Bonus Act Compliance: Eligibility, Calculation, and HR Controls

The Payment of Bonus Act, 1965 is one of the most misunderstood yet frequently litigated labour laws in India. Confusion around eligibility thresholds, calculation methods, set-on and set-off, and payment timelines often results in employee disputes and statutory claims.

For HR, Bonus Act compliance is not an annual payroll event—it requires advance planning, accurate data, and disciplined documentation. Errors made during bonus declaration are difficult to correct later.

This article explains who is eligible, how bonus is calculated, and what HR controls are critical for compliance.

Applicability of the Payment of Bonus Act

The Act applies to:

• Establishments employing 20 or more employees

• Employees drawing wages up to the statutory salary ceiling

Once applicable, the Act continues to apply even if employee strength falls below the threshold.

HR must track coverage at establishment level, not employee-by-employee discretion.

Eligibility for Bonus

Employees are eligible if they:

• Have worked for at least 30 working days in the accounting year

• Earn wages within the notified salary ceiling

Employees dismissed for fraud, riotous behaviour, or theft are not eligible.

Bonus Calculation: What HR Must Get Right

Minimum and Maximum Bonus

• Minimum bonus: 8.33% of wages or ₹100 (₹60 for minors), whichever is higher

• Maximum bonus: 20% of wages

Bonus must be paid even in loss-making years (subject to eligibility).

Salary for Bonus Calculation

Bonus is calculated on:

• Basic wages + DA (subject to statutory limits)

HR must avoid using CTC or gross salary figures incorrectly.

Set-On and Set-Off

Where allocable surplus exceeds limits:

• Excess is carried forward as set-on

• Shortfall is adjusted as set-off

HR must maintain clear year-wise surplus records.

Payment Timelines and Mode

Bonus must be paid:

• Within 8 months from the close of the accounting year

• Earlier, if mandated by settlements or awards

Delays without approved extensions are non-compliant.

HR Execution: Key Control Areas

HR teams should:

• Validate employee eligibility lists carefully

• Lock calculation logic before processing

• Obtain management approval on bonus percentage

• Communicate bonus rationale transparently

• Maintain working papers and registers

Bonus disputes often arise from poor communication, not just calculation errors.

Conclusion

Bonus Act compliance requires HR to balance legal precision with employee expectations. Clear eligibility determination, correct calculation, timely payment, and strong documentation are essential to avoid disputes and penalties.

When managed proactively, bonus processing becomes a predictable statutory exercise, not a yearly risk.

HR Compliance Action Checklist: Payment of Bonus Act

🗹 Confirm applicability based on employee strength
🗹 Identify eligible employees within wage ceiling
🗹 Calculate bonus on prescribed wage components
🗹 Apply minimum and maximum bonus limits correctly
🗹 Track set-on and set-off accurately
🗹 Obtain formal approval for bonus declaration
🗹 Pay bonus within statutory timelines
🗹 Issue bonus statements to employees
🗹 Maintain bonus registers and records
🗹 Prepare documentation for inspections and disputes

Payment of Bonus Act: HR Compliance Overview

Conclusion--

Effective labour law compliance depends on how well HR operations, payroll, and business processes work together. When compliance is embedded into everyday workflows, organisations reduce risk, improve accuracy, and build sustainable governance systems. HR teams that prioritise integration over isolation are better positioned to manage compliance confidently and consistently.