Statutory bonus is a mandatory annual payment that employers in India must make to eligible employees under the Payment of Bonus Act, 1965. Unlike a discretionary performance bonus, it is a legal entitlement, payable as a percentage of qualifying wages to employees who fall within the wage limit and have worked a minimum period in the year. It is one of the recurring statutory obligations a company takes on when employing people in India.
Who is eligible for statutory bonus?
Eligibility is defined by wages and time worked, so not every employee qualifies. The main conditions are straightforward.
- Wage limit: employees earning up to a monthly wage ceiling, commonly 21,000 rupees (about 252 US dollars), are covered.
- Minimum service: an employee must have worked at least 30 days in the financial year to qualify.
- Covered establishments: the Act generally applies to establishments with 20 or more employees.
How much is the statutory bonus?
The bonus is a percentage of qualifying wages, within a floor and a ceiling set by law. The amount depends on the employer's allocable surplus for the year, but the bounds are fixed.
- Minimum: 8.33 percent of qualifying wages, payable even if the business made no profit.
- Maximum: up to 20 percent of qualifying wages, depending on the surplus available.
- Calculation base: the bonus is computed on a capped wage base, so it is not always a percentage of full salary.
Statutory bonus vs performance bonus
The word bonus covers two very different things in Indian pay, and confusing them is common. The table sets out the distinction.
| Feature | Statutory bonus | Performance bonus |
|---|---|---|
| Basis | Legal requirement | Employer's discretion |
| Amount | 8.33% to 20% of wages | Set by the company |
| Who qualifies | Employees within the wage limit | Per company policy |
This information is for general guidance. Confirm current limits and consult experts for your specific situation.
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