Bonus Amendment Act: Key Changes and Employer Liabilities

The Payment of Bonus (Amendment) Act, 2015, introduced significant changes to the Payment of Bonus Act, 1965, effective from April 1, 2014, though its retrospective application has been stayed by High Courts in states like Kerala, Karnataka, and Madras due to the financial burden on employers. These amendments expand employee eligibility and increase bonus amounts, creating both opportunities for workers and compliance challenges for employers. Below, we address 10 key questions to clarify the changes and help employers navigate their statutory obligations.

1) What is Statutory Bonus?

A Statutory Bonus, mandated by the Payment of Bonus Act, 1965, is an additional payment to employees based on the employer’s profits or productivity, intended to motivate workers and share prosperity. It is calculated on Basic Salary plus Dearness Allowance (DA), ranging from a minimum of 8.33% to a maximum of 20%, enabling employees to earn above minimum wages. The Act aims to bridge the gap between actual and living wages.

2) What has changed with the Payment of the Bonus Act?

The Payment of Bonus (Amendment) Act, 2015, introduced the following changes, effective from April 1, 2014, though retrospective application is stayed in some states:

• Wage Eligibility Ceiling: Increased from ₹10,000 to ₹21,000 per month, making more employees eligible.
• Maximum Bonus: Set at 20% of ₹7,000 or the minimum wage for the scheduled employment, whichever is higher, for employees earning above ₹7,000.
• Minimum Bonus: Set at 8.33% of Basic Salary + DA (up to ₹7,000 or minimum wage, whichever is higher) or ₹100 (₹60 for employees under 15), whichever is higher. For example, if Basic Salary + DA is ₹7,000, the minimum bonus is ₹583 (8.33% of ₹7,000). In states with higher minimum wages, the liability may increase. The retrospective effect from 2014 is paused in some states due to High Court stays.

3) Who is the Bonus Act applicable to?

The Act applies to:

• Establishments: Factories with 10 or more employees and other establishments with 20 or more employees on any day during the accounting year.
• Employees: Those earning Basic Salary + DA up to ₹21,000 per month who have worked at least 30 days in the financial year. Employees dismissed for fraud, riotous behavior, theft, or sabotage are disqualified (Section 9).
• Profitability: A minimum bonus of 8.33% is mandatory (subject to available surplus), even in case of losses, while a maximum bonus (up to 20%) depends on profits. New establishments are exempt for the first five years unless profitable (Section 16).

4) What is wage defined as?

Wages are defined as Basic Salary plus Dearness Allowance (DA), excluding other components like House Rent Allowance (HRA), overtime, or incentives.

5) Do you have to pay past employees?

Yes, past employees who worked at least 30 days in a financial year and earned Basic Salary + DA up to ₹21,000 per month are eligible for a bonus, including arrears. However, the requirement to pay arrears from April 1, 2014, may not apply in states where High Courts have stayed the retrospective effect. Employers should consult legal experts to confirm obligations.

6) How do you make the payment?

Bonuses must be paid within 8 months of the financial year’s end (by October 31 for a March 31 financial year) in cash or equivalent (e.g., bank transfer or cheque). No formal date for arrears from 2014 has been set, and this obligation is paused in states with High Court stays.

7) How can the payment be claimed?

Current employees receive bonuses through regular payroll channels. Past employees should contact their former employer to claim bonuses. Employers must maintain records in Form C for transparency. Arrears claims from 2014 may be paused in states with High Court stays.

8) How do I calculate my liability as an employer?

Liability depends on:

• The minimum wage in the state (if higher than ₹7,000).
• The number of eligible employees earning Basic Salary + DA up to ₹21,000 per month.
• Bonuses already paid.
  Bonus calculations involve determining gross profits, available surplus, and allocable surplus as per the Act’s Schedules, with set-on and set-off provisions (Section 15). Arrears liability from 2014 depends on the legal status of the retrospective effect. Employers can use a bonus liability calculator that accounts for state-specific minimum wages and surplus calculations.

9) How do I restructure salaries without impacting CTC?

Adjust special or non-mandatory allowances to accommodate increased bonus payments, avoiding changes to Basic Salary or HRA, which impact other statutory obligations. Ensure compliance with employment contracts and obtain employee consent if required.

10) What is the current status of the Amendment Act?

The 2015 amendment’s retrospective effect from April 1, 2014, has been stayed by High Courts in states like Kerala, Karnataka, and Madras due to the financial burden on employers. As of 2025, the final status of these cases is unclear, and employers should monitor court rulings and consult legal experts. The Act may be replaced by the Code on Wages, 2019, once implemented.

Compliance Note

Employers must maintain records (Form C) and file annual returns (Form D) by February 1 each year. Non-compliance may result in penalties, including imprisonment up to 6 months or a fine up to ₹1,000.

Bonus Liability Calculator

Use a calculator that accounts for state-specific minimum wages, eligible employees, and surplus calculations to estimate liability accurately. Ensure it reflects the stayed retrospective effect where applicable.