Payment of Bonus Act: A Startup Guide to Statutory Bonus in India

Most founders think a bonus is a reward they hand out when the year goes well. Under the Payment of Bonus Act, a statutory bonus is not that at all: it is a fixed liability that falls due whether you made a profit or a loss.

This guide covers the whole thing in plain language: when the Payment of Bonus Act applies to your startup, who qualifies, how the 8.33 percent to 20 percent bonus is worked out with the ₹7,000 ceiling, and how to pay and file Form D on time. Start with the summary, then jump to the section you need.

1 Does the Payment of Bonus Act apply to you?

The Payment of Bonus Act, 1965, is a headcount test, not a profit test. It applies to:

• Every establishment employing 20 or more persons on any day during the accounting year.
• Every factory employing 10 or more persons, where power is used in the manufacturing process.

Count everyone employed during the year, not just those on the last day. Once the Act applies to you, it keeps applying in later years even if your headcount falls below 20. That “sticky” nature catches founders who scale down after a hiring push.

2 Who is eligible, and who is not

Two tests decide eligibility, and an employee must clear both.

The 30 days need not be continuous. Note that “wages” here means basic plus dearness allowance only, not HRA, conveyance or other allowances.

3 How much: the 8.33% to 20% range

The bonus is a percentage of the eligible employee’s annual bonus wages, and it sits in a fixed band:

• Minimum 8.33 percent. This is the floor. It is payable even if the company earned no profit, or made a loss. Treat it as a certain cost, not a discretionary one.
• Maximum 20 percent. This is the ceiling. You cannot be forced to pay more under the Act, however good the year.

Where you land between 8.33 and 20 percent depends on the allocable surplus, a figure derived from your profits under a formula in the Act, adjusted by “set-on” and “set-off” of surplus carried between years. In practice, most startups pay the 8.33 percent minimum in their early, loss-making years.

4 The ₹7,000 calculation ceiling

Here is the part founders get wrong. Eligibility uses the ₹21,000 line, but the calculation uses a much lower capped wage. Bonus is worked out on:

So an employee drawing ₹20,000 (basic + DA) is eligible, but the bonus is calculated as if they earned only the ceiling amount. If they draw less than the ceiling, you use their actual wage.

5 Paying and filing: the deadlines that bite

The bonus must be paid in cash, within a fixed window after the accounting year closes, and the return must be filed. Here is the sequence for a company with a 31 March year-end.

6 Your compliance checklist

1. Count total employees during the year. At 20 (or 10 for a factory), the Act applies, and it keeps applying afterwards.
2. List eligible employees: basic + DA of ₹21,000/month or less, and at least 30 days worked.
3. Fix the calculation base for each: ₹7,000 or the minimum wage for the role, whichever is higher (or actual wage if lower).
4. Compute the allocable surplus and set the rate between 8.33% and 20%. In a loss year, pay the 8.33% floor.
5. Pay the bonus in cash by 30 November (for a 31 March year-end).
6. File Form D with the Labour Department and maintain Forms A, B and C registers.

7 FAQs

Disclaimer: This article is general information as of August 2026 and is not legal or tax advice. The Payment of Bonus Act, its rules, wage ceilings and state minimum wages can change. Confirm your specific obligations with a qualified professional before acting.