When does the employer have to pay a bonus?

Last updated on Jun 21, 2022

An employer should pay an annual minimum bonus to their employee if:

  • Their establishment has at least twenty employees
  • The employer has worked for at least thirty days in an accounting year (starting from 1st April)
  • The employee does not earn more than a specified amount in a month.

However, for the five accounting years immediately following the year in which the employer starts selling goods or giving services, they need to pay the bonus only for years in which they make a profit(( Section 26(6), Code on Wages, 2019.)).

Calculating the bonus

The bonus is eight and one-third percent of the employee’s wages, or Rupees one hundred, whichever is higher. It does not matter whether or not the employer has any allocable surplus during the previous accounting year(( Section 26, Code on Wages, 2019)).

If the allocable surplus is more than the amount of minimum bonus payable to employees, the employer must pay every employee a bonus proportionate to their wages for that accounting year (not more than twenty percent of their wages). However, if an employee has not worked for all the working days in an accounting year, they can proportionately reduce the excess bonus.

The employer should pay the bonus by crediting it in the employee’s bank account within eight months of the accounting year’s end. If the employer requests, the concerned Government can extend this by a maximum of two years.

Employees not eligible for bonus

An employee is not eligible for bonus if they have been dismissed from employment due to:

  • Fraud
  • Violent behaviour at the workplace
  • Theft or property damage
  • Conviction for sexual harassment(( Section 29, The Code on Wages, 2019.)).

Provisions for the bonus do not apply to(( Section 41, Code on Wages, 2019.)):

  • Employees of the Life Insurance Corporation of India;
  • Seamen;
  • Employees registered or listed under any scheme made under the Dock Workers (Regulation of Employment) Act, 1948;
  • Public sector employees;
  • Employees of the Indian Red Cross Society or any other similar institution;
  • Employees of Universities and other educational institutions;
  • Employees of institutions including hospitals, chambers of commerce and not-for-profit social welfare institutions;
  • Employees of the Reserve Bank of India;
  • Employees of inland water transport establishments operating on routes passing through any other country.

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