What is Statutory bonus?

Definition

Statutory bonus is a minimum annual payment required under the Payment of Bonus Act 1965 for employees and establishments the Act covers, calculated as a percentage of the wages earned in the accounting year subject to a floor and a ceiling.

How it works

It is an entitlement rather than a discretionary reward, which is what separates it from a performance bonus. The Act sets a minimum percentage payable regardless of whether the employer made a profit, and a maximum, with the amount between the two linked to allocable surplus.

What it means in India

The Act applies to establishments meeting its coverage conditions, and eligibility requires the employee to have worked a minimum number of days in the accounting year and to be within the wage eligibility limit set by the Act. Where wages exceed the calculation ceiling, the bonus is computed on the ceiling rather than on actual wages. The eligibility and calculation limits have been amended over the years, so check the figures currently in force.

What people get wrong

• Treating a discretionary performance bonus as discharging the statutory obligation without regard to the Act set-off provisions.
• Assuming an employee who worked part of the year is ineligible. The Act sets a minimum number of working days rather than requiring a full year.

Terms this one depends on

More on statutory deductions and benefits

Where this shows up in practice

Almost everything on this page ends up as a line on a payslip or a figure in a register. Shiftelio keeps attendance, leave, salary structure and the statutory deductions in one place, so the number in the letter and the number in the payslip come from the same record.