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The Payment of Bonus Act requires covered establishments to pay an annual bonus to eligible employees, within a minimum and maximum linked to the employer's allocable surplus.
Check before you rely on thisCheck the current minimum and maximum bonus percentages, the salary eligibility limit, the calculation ceiling, the minimum days worked, the coverage threshold, payment time limits and whether the Code on Wages provisions now apply instead of the Act.
01
The Act sets out who is entitled to an annual statutory bonus, how much, and when it must be paid. The bonus is a percentage of salary or wage, at least a statutory minimum and no more than a statutory maximum, with the amount between them depending on the establishment's allocable surplus for the year.
02
It applies to factories and to other establishments employing at least the number of persons the Act specifies. Employees are eligible if their salary or wage is within the eligibility limit and they have worked the minimum number of days in the accounting year. For calculation, salary is capped at a separate ceiling, or the applicable minimum wage if higher.
Watch for itThe eligibility limit and the calculation ceiling are different figures, and both have been revised in the past. Check the current values before running a bonus calculation.
03
04
| Term | What it means |
|---|---|
| Salary or wage | Basic plus dearness allowance, excluding most other allowances, for bonus purposes |
| Allocable surplus | The share of available surplus that funds bonus, as the Act defines it |
| Set-on and set-off | Carrying surplus or shortfall forward to later years |
| Accounting year | The year for which bonus is calculated |
05
The four labour codes, passed by Parliament in 2019 and 2020, came into force on 21 November 2025. Final central rules under all four codes were notified on 8 May 2026, and each state frames its own rules, some of which are still in draft. During the transition, the relevant provisions of the earlier Acts and their rules continue to apply, so check which rules govern your establishment in each state.
The Payment of Bonus Act is among the laws consolidated into the Code on Wages, which carries the bonus provisions forward with the Code's definition of wages.
Not automatically. A customary or festival bonus may count towards statutory bonus only if it is paid and treated that way. Keep the two clear in records.
The Act lists grounds for disqualification, such as dismissal for certain misconduct. Apply them strictly as written.
The Act has provisions for the first years of a new establishment. Check how they apply to you.
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