Payment of bonus act applicability and calculations
14 minutes read

Payment of bonus act applicability and calculations

Hello, in this post we have discussed the payment of bonuses under the Bonus Act.

New Update:

  • During the festive season, the labour department of the Delhi government has issued an advisory to all departments and contractors, arranging manpower, to pay bonuses to outsourced workers.
  • As per the act, the minimum bonus is 8.33% of the basic and dearness allowance i.e. around one month’s salary is to be paid to the employee.
  • In case of defiance, the establishment /contractor is liable to face legal action. It is mandatory for an establishment with 20 or more workers on any day during the accounting year, to pay a bonus under the Payment of Bonus Act 1965.

In this post, we will cover the following:

The Payment of Bonus Act provides for the payment of bonuses to persons employed in certain established organizations, based on profits, production and productivity and matters related thereto. Below, there we look into the various aspects of the Payment of Bonus Act.

What is a bonus?

The bonus is a reward that is paid to an employee for his work dedication towards the organization. The basic objective to give the bonus is to share the profit earned by the organization amongst the employees and staff members.

What is Payment of Bonus Act?

In India, there is a principle law relating to the procedure of payment of bonus to the employees and that law is named as Payment of Bonus Act, 1965.

The Payment of Bonus Act applies to every factory and establishment which employs not less than 20 persons on any day during the accounting year. The establishments covered under the Act shall continue to pay the bonus even if the no of employees falls below 20 subsequently.

Note: Bonus is to be paid within 8 months of closing the book of accounts.

Payment of bonus act applicability

The payment of the bonus act applies to the whole of India. The Provision of this act applies to the following factories/establishments/companies:-

  • The factory is defined under clause section 2 of the factories act 1948.
  • Every establishment in which 20 or more persons are employed on any day during an accounting year.
  • The act also applies to public sectors in some cases.
  • Part-time employees are also included.

When is the employee eligible for the bonus?

Every employee drawing not less than Rs. 21,000/- per month and who has worked for not less than 30 days in an accounting year shall be eligible for the Bonus. Every employee will be entitled to be paid by his employer in an accounting year,  bonus, in accordance with the provisions of this Act, provided he has worked in the establishment for not less than 30 working days in that year.

When an employee is not eligible for the statutory bonus, but the company wants to share the bonus, it can be given as ex-gratia.

Minimum Bonus

Previously, the maximum bonus payable was 20% of Rs 3500 per month. The minimum bonus payment was capped at 8.33% of Rs 3500 per month or Rs 100, whichever is higher. The calculation ceiling of Rs 3500 is currently doubled to Rs 7000 per month “or the minimum wage for the scheduled employment, as fixed by the appropriate Government” (whichever is higher). Therefore, the cost associated with bonus payments could be double, based on the organization’s performance.

Calculation of Bonus as per Bonus Act (Amendment of 2015)

If the gross earning of your employees is below Rs.21000 you are eligible to pay a bonus. Calculation of bonus will be as follows:

  • If Basic+DA is below Rs.7000 then the bonus will be calculated on the actual amount.
  • If Basic+DA is above Rs.7000 then the bonus will be calculated on Rs.7000.


Bonus calculation

Examples of calculation of bonus

  • If the Basic salary of the employee is less than or equal to Rs 7,000

Rahul is working as an engineer in a Company in Bangalore. His basic salary is Rs. 6,500 per month.

Formula: Basic Salary*8.33% = Bonus per month

6500*8.33% = 541.45 (6497.4 per annum)

  • If the Basic salary of the employee is higher than Rs 7,000

Siddharth is working as a Sales officer in one of the shops in Delhi. His basic salary is Rs. 18,000 per month.

Formula: Basic Salary*8.33% = Bonus per month

7,000*8.33% = 583 Per Month

  • If the Basic salary of the employee is higher than Rs 21,000

There is no bonus applicable to employees having a basic salary of more than Rs 21,000.

Under the Payment of Bonus Act, there are some duties and rights for employer and employee –

Duties of employer

There are some duties of the employer, such as 

  • To pay the annual bonus as needed under the Payment of Bonus Act.
  • Maintain the registers to show the computation of allocating surplus in the respective form.
  • Must maintain the register with the payment of the bonus to the employees.
  • All other data should be maintained before the inspection.

Rights of employer

The following rights of employers –

  • Right to make a valid deduction from the bonus due to an employee, such as financial loss, which was created by the misbehavior of the employee and paid the festival bonus.
  • Right to notice in the labour court or tribunal about any disputes relating to the application or interpretation of any provision of the Act.
  • Employers have the right to take the bonus of an employee  because of misappropriation, misbehavior, fraud or who has been dismissed from the service for misbehavior or violence.

Rights of employee  

The following rights of the employees – 

  • Right to notice in the labour court or tribunal about any disputes, but employees who are not eligible for the Payment of Bonus Act, can’t raise a dispute related to the bonus.
  • Right to claim bonus due under the Payment Bonus Act and to request an application to the Government for the redemption of bonus, which is unpaid, within one year of its being due.
  • Employees have the right to seek clarification and obtain information on any item in the account of the establishment.

Exempted establishments

The payment of bonus act will not apply to the following section of employees:

  • The employees of Life Insurance company
  • Seamen are defined under clause 42 of the merchant shipping act 1958.
  • Employees who are registered or listed under the dock workers Act 1948 and employed by the registered or listed employers.
  • The employees of any industry are controlled by the central or state government.
  • Employees from Indian red cross society or education institutions, institutions not for profit.
  • Employees employed by the contractor on building operations
  • Reserve Bank Of India(RBI) employees
  • Employees of any financial corporation under the Section 3 or Section 3a of the State Financial Corporation act (SFC) 1951
  • Employees of IFCI, Deposit Insurance Corporation, agriculture Refinance Corporation.
  • Any financial institution is an establishment in the public sector which the central government notifies.
  • The employees of inland water transport establishment

Offences and penalties

  • In case of failure to comply with the rule and order, then the penalties will be imprisonment for six months with a fine of Rs.1000.
  • In case of any offences by the organisation, its partner, director or any other officer responsible for the conduct of its business, must be considered to be guilty of those offences, unless the person proves that the crime was committed out of his/her knowledge.
  • In case of a violation of the provision under the Act, Then the penalties will be imprisonment for six months with a fine of Rs. 1000.    

This ends our post on Payment of bonus act applicability and calculations. If you have any doubts or questions, kindly drop them in the comment section below.

Also read:

Auto-calculate bonus for eligible employees and generate Form C

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  • how calculate my bonus over my salary 16000

    • Hi Akshay,
      Bonus will be calculated on no. of months declared by employer & not on no. of days. i.e., 7000*20% * no. of months declared. Here, 7000 is taken as salary is above 7000 and below 21000

  • Hi,

    if working day is 70 & salary is below 18000 then what should be bonus amount according to 20% limit??

    • Hi Arvind,
      Bonus will be calculated on no. of months declared by employer & not on no. of days. i.e., 7000*20%*no. of months declared. Here, 7000 is taken as salary is above 7000 and below 21000

  • hi,

    while calculate bonus working day is effect or not
    my salary is below 21000/- & my work day is 74 days then what amount i receive as bonus

    • Hi Suresh,
      Bonus will be calculated on no. of months declared by employer & not on no. of days. Min requirement to be eligible for the bonus is 30 working days and Salary below Rs. 21000 as on the day of bonus declaration.

  • Dear Team,

    Need final clarification on the same:

    Basic less than 7000 same will be calculated on actual basic+DA and for basic +DA between 7k to 21k will be calculated on 7000k itself.

    Also pls confirm if this same is applicable for centrally governed companies as well or not?

    • Hi Santosh,
      Yes, you are right.

  • If a Company has sufficient allocable surplus to pay 20% of bonus, can it still comply with provisions of the Act by just paying 8.33%?

    • The percentage can be 8.33% to 20% based on the company’s decision. So you can go with 20% if you are willing.

    • Hi Ashwin,
      Yes, it can still pay at 8.33%

  • Dear Sir/Madam,

    Please help: A person eligible for 2018-2019 bonus , his date of joining is 15.02.2017 and resignation date is 08.03.2019 so in this case what should be the calculation of Bonus?

    • Hi Pujashree,

      • If His (earned basic + earned DA) is less than Rs. 7000 pm then it will be [((earned basic pm + earned DA pm)* Declared Bonus rate)* No. of decalred months for bonus] eg. Basic is 2000, Da is 1000, bonus rate 10% decalred for 6 months, then bonus will be [((2000+1000)*10%)*6]=[(3000*10%)*6]=[300*6]= Rs.1800
      • If His (earned basic + earned DA) is more than Rs. 7000 pm & less than Rs. 21000 then it will be [(7000 * Declared Bonus rate)* No. of decalred months for bonus] Eg., Basic is 8000, Da is 5000, bonus rate 10% declared for 6 months, the bonus will be [(7000*10%)*6]=[700*6]= Rs.420
      • If His (earned basic + earned DA) is more than Rs. 21000 pm then no bonus
    • Dear Sir/Madam,

      His basic is 11000/- and no DA. Accounting year april 2018 to 08.03.2019 —- during this period what should be the calculation.
      Bonus rate is 8.33%.

    • Hi Pujashree,
      7000*8.33% No. of Months of declared bonus

  • Dear Sir,
    An employee joined on 1st Jan and left the job on 30th Jan. I want to know he is elegible for bonus Yes or No
    Please reply.

    • Hi Sheshnath,
      NO, he is not eligible for the bonus.

  • My consolidated salary was 15000 per month, worked in a listed limited company. Bonus not paid despite my registered letter. When approached they said, I am not eligible for bonus since I left company, say not currently in the service. Since I worked full year on the consolidated payment of 15000 per month, am I eligible to get bonus, if so how much. As they said I am not eligible despite my registered letter, please inform how to get that bonus amount.

    • Hi Ramaraj,
      The bonus will be applicable only if the employee is working at the time of declaration of bonus. If the employee has left the organization on a declaration, then the employee will not be eligible for bonus

  • can u please clarify on wt amount we need to calculate Bonus that means Earned Basic or real basic

    For Example : Employee Basic is 7000 & his earned Basic is 6800 on which amount we need to calculate Bonus

    • Sir, bonus is always on the earned value. So you need to calculate on 6800.

  • Hi, Is the employee is eligible, if he is not on the pay roll (resigned) but worked for 9 to 10 months in the financial year & Bonus is included in CTC.

  • Sir,my gross salary is 47 000/.but my basic salary is 11,525/,hra-3458/, conveyance allowance-1440/,spl.allowances-15,600/, attendance allowance-1600/, medical allowance-900, telephone allowance-900, dearness relief allowance-10,200/.so my question I am eligible for bonus.

    • Hi Amit,
      Yes, you will be eligible for Bonus.

    • In the given case Basic and DA i.e, (11525+10200=21725) which is greater than 21000.
      So, Is he still eligible?

  • Hello sir,
    My company has given me very less bonus i dont know how. I tried calculating but it is not matching to the above calculation u mentioned. Could u plz help.
    Basic – 13,417
    H.R.A – 6,708
    Consol allow – 11,806 . And bonus that i got is 12,787
    I am not understanding how they calculated.
    My Date of joining – March -2017.

    • The bonus is given at some percentage on your earned basic for specific no.of months. Please know the percentage and no.of months for your calculation. Also, if the Earned Basic is above 7000, this will be calculated on default Rs. 7000
      eg. Earned Basic is Rs. 10000 and Bonus is given at 10% for 4 Months then the calculation will be = (7000*10%)*4 that is 2800

  • my company calculates 8500 rs salary based for bonus right or wrong

  • Hi Team,

    Shouldn’t it be calculated on the actual basic amount, since it is less than 7000?

    Also, the diagram and example above say so..calculate on actual.

  • Hello sir. . My salary is 17000 . In breakup basic=6800, DA=3400, HRA=3400, others=3400. So how much I get the bonus? The percentages 8.33% and 20% are fixed or 8.33% to 20%?

  • can u please clarify on wt amount we need to calculate Bonus that means Earned Basic or real basic

    For Example : Employee Basic is 7000 & his earned Basic is 6800 on which amount we need to calculate Bonus

  • Hi
    Can u clarify if an employee has a salary of 20800 as gross, then he is eligible for Bonus, his salary breakup is as follows :
    Basic :6240
    HRA : 3120
    Others : 9640
    PF : 1800

    Pls clarify on what amount and how the bonus is to be calculated if we consider 8.33 %

    • Madam, Yes, the employee is eligible for the bonus. The bonus will be calculated as 8.33% of 7000 as Basic is below Rs. 7000. Hence, the amount will be = 7000* 8.33% * no. of months bonus declared.

    • thanks for the reply what will be the case if the
      Basic :10000
      HRA : 5000
      Others : 5000
      gross : 20000

      In this case is he eligible for bonus , do we need to chk 2 aspects first gross less than 21000 and then basic less than 7000 and then calculate on 7000 or lesser on basic

    • Sir its creating controversy between your reply and below mentioned formula which you have mentioned above please clarify (ref. As below)

      *If the Basic salary of the employee is less than or equal to Rs 7,000

      Rahul is working as an engineer in a Company in Bangalore. His basic salary is Rs. 6,500 per month.

      Formula: Basic Salary*8.33% = Bonus per month

      6500*8.33% = 541.45 (6497.4 per annum)

  • Hi,
    Bonus should be calculate/paid on following case or employer wish
    1. if employees drawing monthly wages is less than 21000/- then they are eligible for bonus as per act.
    2. if employee on CTC base and his structure included bonus then.
    3. Minimum bonus Rs.7000/- or minimum wage whichever is high
    The above given example is wrong as per Amendment bonus act

  • Hi,

    Is there any exception under schedule 2 of Minimum wages act that Engineering unit will not be consider under the said act for bonus calculation as per bonus act 2015 .

  • Hi,
    A small query.
    My company says that I am “not” eligible for bonus as I am being paid incentives.
    My questions:
    1) Is bonus and incentives same?
    2) If not, Is my company right. Will I not be eligible?

    • Sir,
      1) Bonus and incentive are not the same.
      2) If your Basic+DA is above 21000 per month, then you are not eligible for the bonus. Also, providing bonus is a decision of the employee until and unless it is specifically defined in your employment contract

  • While calculating the bonus we need to total up the basic earned during the FY since some employees presence may be more then minimum days but less the 365 days. Please confirm.

    • Hello, for Bonus calculation, its monthly earned basic. Hence, consider the total basic earned for the declared months.

  • Sir ,
    An employee is getting Basic salary of Rs.19000/- pm for 10 months and Rs.21500/- for other 2 months in a Financial year.
    Will that employee is eligible for bonus for 10 months only and not eligible for the rest of 2 months as his Basic salary exceeding ceiling limit of Rs.21000/-

    Please clarify the following :
    1. What is the % of Bonus.
    2. What is the minimum wages to taken – is it Rs.7000/- per month or actual Basic pay
    3. is the employee is eligible for payment of bonus only for 10 months OR not eligible at all as he reached basic salary more than Rs.21000/-

    • Sir, If the bonus is given in the month when the employee salary is 21500, then he/she will not be eligible for the pay.
      Here are answers to your query.
      1) The rate of bonus will be between 8.33% to 20% as declared by your employer.
      2) Minimum wages will be Rs. 7000 or Earned BAsic + DA of the month, whichever is the least.
      3) Not eligible if the bonus is declared in the month when the employee basic is over 21000.

    • For the next 2 months you remember eligible for the bonus, and the % will be declared by your employer depends on their profit. But the limit between 8.33 to 20 only. That 10 months you will get 7000*bonus %by your employer it’s it

  • hi sir
    we have received the bonus from the employer for calculating the current financial year@ 8.33% is this is correct

    Eg : Mr .X joined in October 2017 and worked upto Sept 2018.
    so he has completed 12 months then he has to get Basic+ DA* no of Months * 8.33%.
    Employer paid : Basic+ DA * No of months in Financial Year (April to sept) ie. 6 months * 8.33%
    which is correct please give us the correct calculation.

    • Sir, you will get previous financial year bonus in current year. So according to your example, bonus calculation is from Oct 2017 to Mar 2018 i.e., 6 months * 8.33%.

  • How we will calculate bonus as per Minimum Wages Act

    • Sir, the same process is applicable for bonus calculation as per minimum wages act.

  • My Gross salary is Rs : 25000 per month.
    but it divide in some heads: Basic(8000)+HRA(3000)+LTA(5000)+Conveyance(5000)+Others(4000) then, am i applicable for bonus?
    If applicable, how it calculate my monthly bonus?

    • Sir,
      Yes, you will be applicable provide your employer is, providing the same. The bonus is applicable if your BASIC earned last month is less than Rs. 21000. It is calculated at the rate defined by your employer on your basic earned for the no. of months declared i.e., If, your employer declares bonus at 10% on last 3 month basic and your last 3 month basic is Rs. 8000 per month then you will receive a bonus of Rs. 2400 (Rs. 800 * 3)

    • But as per the definition of salary, it includes all the allowances. Accordingly his salary is 25000 and he should not be eligible for Bonus.
      Request your clarification on this.

    • Sir, for bonus calculation we do not consider any allowances. We have to just consider basic and DA amount and if basic+DA is less than 21,000, then employee will be eligible for bonus

  • My Salary is as follows, Kindly tell me how much should be my BONUS as per the revised bonus act and minimum wages act:
    Basic: 3136
    HRA : 1882
    Conv All: 1254

    Is it that my bonus should be calculated on the minimum wages scheduled by the govt. or will it be calculated on the salary that I draw as above?

    • Dear Sir,
      First Bonus will be calculated on your last drawn Basic at a percentage defined by your employer. The minimum percentage for calculation being 8.33% and Max 20% on your basic. Also, it may be given on one month basic on more no. of months basic as defined by your employer. For e.g, if your employer declares bonus of 10% on the last 6 months, then you will receive a bonus of = (3136*10%)*6 = 1882.
      Hope this has clarified your doubt

    • Then what is the purpose of Minimum wages Scheduled by the Govt.
      Also is their any documented declaration from the company regarding bonus percentages. Can it differ from person to person.
      Thanks for your your prompt response earlier.

    • Sir, Minimum Wages is to set a standard amount limit in case for an employee with too low wages. For bonus documentation, the company audit report and company report will serve the need also FORM C will be the confirmation from employee end. Bonus rate will be standard across the company.

    • You have mentioned 7000×20%=1400 (per month)
      So you mean to say 1400 × 12 = 16800 per year.
      And another doubt
      Minimum bonus is there any amendments made in that rs. 100 for 15 years experienced person.

    • Sir, Yes. The calculation will change from company to company. As of Rs. 100 for 15 years experienced person, there is no change.

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