Payment of Bonus

What Is Payment of Bonus?

The Payment of Bonus Act, 1965 mandates that employers in India pay an annual bonus to eligible employees. This is a profit-sharing mechanism, not discretionary, and applies to every establishment with 20 or more employees. The bonus is calculated as a percentage of the employee’s qualifying wages and must be paid within 8 months of the close of the accounting year. See the Statutory bonus India guide and the Payment of Bonus Act India deep dive for detailed worked examples.

How It Works

Eligibility

Criterion	Requirement
Establishment size	20+ employees (or 10+ if notified by government)
Employee salary cap	Monthly wages ≤ ₹21,000
Minimum service	30 working days in the accounting year
Exclusions	Apprentices, dismissed for fraud/violent conduct

Calculation

The bonus is calculated on qualifying wages, which is the lower of:

• Actual basic + dearness allowance, or
• ₹7,000/month (calculation ceiling, see the dedicated bonus calculation formula entry)

Parameter	Value
Minimum bonus	8.33% of qualifying wages (even if no profits)
Maximum bonus	20% of qualifying wages
Calculation ceiling	₹7,000/month
Eligibility ceiling	₹21,000/month

Example Calculation:

An employee with basic + DA of ₹15,000/month:

Step	Calculation	Amount
Qualifying wages (capped)	₹7,000 × 12 months	₹84,000
Minimum bonus (8.33%)	₹84,000 × 8.33%	₹6,997
Maximum bonus (20%)	₹84,000 × 20%	₹16,800

The actual bonus percentage between 8.33% and 20% depends on the employer’s allocable surplus (profits available for distribution) calculated using Set On and Set Off rules under the Act.

Set On and Set Off

• Set On, If allocable surplus exceeds the amount payable at maximum (20%), the excess is carried forward (up to 4 years) and “set on” against future shortfalls.
• Set Off, If allocable surplus is less than minimum bonus (8.33%), the shortfall is “set off” against future surplus (up to 4 years).

Payment Timeline

• Must be paid within 8 months from the close of the accounting year.
• For companies with an April–March financial year, bonus must be paid by November 30.
• Many employers pay statutory bonus during Diwali (October/November) as part of customary practice.

How Omnivoo Handles Payment of Bonus

Omnivoo manages the full bonus compliance cycle for employees hired through the EOR:

• Automatic eligibility tracking, The system identifies bonus-eligible employees based on salary thresholds and tenure, flagging new hires who cross the 30-day service requirement.
• Accurate calculation, Payroll applies the ₹7,000 calculation ceiling and computes bonus at the applicable rate, defaulting to minimum 8.33% unless the client specifies a higher percentage.
• Timely disbursement, Bonus is processed within the statutory 8-month window and included in the employee’s payslip with proper breakup.
• Full and final inclusion, When employees exit, accrued pro-rata bonus is included in the full and final settlement calculation.
• Compliance documentation, Omnivoo maintains bonus registers (Form A, B, C) as required under the Act, available for inspection by labor authorities.