Crack the Bonus Code: Your Ultimate Guide to the Payment of Bonus Act!

In the dynamic landscape of employment, understanding bonus payments is crucial for both employers and employees. This comprehensive guide aims to unravel the complexities surrounding the Payment of Bonus Act, ensuring you’re well-equipped to navigate through its nuances.

Crack the Bonus Code: Your Ultimate Guide to the Payment of Bonus Act!

Table of Contents

What are Bonus Payments?

Bonus payments, often considered a monetary incentive, are additional compensation provided to employees beyond their regular wages. These bonuses serve as a reward for exceptional performance, dedication, or achieving specific milestones within an organization.

The primary objective behind offering bonuses is to share the success of the company with its employees. This extra incentive not only boosts employee morale but also enhances overall productivity. It acts as a motivating factor, inspiring employees to work diligently toward their objectives and, in turn, propelling the company towards greater achievements.

What is the Payment of Bonus Act?

The Payment of Bonus Act of 1965 applies to all factories and companies employing 20 or more individuals at any point during an accounting year. According to the act, bonuses are determined based on either the company’s profits or an individual’s productivity.

Even if a company’s employee count falls below 20, they are still obligated to provide bonuses under this act. The legislation specifies that a minimum bonus of 8.33% and a maximum bonus of 20% of wages can be granted to employees.

In essence, the act ensures that employees are eligible for bonuses regardless of the company size, emphasizing a fair and inclusive approach to rewarding workforce contributions. Applicability of Payment of Bonus Act

Applicability of Payment of Bonus Act

The Payment of Bonus Act extends its reach to companies across all of India. Its provisions specifically cover:

  1. Companies that fall within the clear definition outlined in clause 2 of the Companies Act of 194b.
  2. Organizations with a workforce of 20 or more employees at any point during an accounting year.
  3. Certain factories or companies operating in the public sector.
  4. Part-time employees are also included in the scope of the act.

You can also read Form 12BB: Maximize Your Tax Returns Like a Pro!

Eligibility for bonus payments

An employee who receives a monthly salary of Rs 21,000 or more and has rendered services for a minimum of 30 days within an accounting year is eligible for statutory bonus payment.


In cases where an employee doesn’t meet the criteria for statutory bonus entitlement, the employer has the option to provide a bonus as an ex-gratia gesture. This allows employers to voluntarily reward employees who may not qualify for the statutory bonus but are still deserving of recognition.

Maximum and minimum bonus

As per the Bonus Payment Act, employees are entitled to a minimum bonus of 8.33% of their wage or salary for an accounting year, or Rs 100, whichever is higher. Additionally, if the allocable surplus for the year surpasses the minimum bonus amount, employers are obligated to provide a higher bonus to their employees.


It’s important to note that there is a cap set at 20% of the wage or salary earned by the employee during the accounting year. This ensures that while employees receive a fair bonus, there is a limit to the maximum bonus percentage. The act aims to strike a balance between rewarding employees and maintaining fiscal responsibility for employers.

Bonus payments calculation

Employees with a gross salary or earnings below Rs. 21,000 are eligible for a bonus. The calculation of the bonus varies based on the components of Basic Salary and Dearness Allowance.


If the sum of Basic Salary and Dearness Allowance is below Rs. 7,000, the bonus is computed on the actual amount. However, if the combined Basic Salary and Dearness Allowance exceed Rs. 7,000, the bonus calculation is capped at Rs. 7,000. This ensures a standardized approach in determining bonuses for employees falling within this salary range.

Exempted Establishments

The following categories of employees are exempted from the provisions of this act:

  • Employees of Reserve Bank of India
  • Employees in inland water transport establishments
  • Seamen as defined under clause 42 of the Merchant Shipping Act, 1958
  • Employees registered/listed under the Dock Workers Act, 1948, and employed by registered/listed employers
  • Building operations employees employed by contractors
  • Employees in Life Insurance companies
  • Employees of the Industrial Finance Corporation of India (IFCI)
  • Employees of the Agriculture Refinance and Development Corporation (ARDC)
  • Employees of the Deposit Insurance Corporation (DIC)
  • Employees in industries controlled by the central or state government
  • Employees of financial corporations under Section 3 or 3a of the State Financial Corporation (SFC) Act, 1951
  • Employees of the Indian Red Cross Society
  • Employees in educational institutions
  • Employees in non-profit institutions

Rights Of Employer And Employee

Rights available to the employees

  • Right to Claim Bonus: Employees have the right to claim the bonus due under the Act. This empowers them to approach the government for payment and recovery of bonus amounts that remain unpaid even a year after their due date.
  • Right to Dispute Resolution: Employees can exercise their right to take any dispute to a Labour Court or Tribunal. It’s important to note that employees not eligible for bonuses are excluded from taking their case to a Labour Court or Tribunal.
  • Right to Transparency: Employees have the right to seek clarity regarding the products associated with the business. This enables them to assess whether they are being fairly compensated for their services.

Rights available to the Employer

  • Right to Dispute Resolution: Employers hold the right to bring any dispute to the Labour Court or Tribunal for an interpretation of any clause of the Act.
  • Deduction Rights: Employers can deduct a reasonable amount from an employee’s bonus if it has already been paid as a festival bonus or in the event of monetary loss due to the employee’s misbehavior.
  • Deduction for Termination: Employers have the right to deduct the value of a bonus paid to an employee who has been terminated for misbehavior, offensive conduct, or obstructing the establishment’s operations.


Penalties and Offences

In instances of violating the Act or its rules, the repercussions include a fine of Rs. 1000, imprisonment for 6 months, or a combination of both.


If there is a failure to adhere to the given directions or requisitions, the penalty involves a fine of Rs. 1000, imprisonment for 6 months, or a combination of both.


When a company, firm, body corporate, or association of individuals commits an offense, the responsibility falls on its director, partner, principal, or officer. They are deemed guilty unless they can demonstrate either a lack of knowledge about the wrongdoing or that they took all necessary precautions to prevent it. This places the onus on those overseeing the business to prove their innocence by showcasing either their unawareness or their proactive efforts to prevent any violations.


In conclusion, the Payment of Bonus Act lays out crucial provisions governing bonus payments for employees. It ensures fair compensation and dispute resolution mechanisms. The act also imposes penalties for violations, emphasizing the importance of compliance. 

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