Every establishment covered by the Payment of Bonus Act must pay a minimum bonus of 8.33 percent to eligible employees, regardless of profit or loss. The maximum is 20 percent, depending on the allocable surplus. For FY 2025-26, bonus must be paid by 30 November 2026.

Many employers confuse the eligibility ceiling with the calculation ceiling. They are not the same.

Applicability

  • Every factory under the Factories Act, regardless of headcount.
  • Every other establishment employing 20 or more persons on any day during the accounting year. Once the threshold is crossed, the obligation continues even if headcount later falls below 20.

The Two Ceilings

  • Eligibility Ceiling: Employees earning more than Rs 21,000 per month in Basic Pay plus Dearness Allowance are not covered by the Act.
  • Calculation Ceiling: Bonus is calculated on Rs 7,000 per month or the applicable state minimum wage, whichever is higher, not on actual salary. An employee earning Rs 18,000 per month is eligible, but the bonus is calculated on the statutory ceiling, not on Rs 18,000.

In Delhi, Maharashtra, and Karnataka, minimum wages already exceed Rs 7,000, making the effective base higher than most employers assume.

The Allocable Surplus

  • 60 percent of available surplus for most companies, 67 percent for companies that do not declare dividends in India.
  • Where surplus is insufficient, the minimum 8.33 percent must still be paid. The shortfall is carried forward as set-off and adjusted against future surpluses in accordance with the Act.

Common Errors

  • Calculating bonus on gross salary instead of Basic Pay plus Dearness Allowance.
  • Applying a flat Rs 7,000 ceiling without checking the applicable state minimum wage.
  • Paying statutory bonus to employees above the Rs 21,000 eligibility ceiling.

Why This Matters

Bonus computation is a statutory compliance exercise, not merely a payroll process. Incorrect bonus calculations can result in statutory non-compliance, employee disputes, and payroll corrections. Reviewing both the eligibility and calculation ceilings before processing bonus helps ensure compliance and avoids unnecessary disputes.