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Setting Up of Business, Industrial and Labour Laws · The Code on Wages, 2019

Payment of Wages, Deductions and Bonus under the Code on Wages

Updated 11 October 2026 · Fact-checked

The Code on Wages, 2019 fixes when and how wages must be paid (sections 15 and 17), allows deductions only for listed purposes and capped at 50% of wages (section 18), and requires bonus of 8⅓% of wages or ₹100, whichever is higher, up to a 20% maximum (section 26), paid within eight months (section 39).

Understand Payment of Wages, Deductions and Bonus

Wages are the employee's main income, so the Code controls three things: how and when you pay, what you may cut, and what extra share of profit you must give as bonus.

Payment. Section 15 allows payment in coin or currency notes, by cheque, by crediting the bank account, or by electronic mode. The appropriate Government may notify establishments that must pay only by cheque or bank credit. Section 17 sets time limits that depend on the wage period (daily, weekly, fortnightly, monthly). A separate, faster limit applies when employment ends.

Deductions. Section 18(1) says no deduction may be made except those authorised by the Code. Any payment made by the employee to the employer or his agent is deemed a deduction. Section 18(2) lists the permitted purposes, such as fines, absence from duty, damage or loss of entrusted goods caused by neglect or default, house accommodation, authorised amenities, recovery of advances, income-tax, court orders, and social security contributions. Section 18(3) caps total deductions in a wage period at 50% of wages.

Bonus. Section 26 gives a minimum bonus to every eligible employee who has worked at least thirty days in the accounting year, whether or not there is allocable surplus. If allocable surplus exceeds the minimum bonus, the employer pays a higher bonus in proportion to wages, up to 20%. Section 39 sets the time limit for payment.

In an answer, always give the provision first, then apply it to the facts, then conclude.

Key rules to remember

Time limit for wages (section 17(1))
Daily: end of the shift | Weekly: last working day of the week, before the weekly holiday | Fortnightly: before end of the second day after the fortnight | Monthly: before expiry of the seventh day of the next month
Applies according to the basis on which the employee is engaged.
Wages on end of employment (section 17(2))
Within two working days of removal, dismissal, retrenchment or resignation
Also covers an employee who becomes unemployed due to closure of the establishment.
Cap on deductions (section 18(3))
Total deductions in a wage period ≤ 50% of wages
Subject to any other law. Under section 18(4), the excess may be recovered in the prescribed manner.
Minimum bonus (section 26(1))
Higher of 8⅓% of wages earned or ₹100
Payable if the employee has worked at least 30 days in the accounting year, even without allocable surplus. Applies to employees within the wage ceiling notified by the appropriate Government.
Maximum bonus (section 26(3) and (5))
Bonus ≤ 20% of wages earned in the accounting year
Higher bonus under section 26(3) needs allocable surplus above the minimum bonus. Production or productivity bonus under section 26(5) is by agreement or settlement, with the total still not above 20%.
Wage ceiling for calculation (section 26(2))
Bonus is calculated as if wages were the notified amount or the minimum wage, whichever is higher
Applies where the employee's wages exceed the notified amount per month.
Time limit for bonus (section 39(1))
Within 8 months from close of the accounting year, by credit to the bank account
Government may extend on employer's application for sufficient reasons; total extension not beyond two years.

How to solve Payment of Wages, Deductions and Bonus questions

Use this order for any question on wages payment, deductions or bonus.

  1. 1Identify what is asked: time of payment, mode of payment, a deduction, or bonus.
  2. 2For timing, find the wage basis (daily, weekly, fortnightly, monthly) or whether employment has ended, and apply section 17.
  3. 3For a deduction, check whether its purpose is in the section 18(2) list. If not, it is not allowed.
  4. 4Add up all deductions in the wage period and test them against the 50% cap in section 18(3).
  5. 5For bonus, check the 30-days condition and the wage ceiling, then compute the minimum bonus (8⅓% or ₹100, whichever is higher).
  6. 6If allocable surplus is mentioned, see whether it exceeds the minimum bonus. If yes, bonus can go up to 20% of wages.
  7. 7Check the payment deadline under section 39 and any dispute or extension.
  8. 8Write the provision, apply it to the facts, and end with a clear conclusion.

Quickest way: List-and-cap check

When to use it: Use when the question gives a set of facts and asks if a deduction, payment date or bonus is valid.

  1. Write the section number next to the issue: 15 mode, 17 time, 18 deductions, 26 bonus, 39 bonus time.
  2. Match the facts to the exact rule: date for wages, list item for deduction, percentage for bonus.
  3. Do the single calculation needed: 50% of wages, or 8⅓% of wages against ₹100.
  4. State the conclusion in one line, then add the exception if the facts point to one.

Common mistakes in Payment of Wages, Deductions and Bonus

  • Treating the 50% limit as a limit on each deduction.

    Students read it as a per-item cap.

    Fix: Section 18(3) caps the total of all deductions in a wage period at 50% of wages.

  • Saying wages on resignation are paid by the usual monthly date.

    Students forget the special rule for end of employment.

    Fix: Section 17(2): within two working days of removal, dismissal, retrenchment or resignation.

  • Saying minimum bonus is payable only if the employer has profit.

    Confusion with the higher bonus linked to allocable surplus.

    Fix: Section 26(1) applies whether or not there is allocable surplus. Only the higher bonus under section 26(3) needs surplus.

  • Choosing 8⅓% of wages even when it is below ₹100.

    Students ignore the 'whichever is higher' wording.

    Fix: Compute both and pick the higher figure.

  • Believing any deduction the employer and employee agree on is valid.

    Contract thinking replaces the statutory rule.

    Fix: Section 18(1) allows only deductions authorised by the Code. Some, like trade union fees, also need written authorisation.

  • Stating the bonus deadline as one year or calling it fixed forever.

    Mixing up the period with the extension limit.

    Fix: Eight months from close of the accounting year. Extension is possible, with the total extended period not above two years.

Worked examples

Example 1

Meera is paid monthly wages of ₹40,000 by Kaveri Textiles Ltd. In one wage period the employer deducts ₹6,000 as a recoverable advance, ₹5,000 for income-tax, ₹4,000 for provident fund and ₹7,000 for house accommodation. Examine whether the deductions are valid.

Show the solution
  1. Provision: section 18(2) permits only listed deductions, and section 18(3) caps total deductions in a wage period at 50% of wages.
  2. Purpose check: recovery of advances (clause f), income-tax (clause h), provident fund (clause i) and house accommodation (clause d) are all listed purposes.
  3. Total deductions = 6,000 + 5,000 + 4,000 + 7,000 = ₹22,000.
  4. Cap = 50% of ₹40,000 = ₹20,000.
  5. ₹22,000 exceeds ₹20,000 by ₹2,000.

Answer: Each deduction is for a permitted purpose, but the total of ₹22,000 exceeds the 50% cap of ₹20,000. Under section 18(4), the excess of ₹2,000 may be recovered in the prescribed manner and cannot be deducted in this wage period.

Example 2

Ravi earns ₹9,000 wages in an accounting year and has worked more than 30 days. Assume his wages are within the notified ceiling and bonus is calculated on actual wages. Find the minimum bonus. Also state the maximum bonus if allocable surplus exceeds the minimum bonus, and the date by which bonus must be paid if the accounting year closed on 31 March 2027 and no extension is given.

Show the solution
  1. Provision: section 26(1) gives the higher of 8⅓% of wages or ₹100.
  2. 8⅓% of ₹9,000 = ₹750.
  3. ₹750 is higher than ₹100, so minimum bonus = ₹750.
  4. Section 26(3): if allocable surplus exceeds the minimum bonus, bonus is in proportion to wages, up to 20%.
  5. 20% of ₹9,000 = ₹1,800.
  6. Section 39(1): payment within eight months from the close of the accounting year. Eight months from 31 March 2027 ends on 30 November 2027.

Answer: Minimum bonus is ₹750. The maximum is ₹1,800 (20% of wages) if allocable surplus exceeds the minimum bonus. Bonus must be credited to Ravi's bank account by 30 November 2027, unless the appropriate Government extends the period.

Exam tips

  • Learn the four time limits in section 17(1) as a table of wage basis against deadline. Examiners often give a date and ask if payment was late.
  • In deduction problems, check the list first and the 50% cap second. Show both steps.
  • Write bonus figures as percentages of wages and show the 8⅓% against ₹100 comparison.
  • Cite section numbers (15, 17, 18, 26, 39) in each answer. It shows the provision before the analysis.
  • Mention that bonus is credited to the employee's bank account and that the extension cannot exceed two years in total.

Practice questions from The Code on Wages, 2019

Payment of Wages, Deductions and Bonus in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Payment of Wages, Deductions and Bonus: frequently asked questions

What is the time limit for payment of monthly wages under the Code on Wages?

Under section 17(1)(iv), monthly wages must be paid before the expiry of the seventh day of the succeeding month. Other bases have their own limits, such as the end of the shift for daily wages.

Can an employer deduct more than 50% of wages?

No. Section 18(3) caps total deductions in a wage period at 50% of wages, subject to any other law. Under section 18(4), the excess may be recovered in the prescribed manner.

Is bonus payable if the company makes a loss?

The minimum bonus under section 26(1) is payable whether or not the employer has allocable surplus, if the employee has worked at least 30 days in the year. The higher bonus up to 20% needs allocable surplus above the minimum bonus.

When must wages be paid to an employee who resigns?

Section 17(2) requires payment within two working days of the resignation. The same period applies to removal, dismissal and retrenchment.