The Payment of Bonus Act, 1965

Payment of Bonus Act

The government of India introduced the Payment of Bonus Act in 1965. It recognized and appreciated employees’ contributions to the development of the profit gained by the employer. It applies to all companies or factories with more than 20 laborers, ensuring that every eligible employee receives a fair share of the company’s success. The bonus, a remuneration from the employer, not only boosts their energy levels but also encourages them to put more effort into their work, knowing that their contributions are acknowledged and rewarded.

Payment of Bonus Act, 1965 in India

It was initially implemented in 1965 and later renamed the Code of Wages in 2019, and has a rich historical context. It was born out of the need to address the increasing disputes between employees and employers, particularly in the post-independence era when the rising cost of basic needs led to significant labor unrest. The Act, initially introduced as a ‘war bonus’ of 10% of the basic salary for textile workers in 1917, has since transformed into its current form, reflecting the evolving dynamics of the Indian labor market.

After independence, many disputes arose between workers and employers due to increased pricing of basic needs. In 1959, a legal conference was held to resolve conflicts, creating a legal obligation. Several conferences and meetings followed this. In 1960, the standing labor committee agreed to establish a special commission to standardize and establish essential norms for the bonus structure.

Minimum and Maximum Bonus Amount

The Act states the minimum and maximum bonus amounts for an employee. An employer has to provide the minimum bonus amount regardless of the situation, which is 8.33 percent of the employee’s basic salary. The maximum bonus amount an employer can provide to the employee is about 20 percent of the employee’s basic salary. The bonus percentage varies between 8.33 percent and 20 percent, and the employer decides it based on the performance and the profit gained from the employer.

Eligibility to Get the Bonus

The employees who earn below Rs. 21,000 are eligible for the Bonus annually. The employer has to provide the Bonus annually within 8 months of the completion of one year. If the employer has many branches and various departments, all the employees of all departments are eligible to receive the Bonus. In the case of seasonal branches handled by the employer, the employees who worked there for more than 30 days are also eligible to get the Bonus. While the employer hires any apprentice in any department, they are not eligible to receive bonus benefits from the company. Here is the list of individuals who are eligible to receive the Bonus.

  1. People who, for some stipulated period, were hired as temporary workers.
  2. Individuals who join in a work as a retrenched employee the employer can terminate them due to financial crisis at any time.
  3. People who work part-time can get a bonus.
  4. People who work in the probationary period.
  5. Individuals work based on the productivity or tasks they complete.
  6. Employees who work in public sector units in the goods selling department.

Exemption From Bonus

It levies some exemptions for employers to pay bonuses. The exceptional cases are mentioned below.

  1. Employees who worked as apprentices are not eligible for the Bonus.
  2. People who worked under contract or agreement basis through a contractor.
  3. Employees who break the terms and conditions and confidential things of the company are exempt from getting Bonus, and they are liable to pay penalties to the employer for how much they cause loss to the company.
  4. Employees of LIC, Docks, NGO institutions, universities, Financial Institutions, RBI, NABARD, UTI, IDBI, etc.
  5. Organizations or companies that have less than 20 employees
  6. People who work in public sectors
  7. Individuals who earn more than Rs.21,000 per month.

Calculate of Bonus

Getting additional remuneration and the ordinary salary or wages mentioned above enhances the employee’s ability to work more productively. For special occasions, these bonuses help meet the needs of the employees by providing funds to spend. So usually, the employees are eager to calculate their bonuses every year. Based on the Payment of Bonus Act 1965 of India depicts the bonus calculation. It drafts a formula for calculating the Bonus.

Formula for basic applicable bonus = Your salary * 8.33/100

If an employee earns 12000 as their basic monthly salary, then it is calculated as,

12,000*8.33/100 = Rs. 999.6/-

So, the bonus amount of the employee who earns Rs.12,000/—per month is Rs. 999.6/-. The bonus percentage is a fair and transparent calculation based on the decision taken by the employer under many circumstances, such as profit gained in that year, employees’ performance, consideration of total Bonuses applicable to employees, and the surplus funds that the company has. This ensures that the bonus calculation is not arbitrary but based on objective factors, giving employees a sense of security and confidence in the process.

Timeline for Payment of Bonus in India

Employers must pay bonuses for over 20 workers in their companies or organizations. As per the law, if the employer has eligible employees for the bonus payment, they must pay the Bonus within 8 months after the financial year-end. Most employers provide bonus payments to their employees earlier at the start of the new financial year. The bonus payment applies to income tax, so most employers prefer to provide the bonuses initially, as the employees must file their income tax returns.

What Happens if an Employer Does Not Give the Bonus Amount?

The Payment of Bonus Act 1965 has been framed to resolve disputes between employees and employers. It provides a clear framework for bonus payments, ensuring employers know their obligations and employees’ rights. This legal protection reassures employers that they are operating within the law and encourages them to fulfill their bonus payment obligations, fostering a positive and compliant work environment.

In case of not getting the Bonus, the concerned employee has to approach Human Resources for not receiving the Bonus and submit the eligibility status if anything is required from HR. The HR professional verifies the employee’s query and does what is necessary to get the bonus payment if the employee falls under all eligibility categories.


Bonus payments encourage employees to contribute to the company’s development. The Payment of Bonus Act of 1965 was finally enforced in India after extensive discussion and establishment of regulations. Employers who have more than 20 employees must provide bonuses to their employees. The Act applies to both private and public sector employees if they meet the eligibility norms laid out in it.

If you are working in India and are eligible to get the bonus payment, then you have to know the law and norms. In case of rejection or the employee fails to pay the Bonus, you can approach the Human Resource Professional and raise your queries. An employer has to pay the Bonus about 8.33% to 20% of the employee’s basic salary, and it is for each employee. They can decide the bonus percentage based on the various norms mentioned above.

Frequently Asked Questions

Is It Mandated to Give a 20 Percent Bonus to the Employees?

The Payment of Bonus Act 1965 in India states that an employee’s bonus amount is between 8.33 percent and 20 percent. The employer can fix the bonus percentage based on the employee’s performance, profit, or overall fund. Based on these circumstances, the bonus percentage will have been fixed between the percent mentioned in the Payment in the Act.

Is the Bonus Eligible for a Salary of Rs. 21,000/- With Dearness Allowance?

Employees who work under the eligibility criteria levied in the Act and earn less than Rs. 21,000/—salary per month, including the dearness allowance, are eligible to get the Bonus from the employer. If an employee earns more than Rs 21,000/—, including the dearness allowance, they are not eligible.

Is the Bonus Applicable to Private-Sector Employees?

Yes, in India, private sector employees who meet the eligibility criteria framed in the Act are eligible to receive a bonus. A bonus is remuneration for the contribution made by the employee to increasing productivity and profit for their employer. Employees who earn less than Rs.21,000/—are eligible for a bonus payment.

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