
10. Can companies pay the bonus in monthly instalments?
By law, the bonus should be paid annually. However, some companies split payments into instalments if mutually agreed upon.
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