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.

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)

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.