Payment of Bonus Act India Compliance — Annual Bonus Software 2026

Payment of Bonus Act India Compliance — Annual Bonus Software 2026

The Payment of Bonus Act 1965 entitles every employee earning up to Rs. 21,000 per month to an annual bonus — minimum 8.33% and maximum 20% of annual wages. The Act applies to establishments with 20 or more employees and continues to apply even if headcount drops below 20. Bonus must be paid within 8 months of the financial year end (by November 30 for companies with April-March year).

The bonus computation framework — with allocable surplus, set-on, set-off, and minimum bonus rules — is one of the more complex labour compliance calculations. Many companies get it wrong and face claims in labour courts years later.

Bonus Computation Framework

Who Is Eligible

• Employees earning up to Rs. 21,000 per month (basic + DA)
• Minimum 30 working days in the accounting year
• New employee joining mid-year is eligible pro-rata if worked 30+ days

Minimum Bonus

• 8.33% of annual wages (or Rs. 100/year for adult employees — whichever is higher)
• Must be paid even if the company makes a loss

Maximum Bonus

• 20% of annual wages

Bonus Wage Ceiling

• Bonus is computed on the salary capped at Rs. 7,000/month (or minimum wage for the category, whichever is higher)
• If an employee earns Rs. 15,000/month, bonus is still computed on Rs. 7,000 (or applicable minimum wage)
• Employees earning above Rs. 21,000 are not covered by the Act (can receive ex-gratia)

Allocable Surplus Method

For establishments making profit, bonus is paid from the allocable surplus:

• Gross profit computed as per schedule to the Act
• Deduct depreciation, taxes, direct taxes
• Available surplus = gross profit after deductions
• Allocable surplus = 60% of available surplus (67% for banking companies)
• Total bonus payable to eligible employees = minimum (allocable surplus, 20% of wage bill)

Set-On and Set-Off

• If allocable surplus exceeds 20% of wage bill: excess carried forward as set-on for future years
• If allocable surplus is insufficient to pay minimum bonus: minimum paid from past set-on or carried as set-off
• Set-on and set-off carried forward for up to 4 years

MICS Bonus Compliance Features

Eligible Employee Identification

• System flags employees by wage level: ≤ Rs. 21,000 = eligible
• 30-day working day filter: new joiners and exits checked for minimum working days
• Pro-rata computation for joiners and exits during the year

Wage Ceiling Application

• System applies Rs. 7,000/month cap on bonus base automatically
• State minimum wage: if higher than Rs. 7,000, system uses minimum wage as base
• Employee-wise capped wages for bonus computation

Annual Bonus Computation

• Minimum bonus: 8.33% of capped annual wages
• Maximum bonus: 20% of capped annual wages
• Actual bonus: determined by management within the min-max range
• System computes all three values — management decides the payout percentage

Allocable Surplus Method (for Covered Companies)

• Input: gross profit, depreciation, direct taxes, prior charges
• Computation: available surplus → allocable surplus
• Bonus pool: allocable surplus distributed proportional to individual wages
• Deficit from minimum bonus requirement: set-off computed

Set-On and Set-Off Tracking

• 4-year set-on / set-off register maintained
• Year-by-year carry-forward and utilisation tracked
• Impact on current year's bonus pool computed automatically

Bonus Payment Processing

• Bonus payment month: typically in October-November for April-March companies
• Payment integrated with payroll: bonus paid as separate component in a specific month
• Deductions from bonus: any advance bonus already paid in the year
• TDS on bonus: bonus is taxable income — included in employee's annual TDS computation

Statutory Registers and Returns

• Form A (Computation of Allocable Surplus): annual computation per Act schedule
• Form B (Set-On and Set-Off): year-wise carry-forward register
• Form C (Bonus Paid Register): employee-wise bonus payment details
• Form D (Annual Return): filed with labour office by November 30 each year
• All forms auto-generated from MICS data

Ex-Gratia Bonus for Ineligible Employees

Employees earning above Rs. 21,000 are not covered by the Act. Many companies pay an ex-gratia bonus to these employees — this is not mandatory but is good practice for retention. MICS supports ex-gratia computation (typically a flat percentage of monthly CTC) separate from statutory bonus.

Pricing

• Bonus Act compliance: included in full MICS HRMS subscription
• Standalone bonus computation service: Rs. 8,000 per year (annual service for companies without HRMS)

Free bonus compliance consultation: +91 9355273535 | admin@mics.asia