Payment of Bonus under the Code on Wages

Statutory bonus links the earnings of employees to the profits of the establishment, while guaranteeing a minimum bonus even in a year without profit. Chapter IV of the Code on Wages, sections 26 to 41, carries forward the scheme of the Payment of Bonus Act, 1965 with few changes in substance. This note covers which establishments and employees are covered, how bonus is calculated, when it may be reduced or denied, and when it must be paid.

1. Nature of Bonus

• Muir Mills v Suti Mills Mazdoor Union (1955). Bonus is not a deferred wage; it is a claim to share in profits to which labour has contributed, where wages fall short of the living wage.
• Associated Cement Companies v Workmen (1959). The Supreme Court approved the Full Bench formula for computing the surplus available for bonus, the basis of the later statutory scheme.
• Jalan Trading Co v Mill Mazdoor Sabha (1966). The Payment of Bonus Act was upheld, though some provisions were struck down. Minimum bonus is payable whether or not there is a profit.

2. Coverage and Eligibility

Figure 1: The path to a bonus entitlement

• Exclusions, s.41(1). Employees of the LIC and the RBI, seamen, registered dock workers, employees of Central, State and local Governments, employees of non-profit bodies such as the Red Cross, universities, educational institutions and hospitals, notified public sector financial institutions and certain inland water transport.
• Ceilings. Notifications of 25 August 2026, effective from 21 November 2025, fixed the eligibility ceiling at ₹21,000 a month and the calculation ceiling at ₹7,000 or the minimum wage fixed by the Central Government, whichever is higher. Whether the second limb binds State-sphere establishments has been questioned.
• Working days, ss.27, 28. Minimum bonus is reduced in proportion where the employee has not worked all working days. Days of lay-off, paid leave, temporary disablement from an employment accident and maternity leave count as days worked.
• Disqualification, s.29. An employee dismissed for fraud, riotous or violent behaviour on the premises, theft, misappropriation or sabotage of property, or on conviction for sexual harassment gets no bonus.

3. Calculation

Figure 2: From gross profits to bonus

• Minimum bonus, s.26(1). 8.33% of wages earned or ₹100, whichever is higher, payable whether or not there is an allocable surplus.
• Maximum bonus, s.26(3). Where the allocable surplus exceeds the minimum bonus, bonus in proportion to wages up to 20%.
• Allocable surplus, s.31. 60% of the available surplus for a banking company and 67% for other establishments.

Figure 3: Further rules on calculation and payment

• Disputes. Where a dispute is pending, bonus is paid within one month of the award becoming enforceable or the settlement taking effect, but the undisputed minimum must still be paid within eight months.
• Branches, s.30. Departments, undertakings and branches are treated as parts of the same establishment for computing bonus.

4. Frequently Asked Questions

Who is entitled to bonus under the Code on Wages?

An employee of an establishment employing twenty or more persons, not excluded by section 41, who draws wages up to the notified ceiling of ₹21,000 a month and has worked at least thirty days in the accounting year. An employee dismissed for fraud, violent behaviour, theft or sabotage, or on conviction for sexual harassment, is disqualified.

What are the minimum and maximum bonus?

The minimum bonus is 8.33% of wages earned or ₹100, whichever is higher, payable whether or not there is a profit. Where the allocable surplus is larger, bonus rises in proportion to wages to a maximum of 20%.

5. Related Topics

• Topic 4: Code on Wages, Scheme and Definitions. Where Chapter IV fits.
• Topic 9: Advisory Boards, Claims and Offences. Recovering unpaid bonus.