"Bonus must be 20% of my salary": what the Payment of Bonus Act and the 2026 Code on Wages rules actually say

Every October, the same claim circulates in office WhatsApp groups and on LinkedIn: statutory bonus is 20% of your salary, and your employer is breaking the law if it pays less. A second version is just as common among employers: we made a loss this year, so no bonus is payable. Both are wrong, and both cost money — the employee version produces angry emails that go nowhere, and the employer version produces prosecutions under Section 28.

The truth is narrower and more mechanical than either camp believes. Statutory bonus in India is a floor of 8.33% and a ceiling of 20%, it is calculated on a capped wage figure of ₹7,000 (not your actual salary), and whether you get 8.33% or 20% depends on an arithmetic exercise called allocable surplus that most employees have never heard of. As of the August 2026 notifications under the Code on Wages, 2019, the numbers have been carried forward — but the statute you cite has changed.

What the law actually says

Statutory bonus was governed for sixty years by the Payment of Bonus Act, 1965, read with the Payment of Bonus Rules, 1975. That framework is now subsumed into Chapter IV of the Code on Wages, 2019 (Sections 26 to 41), which came into force on 21 November 2025, supported by the Code on Wages (Central) Rules, 2026. On 25 August 2026, the Ministry of Labour and Employment issued notifications fixing the two numbers that decide every bonus calculation: the eligibility wage ceiling and the calculation wage ceiling.

Here is the operative structure, with the old and new citations side by side:

Eligibility ceiling — ₹21,000 per month. Under Section 2(13) of the Payment of Bonus Act, 1965, an "employee" for bonus purposes is one drawing wages up to ₹21,000 per month. The August 2026 notification carries the identical figure into Section 26(1) of the Code on Wages, 2019. Draw more than ₹21,000 in basic plus dearness allowance and you have no statutory entitlement at all. Anything your employer pays you above that line is contractual or discretionary, not statutory — and you cannot enforce it under this law.

Calculation ceiling — ₹7,000 or the notified minimum wage, whichever is higher. This is the number people miss. Section 12 of the 1965 Act (now the corresponding proviso under Section 26 of the Code) says that where wages exceed ₹7,000 per month, bonus is computed as if wages were ₹7,000, or the minimum wage notified for that scheduled employment, whichever is higher. Both the ₹21,000 and ₹7,000 figures were set by the Payment of Bonus (Amendment) Act, 2016 (Act No. 6 of 2016), given retrospective effect from 1 April 2014, and both survive the 2026 notifications unchanged.

Minimum 8.33%, maximum 20%. Section 10 of the 1965 Act (Section 26 of the Code) mandates a minimum bonus of 8.33% of wages or ₹100, whichever is higher — payable even in a year when the employer has made no allocable surplus and no profit. Section 11 (Section 26 read with Section 31 of the Code) caps the bonus at 20%, no matter how large the surplus. There is no lawful figure below 8.33% and no enforceable figure above 20%.

Thirty working days, not one year. Section 8 of the 1965 Act requires only that the employee has worked at least 30 working days in the accounting year. There is no one-year qualifying period, contrary to what most HR handbooks state.

Disqualification is narrow. Section 9 disqualifies an employee only for dismissal on grounds of fraud, riotous or violent behaviour on the premises, or theft, misappropriation or sabotage of the establishment's property. Poor performance, resignation, absconding, or serving a notice period are not disqualifiers.

Deadline — eight months. Section 19 of the 1965 Act requires payment within eight months from the close of the accounting year. For an accounting year ending 31 March 2026, the outer limit is 30 November 2026.

Practical implications

Run the arithmetic and the gap between belief and entitlement becomes obvious.

Case 1 — Priya, basic + DA of ₹18,000 per month, Bengaluru. She is eligible, because ₹18,000 is below the ₹21,000 ceiling. But her bonus is not computed on ₹18,000. It is computed on ₹7,000, or the Karnataka-notified minimum wage for her scheduled employment if that is higher. Assume the applicable minimum wage is ₹14,600 — the higher figure governs. At the statutory minimum of 8.33%, her annual bonus is 8.33% × ₹14,600 × 12 = ₹14,594. At the 20% ceiling in a high-surplus year, it is ₹35,040. Her actual salary of ₹18,000 never enters the calculation.

Case 2 — Rohit, basic + DA of ₹26,000 per month. He is outside the statute entirely. Whatever "bonus" his company pays him is a contractual or ex-gratia payment, governed by his appointment letter, not by the Code on Wages. He cannot file a claim before the authority under Section 45 of the Code.

Case 3 — a company in its third year of operation. Section 16 of the 1965 Act (the infancy provision, carried into Section 26(6) of the Code) says that for the first five accounting years following the year in which the employer begins to sell goods or render services, bonus is payable only in an accounting year in which the employer derives profit. A loss-making three-year-old startup owes nothing. A seven-year-old loss-making company owes the full 8.33% minimum.

Case 4 — the employer with a genuine loss in year eight. The 8.33% minimum is payable regardless. This is the single most expensive misconception on the employer side. Section 15 provides some relief through the set-on and set-off mechanism: allocable surplus in excess of the 20% ceiling is carried forward for up to four accounting years and can be set off against future shortfalls. Set-on and set-off are recorded in Form B.

On tax: statutory bonus is salary in the employee's hands, subject to TDS under Section 192, and appears in Form 16 and in Form 26AS (now Form 168 under ITA 2025) for the Tax Year in which it is received. For the employer, bonus is deductible only in the year of actual payment under Section 43B — provision it in the books for Tax Year 2025-26 but pay it in January 2027 after the ITR due date, and the deduction shifts to Tax Year 2026-27.

Step-by-step: what to do

If you are an employee:

• Pull your salary slip and add basic + dearness allowance only. Exclude HRA, conveyance, special allowance, and employer PF contribution. If that sum exceeds ₹21,000 per month, stop — you have no statutory claim.
• Find the minimum wage notified by your State for your scheduled employment and category. Compare it with ₹7,000. The higher figure is your calculation base.
• Compute 8.33% of (calculation base × number of months worked). That is your absolute floor.
• Ask your employer in writing for the Form C bonus register entry for your name and the accounting year. Employers are required to maintain it.
• If the eight-month deadline has passed with nothing paid, file an application before the authority notified under Section 45 of the Code on Wages, 2019 (previously Section 21 of the 1965 Act). The limitation period is one year from the date the amount became due.

If you are an employer:

• Determine your accounting year and confirm whether you are past the five-year infancy period under Section 16.
• Compute gross profit under the Second Schedule, then available surplus under Section 5, then allocable surplus — 67% of available surplus for a company that does not declare dividends outside India, 60% otherwise.
• Divide the allocable surplus by total eligible wages. If the ratio is below 8.33%, you still pay 8.33%. If above 20%, you pay 20% and set on the excess in Form B.
• Maintain Form A (allocable surplus computation), Form B (set-on / set-off), and Form C (employee-wise bonus register).
• Pay by 30 November 2026 for the accounting year ended 31 March 2026, and pay before your income-tax return due date to preserve the Section 43B deduction.
• File the annual return in Form D by 1 February following the accounting year.

FAQ

Is statutory bonus payable to an employee who resigned in August?
Yes, provided the employee worked at least 30 working days in the accounting year. Resignation is not a disqualification under Section 9. The bonus is pro-rated for the months actually worked and should be settled with the full and final payment or by the Section 19 eight-month deadline, whichever is earlier.

My CTC letter says "performance bonus — ₹80,000". Does that satisfy the statutory bonus obligation?
Only if it is expressly identified as statutory bonus and at least equals the 8.33% minimum. Section 17 of the 1965 Act permits an employer to adjust customary or interim bonus already paid against the statutory liability, but a performance-linked payment that is discretionary and withheld for poor ratings does not discharge a statutory obligation. Employers should name it separately on the payslip.

What is the penalty if the employer simply does not pay?
Under Section 28 of the Payment of Bonus Act, 1965, contravention attracts imprisonment up to six months, a fine up to ₹1,000, or both. Under the Code on Wages, 2019, penalties are consolidated in Section 54 and are substantially steeper — up to ₹50,000 for a first offence and up to ₹1,00,000 with imprisonment up to three months for a repeat offence within five years. The employee's separate civil claim for the unpaid amount is unaffected.

Are contract workers entitled to bonus from the principal employer?
No — from their own employer, the contractor, who is the employer of record for bonus purposes. But the principal employer carries exposure: under the Contract Labour (Regulation and Abolition) Act, 1970, failure by the contractor to pay statutory dues can be recovered from the principal employer. Build a bonus warranty and an indemnity into every contractor agreement, and collect the Form C extract annually.

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See Also

• "Maternity leave is only for permanent employees": What the Maternity Benefit Act 1961 actually says
• "We pay above minimum wage, so we're fine": what the Code on Wages 2019 actually requires in 2026
• "They're the contractor's workers, not ours": what the CLRA Act 1970 actually says about principal employer liability

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