Statutory Bonus Applicability and Payment Rules Explained

Statutory bonus is one of the most misunderstood payroll components in Indian organisations. Questions around eligibility, calculation, limits, and payment timelines often surface during audits, employee queries, or year-end payroll closures.

This article explains statutory bonus clearly—what it is, when it applies, how it is calculated, and what HR must manage to stay compliant.

What Is Statutory Bonus?

Statutory bonus is a mandatory annual payment made to eligible employees under the Payment of Bonus Act, 1965. It is linked to organisational performance but governed by minimum and maximum limits prescribed by law.

Bonus under this Act is different from:

• Performance incentives

• Ex-gratia payments

• Variable pay plans

Applicability of the Payment of Bonus Act

The Act applies to:

• Factories, and

• Other establishments employing 20 or more employees

Once applicable, the Act continues to apply even if employee strength later falls below 20.

Employee Eligibility for Statutory Bonus

An employee is eligible for statutory bonus if:

• Their salary or wages do not exceed the prescribed monthly limit

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

For bonus calculation:

• Salary is capped at the statutory ceiling, even if actual salary is higher

• Only basic salary and DA are considered

Bonus Calculation: Key Principles

Statutory bonus is calculated as a percentage of eligible wages:

• Minimum bonus: 8.33%

• Maximum bonus: 20%

The actual percentage depends on:

• Allocable surplus

• Set-on and set-off calculations

• Financial performance of the organisation

HR should note that even loss-making organisations may be required to pay minimum bonus.

Payment Timelines and Compliance

Statutory bonus must be paid:

• Within 8 months from the close of the accounting year

• Earlier if agreed through settlement or policy

Delayed or missed payments can lead to penalties and employee disputes.

Bonus and Payroll Coordination

HR’s role includes:

• Identifying eligible employees accurately

• Applying salary caps correctly

• Coordinating with finance on surplus calculations

• Communicating bonus eligibility transparently

Bonus payouts are typically processed separately from monthly payroll but must align with payroll records.

Statutory Bonus Checklist for HR

Applicability & Eligibility

• ☐ Confirm establishment coverage under the Act

• ☐ Identify eligible employees based on wage limits

• ☐ Verify minimum days worked

Calculation & Payment

• ☐ Apply correct wage ceiling

• ☐ Determine applicable bonus percentage

• ☐ Meet statutory payment timelines

Records & Communication

• ☐ Maintain bonus registers and acknowledgements

• ☐ Issue bonus payment statements

• ☐ Address employee queries clearly

Common Bonus-Related Mistakes

• Confusing statutory bonus with incentive payouts

• Paying flat amounts without applying legal limits

• Excluding eligible employees due to salary misunderstandings

• Missing timelines due to year-end delays

Conclusion

Statutory bonus is a legally protected employee right, not a discretionary reward. When HR manages bonus eligibility and payments with clarity and consistency, it strengthens payroll compliance and employee trust.