Payment of Bonus: Eligibility, Computation and Payment

In one line

Every employee below a notified wage level who has worked thirty days in an accounting year gets a bonus of at least one twelfth of his wages, whether the employer profited or not, and at most one fifth of them if the employer profited enough.

In exam wording: Chapter IV of the Code on Wages 2019 provides for an annual minimum bonus under section 26(1) at the rate of eight and one-third per cent. of the wages earned or one hundred rupees, whichever is higher, payable to every employee drawing wages up to a notified amount who has put in at least thirty days work in the accounting year, and payable whether or not the employer has any allocable surplus; where the allocable surplus exceeds that minimum, section 26(3) requires a proportionate higher bonus subject to a maximum of twenty per cent. of wages; the allocable surplus is sixty per cent. of the available surplus for a banking company and sixty-seven per cent. for other establishments under section 31; and the bonus must be credited to the employee's bank account within eight months of the close of the accounting year under section 39.

Why the law has this at all

Bonus began as a gift and became a right, and the Code preserves both halves of that history.

For most of the nineteenth and early twentieth centuries an Indian employer paid a puja bonus or a customary bonus at a festival. It was voluntary, it was unpredictable, and it could be withdrawn. Workers came to expect it, disputes followed, and industrial tribunals began to treat a bonus paid for several years as an implied term.

The second idea was profit-sharing. If labour and capital together produce a surplus, labour has a claim on part of it beyond the contractual wage. This is the theory behind the Full Bench formula developed by the Labour Appellate Tribunal and later the Bonus Commission, and it is why Chapter IV spends ten of its sixteen sections on accounting: gross profits, prior charges, direct tax, available surplus, allocable surplus, set on and set off.

The third idea, and the one that decides most cases, is bonus as deferred wage. A worker in an establishment that made no profit still needs the money, and a minimum wage fixed for bare subsistence leaves nothing over for a festival, a wedding or a debt. So a floor was fixed that does not depend on profit at all.

Chapter IV holds all three. Section 37 lets an employer set off a customary or puja bonus against the statutory bonus, so the old practice survives inside the new scheme. Sections 31 to 36 are pure profit-sharing arithmetic. And section 26(1)'s closing words, "whether or not the employer has any allocable surplus", are the deferred-wage principle stated flatly.