PAYMENT OF BONUSCentral

Section 26 of The Code on Wages, 2019

(1)There shall be paid to every employee, drawing wages not exceeding such amount per mensem, as determined by notification, by the appropriate Government, by his employer, who has put in at least thirty days work in an accounting year, an annual minimum bonus calculated at the rate of eight and one-third per cent. of the wages earned by the employee or one hundred rupees, whichever is higher whether or not the employer has any allocable surplus during the previous accounting year.
(2)For the purpose of calculation of the bonus where the wages of the employee exceeds such amount per mensem, as determined by notification by the appropriate Government, the bonus payable to such employee under sub-sections (1) and (3) shall be calculated as if his wage were such amount, so determined by the appropriate Government or the minimum wage fixed by the appropriate Government, whichever is higher.
(3)Where in respect of any accounting year referred to in sub-section (1), the allocable surplus exceeds the amount of minimum bonus payable to the employees under that sub-section, the employer shall, in lieu of such minimum bonus, be bound to pay to every employee in respect of that accounting year, bonus which shall be an amount in proportion to the wages earned by the employee during the accounting year, subject to a maximum of twenty per cent. of such wages.
(4)In computing the allocable surplus under this section, the amount set on or the amount set off under the provisions of section 36 shall be taken into account in accordance with the provisions of that section.
(5)Any demand for bonus in excess of the bonus referred to in sub-section (1), either on the basis of production or productivity in an accounting year for which the bonus is payable shall be determined by an agreement or settlement between the employer and the employees, subject to the condition that the total bonus including the annual minimum bonus referred to in sub-section (1) shall not exceed twenty per cent. of the wages earned by the employee in the accounting year.
(6)In the first five accounting years following the accounting year in which the employer sells the goods produced or manufactured by him or renders services, as the case may be, from such establishment, bonus shall be payable only in respect of the accounting year in which the employer derives profit from such establishment and such bonus shall be calculated in accordance with the provisions of this Code in relation to that year, but without applying the provisions of section 36.
(7)For the sixth and seventh accounting years following the accounting year in which the employer sells the goods produced or manufactured by him or renders services, as the case may be, from such establishment, the provisions of section 36 shall apply subject to the following modifications, namely:--
1. (i)for the sixth accounting year set on or set off, as the case may be, shall be made, in the manner as may be prescribed by the Central Government, taking into account the excess or deficiency, if any, as the case may be, of the allocable surplus set on or set off in respect of the fifth and sixth accounting years;
2. (ii)for the seventh accounting year set on or set off, as the case may be, shall be made, in the manner as may be prescribed by the Central Government, taking into account the excess or deficiency, if any, as the case may be, of the allocable surplus set on or set off in respect of the fifth, sixth and seventh accounting years.
(8)From the eighth accounting year following the accounting year in which the employer sells the goods produced or manufactured by him or renders services, as the case may be, from such establishment, the provisions of section 36 shall apply in relation to such establishment as they apply in relation to any other establishment. Explanation 1.--For the purpose of sub-section (6), an employer shall not be deemed to have derived profit in any accounting year, unless--
1. (a)he has made provision for depreciation of that year to which he is entitled under the Incometax Act or, as the case may be, under the agricultural income tax law; and
2. (b)the arrears of such depreciation and losses incurred by him in respect of the establishment for the previous accounting years have been fully set off against his profits. Explanation 2.--For the purposes of sub-sections (6), (7) and (8), sale of the goods produced or manufactured during the course of the trial running of any factory or of the prospecting stage of any mine or an oil-field shall not be taken into consideration and where any question arises with regard to such production or manufacture, the appropriate Government may, after giving the parties a reasonable opportunity of representing the case, decide upon the issue.
(9)The provisions of sub-sections (6), (7) and (8) shall, so far as may be, apply to new departments or undertakings or branches set up by existing establishments.

Summary

Employers must pay an annual bonus to every employee who works for at least thirty days during an accounting year.
This requirement applies to employees who earn up to a specific monthly wage limit set by the government.
The minimum bonus must be either eight point three three per cent of the wages earned or one hundred rupees, whichever is the higher amount.
Companies are required to pay this minimum bonus even if they did not make a profit or have extra funds called allocable surplus.
If a company has a large surplus of profit, the bonus can increase up to a maximum of twenty per cent of the employee's annual wages.
When calculating the available profit for bonuses, employers must include amounts carried over from previous years as described in section 36.

Practical examples

1Amit worked at a garment factory for four months in 2024 before moving to a different city. Even though he did not stay the whole year, because he worked more than thirty days, his employer pays him a bonus of 8.33 percent of the wages he earned during those four months.

2Priya works for a software company and earns 18,000 rupees a month. Her company had an exceptionally profitable year with a large extra surplus. Instead of the minimum amount, her employer pays her a higher bonus equal to 15 percent of her total yearly wages.

FAQ

1. What is the minimum work requirement to be eligible for a bonus under Section 26 of The Code on Wages, 2019?

Under Section 26 of The Code on Wages, 2019, an employee must have put in at least thirty days of work in an accounting year to qualify for a bonus.

2. Does a company have to pay a bonus if they lost money according to Section 26 of The Code on Wages, 2019?

Yes, Section 26 of The Code on Wages, 2019, requires the minimum bonus to be paid regardless of whether the employer has any allocable surplus (extra profit) from the previous year.

3. What is the highest bonus an employee can get under Section 26 of The Code on Wages, 2019?

According to Section 26 of The Code on Wages, 2019, the maximum bonus an employer is bound to pay is twenty per cent of the wages earned by the employee during that year.

Test yourself

Q1.Under Section 26 of The Code on Wages, 2019, what is the minimum number of days an employee must work in a year to be eligible for a bonus?

Q2.What is the minimum annual bonus rate prescribed under Section 26 of The Code on Wages, 2019?

Q3.According to Section 26 of The Code on Wages, 2019, how does a large "allocable surplus" affect the bonus?

Q4.How do the rules in Section 36 interact with Section 26 of The Code on Wages, 2019, regarding bonus calculations?

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