By S&S Co. Advocates & Solicitors · Published 15 July 2026 · Informational content, not legal advice: see our disclaimer
Which Employers and Employees Are Covered
The Payment of Bonus Act, 1965 applies to establishments employing twenty or more persons, and requires payment of an annual statutory bonus to employees who have worked at least thirty working days in the accounting year, subject to a wage-based eligibility ceiling that is periodically revised. Employees earning above the eligibility ceiling generally fall outside the Act's mandatory coverage, though many employers choose to extend a discretionary bonus to such employees as a matter of policy.
The Minimum and Maximum Bonus
The Act requires payment of a minimum bonus of 8.33% of salary or wages earned in the accounting year (or a fixed minimum sum, whichever is higher), even where the employer has made no profit or an inadequate profit in that year. Where the allocable surplus permits, the employer must pay a higher bonus up to a statutory maximum of 20% of salary or wages, computed according to the formula set out in the Act's schedules.
The Eligibility Ceiling and the Calculation Ceiling
Two separate wage figures matter under the Act. The eligibility ceiling determines whether an employee is covered by the Act at all: employees earning above this figure fall outside mandatory coverage. Separately, a calculation ceiling applies for computing the bonus of employees whose actual wages exceed it: for such employees, the bonus is computed as if their wage were equal to the calculation ceiling, even though their actual salary is higher. Employers should not confuse the two figures when auditing compliance.
Disqualification and Deductions
The Act disqualifies an employee from bonus in specific circumstances, including dismissal for fraud, riotous or violent conduct, or theft, misappropriation or sabotage of the employer's property. The Act also permits an employer to make certain deductions from bonus otherwise payable, such as for financial loss caused by employee misconduct in the relevant accounting year, subject to the specific conditions set out in the Act.
Frequently Asked Questions
Is bonus payable even if the employer made no profit that year?
Yes: the Act requires payment of a minimum bonus of 8.33% of wages (or a prescribed minimum amount, whichever is higher) regardless of whether the employer made a profit, unless a specific statutory exemption applies to a new or loss-making establishment.
What is the maximum bonus an employer must pay?
Where the allocable surplus under the Act's formula permits, the employer must pay a bonus up to a statutory maximum of 20% of the employee's salary or wages for the accounting year.
Can an employee be denied bonus for misconduct?
Yes, the Act disqualifies an employee dismissed for fraud, riotous or violent conduct, or theft, misappropriation or sabotage of the employer's property from receiving bonus, though this disqualification is narrowly limited to these specific grounds.
Do all employees in a company receive the same bonus percentage?
Not necessarily: the percentage is generally uniform for eligible employees under the applicable formula, but the rupee amount differs because employees above the calculation ceiling have their bonus computed on the ceiling figure rather than their actual (higher) salary.
References & Further Reading
This article references the following statutory provisions. Readers should always verify current rules, fees and timelines against the applicable statute and rules as amended, since these are revised from time to time.
- Payment of Bonus Act, 1965, Sections 10, 11, 12 and 2(13).
- Payment of Bonus Act, 1965, Sections 9 and 21.