Statutory and compliance
Statutory bonus: the yearly payment the Act requires
Statutory bonus is an annual payment an eligible employee is entitled to under the Payment of Bonus Act, 1965, worked out on the wages earned during an accounting year. It is an obligation on a covered establishment, and it does not depend on how well any one person performed. Employers usually hand it over as a single amount ahead of a festival.
Last reviewed: September 2026
Also called: statutory bonus, annual bonus, festival bonus, Diwali bonus
In plain English
A business covered by the law owes its eligible staff a yearly amount on top of wages. It is settled once a year, and most owners pay it before the festival season.
How it works in detail
The obligation runs on an accounting year, and the payroll month has nothing to do with it. At the close of the year the employer works out who was eligible, how many days each person actually worked, and what wages they earned across those months. Eligibility rests on the wage the person drew and on a minimum number of days worked in the year. Those figures, and the ceiling and the floor the Act sets, are revised, so get the current ones from your consultant before you promise anyone an amount.
Payment lands as one lump, usually timed for Diwali, which is why staff call it the festival bonus. A gift handed out at the festival is a separate thing, and treating one as the other is where arguments start. Record the bonus against the year it covers.
A worked example
The setup
Suppose Latha works on the floor of a covered establishment through the whole accounting year, on wages of INR 14,600 a month, and misses no long stretch of days.
The calculation
INR 14,600 x 12 = INR 1,75,200 of wages across the year. Her accountant applies the rate the Act carries for that year to the eligible wage base and returns a bonus of INR 9,850. That amount is illustrative and no rate is quoted here.The result
Latha is paid INR 9,850 in one go before the festival. Her monthly slips are untouched by it, and the payment sits on record against the accounting year it covers.
Common mistakes
- Folding the bonus into a month's salary as an extra earning line. It belongs to an accounting year, and recording it as part of one month's pay makes the year's obligation impossible to show later.
- Assuming a loss-making year cancels the obligation. The Act fixes a minimum a covered employer owes whatever the profit was, so ask your consultant what applies to your establishment.
- Calling a festival gift the statutory bonus after the fact. If the amount was never worked out on the year's wages and never recorded as bonus, an employee can still ask for it.
How VTClock handles it
VTClock does not compute, pay, record or file statutory bonus. It keeps the monthly attendance and wage record that whoever works out the year's bonus builds the figure from.
Frequently asked questions
We hand out a Diwali gift to everyone each year. Does that count as the bonus?
Only if it was worked out and recorded as bonus for the accounting year. A festival gift given as goodwill sits outside the Act, and an employee can ask for the statutory amount on top of it. If you intend a payment to discharge the obligation, work it out on the year's wages, tell the employee what it is, and write it into the record under that year.
Does an employee who left in the middle of the accounting year still get a bonus?
Generally yes, as long as they worked the minimum number of days the Act requires within that year and were otherwise eligible. The amount follows the wages they earned while they were with you. Owners often forget this because the payment falls due months after the person has gone, so keep a list of leavers with their days worked when you close the year.
Is a worker paid by the day owed a bonus as well?
Eligibility rests on the wage drawn and the days worked in the accounting year, so a daily wage worker who clears both is treated the same as a salaried employee. What changes is the working: their wages for the year are the sum of days paid rather than twelve equal salaries. That makes an accurate day count for wage staff the record you need most at year end.
Who decides what the bonus percentage should be for my business?
The Act fixes a floor and a ceiling, and where your figure sits between them depends on a calculation of allocable surplus that your accountant does from the year's books. An owner does not pick the number freely. Ask your consultant for the working, keep it with the year's accounts, and pay the same basis to everyone eligible so the payment can be explained if it is questioned.
Related terms
- Minimum wagesMinimum wages are the lowest wage an employer may lawfully pay for a given kind of work, fixed by the appropriate government under the Minimum Wages Act, 1948 and carried forward...
- Gross salaryGross salary is the total of everything an employee earns for a month before a single deduction is taken off: the fixed structure of basic pay and allowances, plus whatever was...
- Basic salaryBasic salary is the fixed core component of a monthly pay structure, before house rent allowance, dearness allowance and any other allowance is added on top.
- Payroll cycleA payroll cycle is the repeating span a business pays for, together with the two dates that close it: the day attendance stops being counted for that span, and the day the money...
- Salary slipA salary slip is the statement an employer gives an employee for one wage period, setting out what was earned, what was deducted and what was paid.
- Daily wageA daily wage is an amount fixed for one day of work and paid for each day the worker actually attends.
Modules that touch this
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