The Payment of Bonus Act 1965: Who Is Eligible and How Bonus Is Calculated (2026)

Explainer · Labour Law

Updated for 2026 · Claw Editorial

Every year around Diwali, the same questions come up. Am I eligible for bonus? How much should I get? Can my employer refuse? For HR teams and lawyers, the harder questions are which law applies today and what to do when a bonus is denied. This guide explains the Payment of Bonus Act 1965 in simple terms: who it covers, the wage ceiling, minimum and maximum bonus, how the amount is worked out, the payment deadline, and where the law stands in 2026 after the Code on Wages.

01The short answer

The Payment of Bonus Act 1965 requires covered establishments with 20 or more employees to pay an annual bonus to eligible employees who draw wages up to a notified ceiling. The bonus is at least 8.33% and at most 20% of salary, depending on the allocable surplus the employer earns in the accounting year.

02Which establishments are covered

Under the 1965 Act, the law applied to two groups.

• Every factory that employs 10 or more people using power (or 20 or more without power).
• Every other establishment that employs 20 or more people on any day of the accounting year.

In practice, most shops, offices, firms and companies with 20 or more employees were covered. Some bodies were excluded, such as certain government departments, banks, insurance companies and some public bodies. Once an establishment is covered, it stays covered for the year even if headcount later falls.

03Who is eligible and the wage ceiling

An employee is eligible if two things are true.

• Wage limit: the employee draws wages up to the notified ceiling. After the 2015 amendment, this limit was Rs 21,000 per month. The Ministry of Labour and Employment has kept Rs 21,000 per month as the eligibility ceiling under the Code on Wages.
• Minimum work: the employee has worked for at least 30 working days in the accounting year.

Eligibility does not depend on whether the job is permanent, temporary, full time or part time. A casual or contract worker who meets both tests can qualify. Apprentices are generally not treated as employees for this purpose.

Who can lose bonus

An employee can be disqualified for fraud, riotous or violent behaviour at the establishment, theft or misappropriation of its property, or sabotage, if dismissed for that misconduct. This is the area where disputes often start, because the employer must be able to show the misconduct and the dismissal.

04Minimum and maximum bonus

The law sets a floor and a cap.

The minimum is a right, not a favour. An employer cannot skip it because the year was weak. Only the part above 8.33% depends on profit.

05How bonus is calculated

The idea is simple. Bonus is a percentage of the employee’s wage for the year. The wage used is basic pay plus dearness allowance, if any. Other allowances are usually left out.

The wage ceiling for calculation

For working out the bonus amount, the law has a calculation limit that is different from the eligibility limit. Under the 1965 Act, wages above Rs 7,000 per month (or the applicable minimum wage, whichever is higher) were capped for calculation. This is why an employee earning Rs 20,000 does not get 8.33% of the full Rs 20,000. The wages are capped first.

A simple example

• Employee earns basic plus DA of Rs 18,000 per month.
• Calculation wage is capped at the higher of Rs 7,000 or the applicable minimum wage. Say the minimum wage is Rs 12,000.
• Yearly capped wage: Rs 12,000 x 12 = Rs 1,44,000.
• Minimum bonus at 8.33%: about Rs 11,995. Maximum at 20%: Rs 28,800.

The example is illustrative. Check the minimum wage for your state and industry. Our guide to the Minimum Wages Act explains how that figure is set.

Allocable surplus

Allocable surplus is a set share of the employer’s available surplus for the year, after allowed deductions such as depreciation and tax. If the surplus is high, bonus rises towards 20%. If it is low, the employer still pays the 8.33% minimum.

06When bonus must be paid

Bonus must be paid within eight months from the close of the accounting year. For a year ending 31 March, that means by 30 November. The date can be extended only with permission from the appropriate government, for a good reason.

Many employers pay before Diwali as a practice. That is custom, not the legal deadline. If the deadline is missed with no valid extension, the employee has a claim for the unpaid bonus.

07The move to the Code on Wages

The Code on Wages 2019 merged four wage laws into one: the Payment of Wages Act, the Minimum Wages Act, the Payment of Bonus Act and the Equal Remuneration Act. The government brought the labour codes into force on 21 November 2025, and the bonus rules now sit in Chapter IV of the Code on Wages. The Ministry of Labour and Employment has notified Rs 21,000 per month as the wage ceiling for bonus eligibility under the Code.

For employers and employees, the practical position is this:

• The main rights continue: 8.33% minimum, 20% maximum, linked to allocable surplus.
• Section numbers and some procedures changed. Old references to the 1965 Act should be read alongside the Code.
• Bonus years that began before the Code may still be handled under the older law for claims and savings. Check the transition provisions and your state rules.

Many state rules under the Code were still being finalised or updated. Always confirm the current state position.

08When bonus is disputed

Bonus is one of the most common labour claims. Typical disputes include:

• An employer refusing the 8.33% minimum, saying there was no profit.
• A disagreement about allocable surplus or the accounts behind it.
• An employee dismissed for misconduct and denied bonus.
• Delay in payment past the eight-month limit.

These disputes are decided by the authorities and forums set up under the law, and by labour courts and industrial tribunals where they become industrial disputes, with High Court and Supreme Court appeals above them. For a lawyer or an HR head, the outcome often turns on how earlier labour courts treated the same facts: set off, carry forward, the treatment of misconduct, and the proof of accounts. Finding those rulings, and tracking each hearing once a claim is filed, is where the work really lies.

If a bonus claim runs into a pay-related question about gratuity at exit, see our explainer on gratuity calculation and claims.

09Where Claw fits

Claw is an all-in-one legaltech platform for Indian advocates, law firms, and corporate legal teams, combining AI-based case search, an AI legal assistant (Legal GPT), case management, and compliance automation across all Indian courts and tribunals.

This page is an explainer, and Claw is not needed to understand the Bonus Act. It becomes useful when a bonus matter turns into a dispute. Claw tracks cases across the courts, tribunals and labour courts where such disputes are heard, with automatic case updates, cause lists and alerts, so a lawyer or an in-house team does not miss a hearing. For research on how courts have treated bonus claims, Claw’s case search covers the Supreme Court and 25 High Courts. For tracking, Claw does not stop at those: it follows cases in 8200+ courts, including tribunals and district courts.

If you need litigation data in your own systems, for example to check whether a party is already in court before a settlement, see the best court record check APIs in India. Claw also has a free plan for individual advocates, with paid plans for teams.

10Sources and further reading

• Ministry of Labour and Employment: labour.gov.in
• India Code (Acts and Codes in full text): indiacode.nic.in
• Claw: clawlaw.in

This is general information, not legal advice. Figures and thresholds change, so confirm them with the latest notification. Last verified October 2026.

11Frequently asked questions