Every October, the same message lands in your inbox: “Sir/Ma’am, what about our Diwali bonus this year?” And every October, you have to explain — again — that the ₹15,000 you’re planning to hand out as a festival gesture has nothing to do with the statutory bonus you’re legally required to pay under the Payment of Bonus Act. Two different things, two different rules, and most employees (and more than a few managers) conflate them completely.
Statutory bonus isn’t a goodwill gesture — it’s a wage-linked legal obligation with its own eligibility ceiling, its own calculation ceiling, and its own payment deadline. Get the math wrong and you’re not just short-changing employees, you’re exposed to a labour department notice. Here’s exactly how it works in 2026.
TL;DR
- Statutory bonus is mandatory under the Payment of Bonus Act, 1965, for employees earning up to ₹21,000/month in establishments with 20 or more employees.
- It’s calculated between 8.33% (minimum) and 20% (maximum) of wages — but the calculation itself is capped at a wage of ₹7,000/month (or the state minimum wage, whichever is higher), not the employee’s actual salary.
- Statutory bonus is a legal entitlement tied to profits/productivity; a festival or Diwali bonus is a discretionary payment — they are not the same line item and shouldn’t be adjusted against each other without a documented policy.
- Bonus must be paid within 8 months of the close of the accounting year, and the annual return (Form D) filed within 30 days after that.
What Is Statutory Bonus, Exactly?
Statutory bonus is a mandatory annual payment under the Payment of Bonus Act, 1965, made to eligible employees out of an establishment’s profits (or on a set minimum basis even without profit). It applies to factories and establishments employing 20 or more persons on any day during the accounting year (some states have notified lower thresholds, so check your state’s Shops & Establishments rules too). It is entirely separate from a discretionary festival bonus, a performance bonus, or an incentive payout — those are company policy decisions, while statutory bonus is a legal floor you cannot contract out of. Working out both correctly, especially for a workforce with mixed salary bands, is exactly what EZHRM’s free Bonus Calculator is built for — plug in the wage and accounting-year profit position, and it returns the payable amount instantly.
Who’s Eligible for Statutory Bonus in 2026?
An employee is eligible for statutory bonus if they’ve worked at least 30 days in the accounting year, in an establishment covered under the Act, and their salary or wage doesn’t exceed the eligibility ceiling of ₹21,000 per month. This ceiling was last revised in 2015 (from ₹10,000) and hasn’t changed since. A few eligibility nuances that trip up HR teams:
- New joiners who’ve completed at least 30 working days in the accounting year are eligible, even if they haven’t completed a full year.
- Apprentices under the Apprentices Act are excluded from bonus eligibility.
- Employees dismissed for fraud, riotous behaviour, or theft/sabotage causing loss to the employer can be disqualified from bonus under Section 9 of the Act — but this needs to be a documented disciplinary finding, not an assumption.
- Eligibility is based on gross wages/salary, not CTC — allowances that don’t form part of “salary or wage” under the Act (like HRA, in most interpretations) are typically excluded when checking the ₹21,000 threshold.
The Bonus Formula: Why 8.33% Isn’t Calculated on Full Salary
This is where most manual calculations go wrong. Statutory bonus is calculated on a separate, lower ceiling of ₹7,000 per month (or the state-notified minimum wage for that employment category, whichever is higher) — not on the employee’s actual salary, even if that salary is well within the ₹21,000 eligibility limit.
The rate: 8.33% floor, 20% ceiling
The bonus rate must be at least 8.33% of the calculation-ceiling wage — this is the statutory minimum, payable even in a loss-making year. Where allocable surplus (profit available for bonus distribution, per the Act’s formula) supports it, the employer can pay up to a maximum of 20%. Most SMEs without large surpluses pay the 8.33% minimum; larger or more profitable companies sometimes go higher as a retention lever. For an employee whose basic wage for calculation purposes is ₹7,000/month (or capped there):
- Minimum annual bonus = 8.33% × ₹7,000 × 12 = ₹5,997/year (₹500/month broadly)
- Maximum annual bonus = 20% × ₹7,000 × 12 = ₹16,800/year
If the employee’s actual wage for bonus purposes is below ₹7,000 (say, ₹6,000), the calculation uses the actual ₹6,000, not the ₹7,000 ceiling — the ceiling only caps calculations for those earning more. Running this correctly across a workforce spanning ₹8,000 to ₹20,000 salaries — where some employees hit the ceiling and others don’t — is precisely the kind of arithmetic the Bonus Calculator handles without the manual spreadsheet errors.
Statutory Bonus vs Festival Bonus: Stop Treating Them as the Same Thing
| Parameter | Statutory Bonus | Festival / Ex-Gratia Bonus |
|---|---|---|
| Legal basis | Payment of Bonus Act, 1965 — mandatory | Company policy — discretionary |
| Eligibility | Wages up to ₹21,000/month, 30+ days worked | Whatever the employer’s policy defines |
| Calculation base | Capped at ₹7,000/month (or min. wage) | Any amount the employer decides |
| Minimum amount | 8.33% of calculation wage — non-negotiable | No minimum; can be zero in a bad year |
| Payment deadline | Within 8 months of accounting year close | Usually timed to Diwali/Puja, no legal deadline |
| Can it substitute the other | No — cannot be adjusted against ex-gratia unless clearly documented as inclusive | No — is over and above the statutory entitlement |
The safest practice: pay statutory bonus as its own clearly labelled component (even if bundled into a single festive payout), and document in your bonus policy whether any ex-gratia amount is offered in addition to, or partially adjusted against, the statutory minimum. Ambiguity here is one of the most common sources of employee grievances during appraisal and festival season.
Worked Example: Two Employees, Two Outcomes
Employee A — ₹12,000/month wage
- Eligible (₹12,000 is under the ₹21,000 ceiling)
- Calculation wage capped at ₹7,000 (since actual wage exceeds it)
- Minimum bonus = 8.33% × ₹7,000 × 12 = ₹5,997/year
Employee B — ₹6,000/month wage
- Eligible (well under the ₹21,000 ceiling)
- Calculation wage = actual ₹6,000 (below the ₹7,000 ceiling, so no capping)
- Minimum bonus = 8.33% × ₹6,000 × 12 = ₹5,998/year (roughly the same, coincidentally)
Employee C — ₹25,000/month wage
- Not eligible for statutory bonus — wage exceeds the ₹21,000 eligibility ceiling
- Any bonus paid is purely discretionary/ex-gratia, with no statutory minimum
Three employees, three different outcomes, all from one payroll run. This is the exact comparison HR teams need to build every bonus season, and it’s what the Bonus Calculator is designed to shortcut.
Payment Deadlines and Filing
Statutory bonus must be paid within 8 months from the close of the accounting year (for most companies following April–March, that’s by 30 November). After payment, employers must file Form D — the annual return under the Payment of Bonus Rules — within 30 days of the payment deadline, with the relevant labour authority. A short compliance checklist for bonus season:
- Confirm which employees crossed or fell below the ₹21,000 eligibility ceiling during the accounting year.
- Apply the ₹7,000 (or higher minimum wage) calculation ceiling correctly for each eligible employee.
- Compute allocable surplus if you intend to pay above the 8.33% minimum.
- Disburse bonus within 8 months of the accounting year close.
- File Form D within 30 days of the payment deadline.
- Maintain bonus registers (Form A, B, C) as required under the Act for audit purposes.
Where HR Managers Get Statutory Bonus Wrong
- Calculating bonus on actual salary instead of the ₹7,000 ceiling — this significantly overpays and distorts your bonus provisioning for the year.
- Treating festival bonus as a substitute for statutory bonus — without a documented policy stating the ex-gratia amount is inclusive of the statutory minimum, employees can claim both.
- Missing the 30-day minimum service rule — new joiners who cross 30 working days mid-year are still eligible on a pro-rata basis, and are often overlooked.
- Applying eligibility on CTC instead of wages — an employee with a high CTC but a base wage under ₹21,000 (common with variable-heavy structures) can still be bonus-eligible.
- Skipping Form D filing — even when the bonus itself is paid correctly and on time, forgetting the annual return is a compliance gap that surfaces in labour audits.
FAQs
Is statutory bonus mandatory even if the company made a loss?
Yes. The minimum bonus of 8.33% is payable regardless of profit or loss, as long as the establishment is covered under the Act and the employee is eligible.
Can an employer pay less than 8.33%?
No. 8.33% of the calculation wage is the statutory floor. Paying less is a violation of the Payment of Bonus Act, regardless of the company’s financial position.
Does statutory bonus apply to employees on CTC above ₹21,000?
Eligibility depends on wages as defined under the Act, not full CTC. If an employee’s qualifying wage exceeds ₹21,000/month, they fall outside mandatory coverage, though the employer may still choose to pay an ex-gratia amount.
Is Diwali bonus the same as statutory bonus?
Not unless the employer explicitly documents it as such. A festival bonus is typically a discretionary payment separate from the legal entitlement under the Payment of Bonus Act.
What happens if bonus isn’t paid within 8 months?
Delayed or unpaid statutory bonus can result in claims before the labour authorities, recovery proceedings, and penalties on the employer under the Act.
Do new employees get a full year’s bonus in their first year?
No — bonus is typically pro-rated based on the number of days actually worked during the accounting year, provided the employee has completed the minimum 30 working days required for eligibility.
Get Bonus Season Right the First Time
Statutory bonus math looks simple until you’re running it across a workforce with mixed wage bands, mid-year joiners, and a festival bonus policy layered on top. EZHRM’s free Bonus Calculator handles the eligibility check and the ₹7,000 calculation ceiling automatically, and it’s one of several free HR calculators for Indian teams — alongside the Gratuity Calculator and Professional Tax Calculator. For more compliance guides, browse the EZHRM blog.
Sources: Ministry of Labour & Employment, Chief Labour Commissioner.