During the initial phase in any company, employers are often worried about how they will manage payroll in each pay period. But once the company gets firmly established, employers not only manage payroll but also want to compensate their employees with additional income as bonus payments. 

So if you are a small business owner, This one’s for you!

What are bonus payments?

Bonus payments are additional pay given to employees apart from their salary. It is given by the employers as a remuneration for their dedication towards the company and work, which in turn helped the company achieve its business goals. 

The underlying purpose of offering a bonus is to distribute the benefit received by the company to the employees. This added perk helps improve employee morale and productivity. It also encourages them to efficiently work towards their goals, thereby helping the company reach newer heights.

What is the Payment of Bonus Act?

The Payment of Bonus Act 1965 is applicable to all factories and companies who have 20 or more employees employed anytime with them during an accounting year. Also, as per the act, the bonus should be awarded on the basis of profit earned by the company or the productivity of an individual.

If the number of employees in the company registered under this act drops below 20, they are still required to pay a bonus. The act states that a minimum bonus of 8.33% and a maximum bonus of 20% of wages can be awarded as a bonus to employees.

Applicability of Payment of Bonus Act

The act applies to all companies throughout India. The provisions of this act are applicable to –

  • Companies that are well-defined under clause 2 of the companies act 194b 
  • Organisations with 20 or greater than 20 employees anytime during an accounting year
  • Some factories or companies in public sectors 
  • Part-time employees

Eligibility for bonus payments

An employee drawing at least a monthly salary of Rs 21,000/- and has served at least 30 days during an accounting year in the company is qualified for the bonus payment. 

If an employee is not eligible for the statutory bonus payment, but if the employer wishes to reward him with a bonus, it can be granted as ex-gratia.

Maximum and minimum bonus

According to the Bonus Payment Act, a minimum bonus of 8.33% of wage or salary earned by the employee for an accounting year or Rs 100, whichever is higher shall be paid to the employee. The employer shall also pay a higher bonus to employees if, in a year, the allocable surplus exceeds the amount of minimum bonus payable to the employees. 

Note: A ceiling limit of 20% of the wage or salary earned by the employee during an accounting year is fixed.

Bonus payments calculation 

If an employee’s gross salary or earning is under Rs. 21,000, then they are eligible for a bonus. 

  • If Basic Salary + Dearness Allowance is under Rs. 7,000 then the bonus is calculated on the actual amount
  • If Basic Salary + Dearness Allowance is greater than Rs. 7000 the bonus is calculated on Rs 7000

Exempted Establishments

The following section of employees is exempted from the applicability of this act.

  1. Employees working in the Reserve Bank of India
  2. Inland water transport establishment employees
  3. Seamen stated under clause 42 of the merchant shipping act 1958
  4. Employees who are registered/ listed under the dock workers act 1948 and are employed under the registered/ listed employers
  5. Building operations employees employed by the contractor
  6. Life Insurance employees
  7. Industrial Finance Corporation of India (IFCI) employees
  8. Agriculture Refinance and Development Corporation (ARDC) employees
  9. Deposit Insurance Corporation (DIC) employees 
  10. The employees of the center or state government-controlled industry
  11. Financial corporation employees stated under Section 3 or 3a of the SFC (State Financial Corporation) Act 1951
  12. Indian red cross society employees
  13. Educational institutions employees
  14. Non-profit institutions employees

Frequently asked questions on Bonus 

1. Are there deductions from bonus payments?

If an employee has been a part of any misconduct during a financial year and if this has resulted in any financial loss to the employer, the amount of loss suffered can be deducted from the amount of bonus payable by the employer or the company and balance after such deductions shall be paid to the employee.

2. What are the provisions related to start-ups or new establishments?

Under the act, start-ups and new establishments are exempted from bonus payments for the first five years. Employers are eligible to pay statutory bonus only in the year in which they derive profit after the commencement of operations.

3. Are there exemptions in bonus payments?

Companies incurring losses can be exempted from paying a minimum bonus to their employees for a certain period. Although, the factors of occurrence of losses to the company must be justifiable, and the employer must have no intentions to avoid payment of bonus by creating fake losses.

4. How is disqualification of bonus payments applicable?

Employers can disqualify employees from receiving bonus payments on the basis of any misconduct, absenteeism, or fraud. Also, before disqualifying the bonus payment, employers must ensure that the process of domestic inquiry, appropriate documentation, and employee acceptance of misconduct are as per the standing orders. 

Make bonus payments with RazorpayX Payroll

Have you automated your payroll yet? If not, it’s time to take full control over your payroll process. No more spreadsheets, no more CAs. With RazorpayX Payroll, you can  – 

  • Automate salary calculations and disbursals
  • Calculate compliances like PT, ESI, PF, and TDS, and make payments
  • Pay your contractors and freelancers easily
  • Provide your employees with access to their payslips and more
  • Insure your employees’ health with group health insurance 

And more! Get started and simplify your payroll like never before. 


Harshitha is a marketer at the future-forward RazorpayX. She has an insatiable love for travel and culture, rock music, and the work of Neil Gaiman.

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