Who is covered
The Act applies to establishments with 20 or more employees (10 or more in some states) and continues to apply once it has become applicable. Within a covered establishment, every employee with basic plus DA up to ₹21,000 per month who has worked at least 30 working days in the accounting year is eligible. Managers earning above ₹21,000 fall outside the statutory scheme.
Security guards, housekeeping staff, factory operators and most retail staff are inside the wage limit, which makes bonus a real annual liability for labour-intensive businesses.
How the bonus is calculated
The rate is between 8.33% and 20% of annual wages, depending on the establishment's allocable surplus computed under the Act's schedules. New establishments have a limited exemption in the initial years unless they make a profit. The wage on which the percentage is applied is capped: ₹7,000 per month or the minimum wage for the scheduled employment, whichever is higher.
So for an eligible employee whose actual basic plus DA is ₹18,000 in a state where the applicable minimum wage is below ₹7,000, bonus is computed on ₹7,000, not ₹18,000. Where the scheduled minimum wage exceeds ₹7,000, which is true for many categories today, the minimum wage becomes the calculation base.
- Eligibility wage: basic plus DA up to ₹21,000 per month
- Minimum 8.33% (or ₹100, whichever is higher); maximum 20%
- Calculation base: ₹7,000 per month or the scheduled minimum wage, whichever is higher
- Working days: at least 30 in the accounting year; bonus is pro-rated for part-year service
- Pay within 8 months of the close of the accounting year
Payroll handling and common disputes
Bonus is usually paid as a lump sum before Diwali, but some employers spread it monthly as a bonus component in gross. Monthly payment is permitted if it is clearly labelled and at least equals the statutory entitlement, though labour departments scrutinise it. Bonus is not part of wages for EPF or ESI contribution purposes, but it is taxable salary for the employee.
Disputes arise when an employer deducts bonus for absence beyond what the Act allows, or when contractors' guards are denied bonus because the client did not fund it. The contractor remains liable, and the principal employer may be pursued if the contractor defaults.
The guard is eligible because ₹15,000 is under ₹21,000 and he worked the full year. Assume the scheduled minimum wage for his category is ₹14,000 (illustrative); since that exceeds ₹7,000, bonus is computed on ₹14,000 × 12 = ₹1,68,000. At the 8.33% minimum the bonus is ₹13,994. If the agency's allocable surplus supported the 20% maximum, the bonus would be ₹33,600. It must be paid within 8 months of the accounting year-end.