How to Claim Bonus Under the Payment of Bonus Act 1965 in India: Eligibility, Calculation Formula, and Timeline

Kaustav Chowdhury
2 days ago
6 min read

The Payment of Bonus Act, 1965 is a key labour legislation in India that mandates employers to share a portion of their profits or productivity gains with eligible employees in the form of an annual bonus. Whether you work in a factory or a commercial establishment, understanding your bonus entitlement is essential for ensuring you receive the statutory compensation owed to you. This guide explains the eligibility criteria, calculation formula, step-by-step process for claiming bonus, and the timelines prescribed under the Act. For employees looking to understand other statutory benefits, our guides on claiming ESI benefits under the ESI Act 1948 and withdrawing EPF online provide additional useful information.

Overview of the Payment of Bonus Act 1965

The Payment of Bonus Act was enacted in 1965 to regulate the payment of bonus to employees in establishments across India. The Act was significantly amended in 2015, raising the eligibility salary ceiling from Rs. 10,000 to Rs. 21,000 per month and the calculation ceiling from Rs. 3,500 to Rs. 7,000 per month. The Act applies to every factory with 10 or more workers and every other establishment with 20 or more employees. Once an establishment comes within the scope of the Act, it continues to be covered even if the number of employees falls below the threshold later.

Applicability of the Act

The Act applies to every factory as defined under the Factories Act, 1948 employing 10 or more persons, and every other establishment employing 20 or more persons on any day during the accounting year. The Act does not apply to employees of the Life Insurance Corporation of India, the Reserve Bank of India, inland water transport establishments, universities and educational institutions, hospitals, chambers of commerce, social welfare institutions, and establishments with fewer than the prescribed number of employees.

Establishments covered under the Act must comply with bonus payment obligations regardless of profitability, as the minimum bonus is payable even in loss-making years. Employers who also need to comply with other labour laws should review our guide on registering under the Shops and Establishments Act.

Eligibility Criteria for Bonus

To be eligible for bonus under the Act, an employee must meet the following conditions. The employee must have worked in the establishment for at least 30 working days in the accounting year. The employee's monthly salary or wage must not exceed Rs. 21,000 (basic pay plus dearness allowance). Employees drawing a salary above Rs. 21,000 per month are excluded from the statutory bonus entitlement.

All categories of employees are covered, including those engaged in skilled, unskilled, manual, supervisory, managerial, administrative, technical, or clerical work. However, employees dismissed for fraud, riotous or violent behaviour, theft, misappropriation, or sabotage of property are disqualified from receiving bonus for that year under Section 9 of the Act.

Bonus Calculation Formula

The bonus calculation depends on the allocable surplus of the employer, subject to minimum and maximum limits prescribed under the Act.

Minimum Bonus (Section 10). Every eligible employee is entitled to a minimum bonus of 8.33% of the salary or wage earned during the accounting year, or Rs. 100 (Rs. 60 for employees below 15 years of age), whichever is higher. This minimum bonus is payable even if the employer has no allocable surplus or has incurred losses during the year.

Maximum Bonus (Section 11). Where the allocable surplus exceeds the total minimum bonus payable, the employer must pay a higher bonus proportionate to the salary earned, subject to a maximum of 20% of the salary or wage.

Calculation Ceiling (Section 12). For the purpose of calculating bonus, the salary or wage is capped at Rs. 7,000 per month. This means that even if an employee earns Rs. 15,000 per month, the bonus is calculated on Rs. 7,000.

Allocable Surplus. The allocable surplus is derived from the gross profit of the establishment. For banking companies, 60% of the available surplus constitutes the allocable surplus. For all other establishments, 67% of the available surplus is the allocable surplus.

Set-On and Set-Off (Section 15). If the allocable surplus in any year exceeds the amount of maximum bonus payable, the excess (called set-on) is carried forward to the next year. Conversely, if the allocable surplus falls short of the minimum bonus payable, the shortfall (called set-off) is carried forward and adjusted against future surpluses. Both set-on and set-off can be carried forward for up to four accounting years.

Step-by-Step Process to Claim Bonus

Step 1. Verify Eligibility. Confirm that you have worked for at least 30 days during the accounting year and that your monthly salary (basic plus dearness allowance) does not exceed Rs. 21,000.

Step 2. Check the Accounting Year. Bonus is calculated on the basis of the employer's accounting year. Most establishments follow the financial year (April to March). Verify the applicable accounting year with your employer's HR or accounts department.

Step 3. Request Bonus Computation. Ask your employer to provide the bonus computation sheet, which should show the allocable surplus, the applicable bonus percentage, and your individual bonus amount.

Step 4. Receive Payment. Under Section 19, the employer must pay the bonus within eight months from the close of the accounting year. For a financial year ending in March, bonus must be paid by November of the same year.

Step 5. File a Complaint if Unpaid. If the employer fails to pay the bonus within the prescribed period, you can file a complaint with the Labour Commissioner or the competent authority under the Act. The complaint should include details of your employment, salary, and the bonus amount due. Similar to other workplace rights, you may also want to understand the process of filing a sexual harassment complaint under the POSH Act 2013 to know your complete range of legal protections at work.

Step 6. Adjudication. The competent authority will issue notice to the employer and conduct a hearing. If the employer is found to be in default, the authority can direct payment of the bonus along with interest.

Timeline for Bonus Payment

Bonus must be paid within eight months from the close of the accounting year. The appropriate government can extend this period by up to two years in special cases. If a dispute arises, adjudication by the labour authority typically takes three to six months, depending on the complexity and the jurisdiction. In cases where the employer closes down the establishment, bonus that has accrued must still be paid within the prescribed period. For families dealing with the loss of a working member, our guide on claiming provident fund of a deceased family member covers related financial entitlements.

Disqualification from Bonus

Under Section 9, an employee is disqualified from receiving bonus for the accounting year in which the employee is dismissed for fraud, riotous or violent behaviour on the premises of the establishment, theft, misappropriation, or sabotage of property of the establishment. The disqualification applies only for the specific year of dismissal and does not affect bonus for prior years that remain unpaid. Employers and employees seeking to resolve bonus disputes amicably may also consider the Lok Adalat mechanism for settling claims.

Frequently Asked Questions

Is bonus payable to contract workers? Yes. Contract workers are eligible for bonus under the Act if the establishment and the worker meet the statutory criteria. The principal employer or the contractor, as the case may be, is liable to pay the bonus.

Can an employer pay more than 20% bonus? Yes. The 20% ceiling is the statutory maximum under the Act, but employers are free to pay ex-gratia or contractual bonus above this limit. However, any amount paid beyond 20% cannot be set off against future minimum bonus obligations.

What happens if the employer disputes the calculation? The employee can approach the Labour Commissioner for adjudication. Both parties present their accounts, and the authority determines the correct bonus amount. An employee dealing with other workplace concerns may also want to explore the option of claiming compassionate appointment after the death of a government employee.

Is bonus payable to probationary employees? Yes, provided the probationary employee has worked for at least 30 days during the accounting year and meets the salary threshold of Rs. 21,000 per month.

Can bonus be adjusted against advance payments? Yes. Under Section 18, any puja bonus or advance bonus already paid by the employer can be adjusted against the statutory bonus payable for the year.