Statutory bonus looks simple from a distance: pay 8.33%, done. In practice, it’s one of the more calculation-heavy compliance obligations on the books — a separate eligibility ceiling, a separate calculation ceiling, an allocable surplus formula that depends on your accounts, and a set-on/set-off mechanism that reaches back across previous years. Get any one of those pieces wrong and the shortfall repeats across every eligible employee, every year, until someone catches it.
Viriksha HR Solution provides Payment of Bonus Act compliance services for employers across Chennai and Pan India — from eligibility assessment and bonus calculation to allocable surplus computation, return filing, and audit support.
What Is the Payment of Bonus Act?
The Payment of Bonus Act, 1965 is the law that requires employers to pay an annual statutory bonus to eligible employees, calculated as a percentage of qualifying wages and linked to the employer’s profits through the concept of allocable surplus. Since 21 November 2025, when the four labour codes came into force, the bonus provisions have moved into Chapter IV of the Code on Wages, 2019, which repeals the 1965 Act. The core mechanics — the 8.33% minimum, the 20% maximum, and the allocable surplus and set-on/set-off framework — continue under the Code, while some figures fixed by government notification are still being reconfirmed.
Most employers, employees, and search queries still call this “the Bonus Act” or “statutory bonus,” so it’s best understood as one continuous obligation that has moved into a new legal home.
Who Is Eligible for Statutory Bonus?
Requirement |
Threshold |
|---|---|
Establishment size
|
Every factory, and every other establishment employing 20 or more persons (extendable to 10 or more by government notification)
|
Minimum service
|
At least 30 working days in the accounting year
|
Wage eligibility ceiling
|
Commonly applied at ₹21,000/month (basic + DA), carried forward from the earlier Act's practice
|
Disqualification
|
Dismissal for fraud, riotous or violent conduct, theft, misappropriation, sabotage of property, or a sexual harassment conviction (added under the Code)
|
A note on the eligibility figure: the ₹21,000 ceiling was fixed under the repealed 1965 Act, and commentators differ on whether it has been formally carried into the Code on Wages pending a fresh government notification. Until the position is clarified, most employers and payroll systems continue to apply ₹21,000 as the working eligibility limit. We track this and flag any change the moment it’s notified.
How Bonus Is Calculated
The statutory bonus formula has two separate numbers to get right — eligibility and calculation are not the same ceiling:
- Eligibility ceiling: an employee qualifies for bonus only if monthly wages (basic + DA) don't exceed the notified limit
- Calculation ceiling: bonus is computed on wages up to ₹7,000 a month, or the applicable minimum wage, whichever is higher — even if the employee's actual salary is well above that
Bonus = Calculation wage (capped) × 12 months × bonus rate (8.33% to 20%)
Worked Example — Minimum Bonus
An employee earns ₹15,000/month (basic + DA), which is below the eligibility ceiling. The calculation ceiling of ₹7,000 applies since it’s lower than the actual wage:
- ₹7,000 × 12 = ₹84,000 (annual calculation wage)
- ₹84,000 × 8.33% = ₹6,997 minimum bonus for the year
Worked Example — Maximum Bonus
Same employee, but the employer’s allocable surplus supports the full 20% rate that year:
- ₹84,000 × 20% = ₹16,800 for the year
Worked Example — Below the Calculation Ceiling
An employee earns ₹6,000/month (basic + DA), below both ceilings. The calculation uses the actual wage, not ₹7,000:
- ₹6,000 × 12 = ₹72,000
- ₹72,000 × 8.33% = ₹5,998 minimum bonus
The minimum 8.33% is payable even in a year the company posts a loss — it is not conditional on profitability.
Allocable Surplus, Set-On, and Set-Off
Bonus above the 8.33% floor depends on how much “allocable surplus” the employer has in a given accounting year:
- Gross profit is calculated per the prescribed method.
- Prior charges — depreciation, tax, and other statutory deductions — are subtracted to arrive at "available surplus."
- A fixed percentage of available surplus (broadly 60% or 67%, depending on the type of company) becomes "allocable surplus."
- If allocable surplus exceeds the minimum bonus payable, employees receive a proportionately higher bonus, capped at 20% of qualifying wages.
Set-on and set-off carry surplus or shortfall across years:
- If allocable surplus in a year exceeds the maximum bonus payable, the excess (up to a limit) is carried forward to offset a future year of low surplus — this is "set-on."
- If allocable surplus falls short of even the minimum bonus, the deficiency can be set off against surplus carried forward from earlier years.
- This carry-forward mechanism operates over a four-accounting-year cycle.
This is the piece of the Act most payroll teams skip, because it requires financial statement inputs, not just headcount and wage data — which is exactly why bonus computation usually needs to be coordinated with your accountant.
Businesses Served Across Tamil Nadu & Pan India
Our Payment of Bonus Act Services
We review your headcount and wage structure to confirm your establishment's applicability and identify which employees qualify.
We calculate the correct bonus for every eligible employee, applying the eligibility ceiling, the calculation ceiling, and the applicable rate.
We work with your accounts (or your CA/audit firm) to compute available and allocable surplus for the year, so the bonus rate is grounded in the actual formula, not a flat assumption.
We maintain the four-year carry-forward record so surplus and shortfall are applied correctly year over year, rather than treating each accounting year in isolation.
We check whether your basic and DA components are structured in a way that produces an accurate, defensible calculation wage.
Where the calculation ceiling needs to reference the applicable minimum wage instead of ₹7,000, we verify the correct figure for your category and zone.
We prepare and maintain the statutory bonus register and supporting calculation sheets.
We prepare and file the annual bonus return with the labour authority.
We help confirm whether an employee's exit circumstances fall under a valid disqualification ground before bonus is withheld.
We track the 8-month payment deadline from the close of the accounting year, so bonus doesn't slip past the statutory window.
We assist with documentation and responses during labour department inspections or bonus-related queries.
We run periodic reviews of your bonus calculations against the current eligibility and calculation ceilings to catch drift before it compounds.
We monitor changes to the Code on Wages and any fresh notifications on the eligibility and calculation figures, and update your process accordingly.
Our Bonus Compliance Process
Applicability check
Confirm establishment coverage and identify eligible employees.
Wage mapping
Apply the eligibility and calculation ceilings correctly across the workforce.
Surplus computation
Work out allocable surplus for the accounting year, with your finance team or auditor.
Rate determination
Set the applicable bonus rate between 8.33% and 20%, factoring in set-on/set-off.
Calculation and disbursement
Calculate individual bonus amounts and support timely payment within 8 months of the accounting year's close.
Return filing and records
File Form D and maintain the bonus register for the year.
Penalties for Non-Compliance
- Non-payment of minimum bonus is a statutory violation even where the company reports a loss
- Graded penalty structure under the Code, replacing the earlier flat fine, with escalation for repeat non-compliance
- Employee claims for shortfall where the calculation wage or rate was applied incorrectly
- Return-filing lapses that surface during inspection even when the bonus itself was paid correctly
Common Mistakes We See
- Confusing the eligibility ceiling with the calculation ceiling — paying bonus on actual salary instead of the ₹7,000-or-minimum-wage cap
- Skipping the allocable surplus calculation and defaulting to a flat 8.33% or a flat 20% without checking which applies that year
- Not tracking set-on/set-off across the four-year cycle, so a strong surplus year and a weak one aren’t connected the way the law intends
- Missing the eligibility ceiling change risk — not monitoring whether the ₹21,000 figure gets formally re-notified under the Code
- Late payment past the 8-month window, which is easy to lose track of when bonus is processed as an afterthought to the annual close
- No bonus register, leaving no documentation trail if a calculation is questioned later
Ready to Stay Compliant?
Get your statutory bonus eligibility, calculation, and return filing reviewed before your next payout cycle.
Why This Matters Beyond the Payout
For employers across Perungudi, Guindy, Sholinganallur, OMR, Siruseri, Ambattur, and the wider Chennai industrial and IT corridor, statutory bonus sits at the intersection of payroll and finance in a way EPF, ESI, or Professional Tax don’t — it genuinely depends on your profit-and-loss numbers each year. Getting the calculation wrong doesn’t just risk an inspection; it risks a dispute with employees who compare their bonus year over year and notice inconsistencies before anyone in HR does.
How Viriksha HR Solution Helps
We manage payroll and statutory compliance for 3,600+ employees every month, with a two-level validation process before every payroll run and zero payroll errors or compliance issues over five years. Bonus calculation runs through the same validation discipline: confirm eligibility, apply the correct ceiling, compute the surplus, and check the number before it reaches a payslip.
Whether you need a one-time bonus compliance audit, help computing allocable surplus for the year, or ongoing bonus processing folded into payroll and compliance outsourcing, we coordinate with your chartered accountant or audit firm so the profit figures and the bonus figures match.
If your accounting year is closing soon, you’re unsure whether your current bonus process reflects the calculation ceiling correctly, or you’ve never formally computed allocable surplus, we can take it from here.
Frequently asked questions
Yes. The minimum bonus of 8.33% of qualifying wages (or the prescribed minimum amount, whichever is higher) is payable even in a loss-making year.
Employees earning up to ₹21,000/month (basic + DA) are commonly treated as eligible, a figure carried forward from the earlier Act's practice pending a fresh notification under the Code on Wages.
No. Bonus is calculated on a capped wage of ₹7,000/month, or the applicable minimum wage if that's higher, regardless of the employee's actual salary — as long as that actual salary is within the eligibility ceiling.
It's the portion of an employer's available surplus (profit after prescribed deductions) that determines how much bonus above the 8.33% minimum can be paid, up to a maximum of 20%.
Within 8 months from the close of the accounting year.
Its provisions now sit within Chapter IV of the Code on Wages, 2019, in force since 21 November 2025. The core calculation mechanics continue; some notified figures are still being confirmed under the new framework.
Yes, for specific grounds under the law — fraud, riotous or violent conduct, theft, misappropriation, sabotage of property, or a sexual harassment conviction. It cannot be withheld for other reasons.