Payment of Bonus Act Compliance
Accurately calculate and disburse statutory bonus as mandated by the Payment of Bonus Act, 1965. Kiework automates eligibility determination, bonus computation, set-on/set-off calculations, and timely disbursement for complete compliance.
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Bonus Act Compliance Dashboard
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Bonus Calculation Parameters (2025-2026)
Bonus Calculation Parameters (2025-2026)
| Parameter | Value | Legal Basis |
|---|---|---|
| Eligibility Salary Ceiling | ₹21,000/month | Section 2(13) — 2015 Amendment |
| Calculation Base | ₹7,000/month or min. wage | Section 12 |
| Minimum Bonus | 8.33% of salary | Section 10 |
| Maximum Bonus | 20% of salary | Section 11 |
| Minimum Working Days | 30 days | Section 8 |
| Allocable Surplus (Gross Profit) | 67% | Section 2(4) |
| Set-On Period | 4 years | Section 15 |
| Set-Off Period | 4 years | Section 15 |
| Payment Deadline | 8 months from year-end | Section 19 |
Statutory Bonus Calculation Example
Employee earning ₹18,000/month (basic + DA), employed full year
Bonus is always calculated on ₹7,000/month (or minimum wage if higher), not on the actual salary of ₹18,000. The 8.33% minimum is mandatory even in loss years. Maximum of 20% depends on allocable surplus.
Bonus Act Compliance Deadlines
Bonus Act Compliance Deadlines
| Activity | Deadline | Form/Document |
|---|---|---|
| Bonus Payment | Within 8 months of accounting year-end | Payslip / Bank Transfer |
| Bonus Register (Form C) | Maintained throughout the year | Form C |
| Set-On / Set-Off Register | Updated after bonus computation | Form D |
| Annual Return Filing | Within 30 days of bonus payment | Form D (Annual Return) |
| Computation Sheet | Before bonus disbursement | Schedule I-IV calculations |
| Record Preservation | Minimum 8 years | All registers and returns |
Understanding the Payment of Bonus Act, 1965
Overview of the Act
The Payment of Bonus Act, 1965 mandates the payment of annual bonus to employees in establishments employing 20 or more persons. Once the Act becomes applicable to an establishment, it continues to apply even if the employee count falls below 20 subsequently. The Act was significantly amended in 2015, raising the eligibility salary ceiling from Rs. 10,000 to Rs. 21,000 per month and the calculation ceiling from Rs. 3,500 to Rs. 7,000 per month.
Minimum vs. Maximum Bonus
Every eligible employee is entitled to a minimum bonus of 8.33% of salary (or Rs. 100, whichever is higher), regardless of whether the company has made a profit or loss. This minimum bonus is a statutory obligation and cannot be waived. The maximum bonus is capped at 20% of salary. When the allocable surplus exceeds the amount needed for minimum bonus, the excess is distributed as additional bonus up to the 20% ceiling.
The Set-On and Set-Off Mechanism
The Act provides a set-on and set-off mechanism to balance bonus payments across profitable and loss-making years. When allocable surplus in a year exceeds the maximum bonus payable (20%), the excess is "set on" (carried forward) for up to 4 years. Conversely, when allocable surplus is insufficient to pay minimum bonus, the shortfall is "set off" (carried forward as a deficit) for up to 4 years. This mechanism ensures a fair balance between employer obligations and financial realities.
Calculation Base: A Common Confusion
A frequent source of confusion is the distinction between eligibility ceiling and calculation base. An employee earning Rs. 21,000 per month is eligible for bonus, but the bonus is calculated on Rs. 7,000 per month (or minimum wage, whichever is higher) — not on the actual salary. For example, if an employee earns Rs. 18,000 per month, their minimum bonus is 8.33% of Rs. 7,000 x 12 months = Rs. 7,000 per year (approximately).
Penalties for Non-Compliance
The Act prescribes strict penalties: failure to pay bonus within the stipulated time is punishable with imprisonment up to 6 months, or a fine up to Rs. 1,000, or both. For contravention of any other provision, the penalty is imprisonment up to 6 months, or a fine up to Rs. 1,000, or both. Non-maintenance of registers (Form C and Form D) also attracts penalties. Given that these are criminal offences, compliance should never be treated casually.
Bonus Calculation & Compliance Process
Determine Eligibility
Identify all employees earning salary (basic + DA) up to ₹21,000 per month who have worked at least 30 days in the accounting year. Exclude apprentices under the Apprentices Act and employees dismissed for fraud, riotous behavior, or theft.
Kiework auto-filters eligible employees based on salary records and attendance data. Exclusions are applied based on configured criteria.
Compute Available & Allocable Surplus
Calculate available surplus from the company's profit and loss account. Deduct depreciation, development rebate, direct taxes, and prior year set-off amounts. Determine allocable surplus as 67% of available surplus (60% for banking companies).
Financial data integration enables automatic surplus computation. Set-on/set-off from previous 4 years is auto-applied from maintained registers.
Calculate Individual Bonus Amounts
For each eligible employee, calculate bonus on salary or ₹7,000/month (or minimum wage if higher), whichever is greater. Apply the bonus percentage — minimum 8.33% even in loss years, up to 20% when surplus permits. Pro-rate for employees who joined mid-year.
Per-employee bonus calculations run automatically with correct base salary, pro-rating, and percentage application. Detailed computation sheets generated.
Disburse & File Returns
Pay the calculated bonus within 8 months of the accounting year-end. Maintain Form C (bonus register) and Form D (set-on/set-off register). File the annual return with the labor department within 30 days of disbursement.
Bonus disbursement integrated with payroll. Form C and Form D auto-generated. Return filing data prepared with one-click export.
Bonus Act FAQ
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Automate Bonus Act Compliance
Stop managing Payment of Bonus Act, 1965 manually. Kiework automates calculations, filing deadlines, and compliance validation — so you never miss a deadline.