Statutory Bonus in India 2026

Statutory bonus is the one annual payment that catches out employers who are otherwise compliant every month. It is not discretionary, it is not performance-linked, and the minimum is owed even in a year the business lost money.

There is also a reason to re-read the rules rather than repeat last year's calculation: the Payment of Bonus Act 1965 no longer exists. It was repealed on 21 November 2025 and its provisions now sit in Chapter IV of the Code on Wages 2019. Most of the substance carried over, but the applicability test changed, the payment method changed, and the wage ceilings were only notified in August 2026.

What changed in the law

The Code on Wages 2019 consolidated four separate statutes — the Payment of Wages Act 1936, the Minimum Wages Act 1948, the Payment of Bonus Act 1965 and the Equal Remuneration Act 1976 — into a single framework. The Code was brought into force on 21 November 2025, and the four Acts it subsumes were repealed on the same date.

Bonus is now governed by Chapter IV, sections 26 to 41. The Wages (Central) Rules were notified in May 2026. Because labour is a Concurrent List subject, each state frames its own rules, and those arrived at different times — Uttar Pradesh, Maharashtra, Gujarat, Karnataka, Madhya Pradesh, Delhi, Andhra Pradesh, Telangana and Tamil Nadu among the earlier ones.

Which establishments must pay

Chapter IV applies to an establishment in which 20 or more persons were employed on any day during the accounting year.

That phrasing matters, and it is a real change. Under the 1965 Act, every factory was covered regardless of how many people it employed. The Code drops that automatic coverage and applies the 20-employee test to factories and other establishments alike. A small factory with twelve workers that paid statutory bonus for years because it was a factory should check whether it is still within scope.

Note also "on any day" — a seasonal business that crossed twenty only during a festival peak is covered for that whole accounting year.

Which employees qualify

Two conditions, both of which must be met:

1. Wages not exceeding ₹21,000 a month. This ceiling was notified by S.O. 4711(E) dated 25 August 2026 under section 26(1), with retrospective effect from 21 November 2025. Someone on exactly ₹21,000 is in; someone on ₹21,001 is out.
2. At least 30 days worked in the accounting year. The deeming provisions that count leave and lay-off days apply to proportionate reduction, not to this 30-day threshold.

"Wages" for this purpose follows the Code's own definition, which is built around basic pay and dearness allowance rather than gross salary. House rent allowance, overtime, conveyance and most other allowances sit outside it. This is why an employee whose gross is well above ₹21,000 can still be eligible — it is the wage component that is tested, not the CTC. See CTC vs gross vs net for how those layers separate.

How much: the two ceilings

There are two different numbers doing two different jobs, and conflating them is the most common error in bonus calculation.

The calculation ceiling was notified by S.O. 4710(E), also dated 25 August 2026 and also retrospective to 21 November 2025. The rate itself:

The 8.33% minimum is unconditional. It is payable whether or not there is an allocable surplus, which means a loss-making year does not excuse it. Anything above the minimum depends on the allocable surplus — 67% of the available surplus for most establishments, 60% for a banking company — and is capped at 20%. Where a productivity-linked bonus is paid under an agreement, it cannot push the total past 20% either.

Worked examples

Assuming a full twelve months worked, and taking the calculation base as ₹7,000 where the applicable minimum wage is not higher:

Two things worth reading off that table. First, an employee on ₹15,000 and one on ₹21,000 receive an identical statutory bonus, because both are calculated on the capped ₹7,000. Second, the jump from ₹21,000 to ₹22,000 takes the entitlement from ₹6,997 to nothing — a ₹1,000 raise that costs the employee ₹6,997. That cliff is worth knowing about before you set wages just above the line.

The minimum-wage trap

The calculation ceiling is not simply ₹7,000. It is ₹7,000 or the applicable minimum wage, whichever is higher — and in most states the minimum wage for even unskilled work is now well above ₹7,000 a month. Where that is the case, the minimum wage becomes the base, and the bonus roughly doubles:

Most online bonus calculators quietly assume ₹7,000 and will understate what you owe. Check the scheduled-employment minimum wage that applies to your establishment and your employees' categories before you finalise anything.

Deadline and payment method

Section 39 requires bonus to be paid within eight months of the close of the accounting year. For a year ending 31 March 2026, the deadline is 30 November 2026. An extension can be applied for on sufficient grounds, but the total extended period cannot exceed two years.

One procedural change deserves attention: the Code requires the bonus to be paid by crediting it to the employee's bank account. Cash payment of statutory bonus, still common in smaller establishments and on construction sites, no longer satisfies the section. If you have workers without accounts, that is a problem to solve in the next few weeks, not in the last week of November.

Where a bonus dispute is pending, the bonus falls due within one month of the award becoming enforceable — but the 8.33% minimum must still be paid inside the original eight months regardless of the dispute.

Disqualification

Under section 29, an employee dismissed for any of the following forfeits bonus:

• Fraud
• Riotous or violent behaviour on the premises
• Theft, misappropriation or sabotage of any property of the establishment
• Conviction for sexual harassment — a new ground that did not appear in the 1965 Act

Two cautions. Disqualification requires dismissal on one of these grounds, not merely an allegation or an ongoing enquiry. And courts have taken differing views on whether the forfeiture is limited to the year of dismissal or extends further, so treat a blanket withholding across years as contestable.

New establishments

For the first five accounting years after an establishment begins selling its goods or services, bonus is payable only in a year in which it makes a profit, and the set-on and set-off rules do not apply. Years six and seven get modified carry-forward treatment, and from the eighth year the normal rules apply in full. The same relief extends to a genuinely new department, undertaking or branch of an existing establishment.

Where the normal rules do apply, surplus above the 20% maximum is carried forward as a set-on, and a shortfall below the 8.33% minimum is carried forward as a set-off, in each case for up to four following years, oldest balance applied first.

Before 30 November

1. Confirm you are covered. Did headcount touch 20 on any day in the accounting year? If you are a small factory, check this properly rather than assuming the old position carries over.
2. Build the eligibility list. Everyone whose monthly wages did not exceed ₹21,000 and who worked at least 30 days. Include leavers — someone who resigned in August is still owed bonus for the days worked.
3. Fix the calculation base. ₹7,000 or the applicable minimum wage, whichever is higher. Do not default to ₹7,000.
4. Decide the rate. 8.33% is the floor. Anything above it needs the allocable surplus worked out, and is capped at 20%.
5. Collect bank details for anyone you would previously have paid in cash.
6. Pay and record. Credit the accounts, and keep the registers and annual return your state's Wages Rules prescribe.

Getting the inputs right

Most of the work in a bonus run is not the arithmetic — it is establishing, for every person who worked during the year including those who have since left, how many days they worked and what their wages were. That is an attendance and payroll records problem, and it is where hand-assembled bonus calculations go wrong.

WorkoTime holds those records continuously: days worked per employee per month, the basic and DA split that the ₹21,000 test runs against, and the same figures for employees who exited mid-year. Bonus itself is paid through payroll as an addition and appears on the payslip. The allocable surplus is an accounting judgement that still sits with you and your auditor — WorkoTime does not compute it.