Labour Laws and Practice · Law of Wages

Bonus Provisions under the Code on Wages, 2019

Updated 11 October 2026 · Fact-checked

Under the Code on Wages, 2019, an eligible employee who has worked at least 30 days in an accounting year gets a minimum bonus of 8⅓% of wages or ₹100, whichever is higher. If allocable surplus is enough, bonus is proportionate to wages, up to 20%. Dismissal for specified misconduct disqualifies the employee.

Understand Bonus Provisions under the Code on Wages

Bonus is a yearly payment to employees out of the employer's profits. The Code on Wages, 2019 deals with it in Chapter V. Two ideas run through it: a floor that must be paid even without profit, and a ceiling of 20% of wages.

Section 26(1) gives the floor. Every employee whose wages do not exceed the amount notified by the appropriate Government, and who has worked at least thirty days in the accounting year, must be paid an annual minimum bonus. The rate is 8⅓% of the wages earned or ₹100, whichever is higher. It is payable whether or not the employer has any allocable surplus in the previous accounting year.

Section 26(3) lifts the amount when there is room. If the allocable surplus exceeds the minimum bonus payable, the employer must pay, instead of the minimum, bonus in proportion to the wages earned during the year, subject to a maximum of 20% of those wages. Section 26(5) allows more than the minimum on the basis of production or productivity only by agreement or settlement, and the total including the minimum must not exceed 20% of wages.

Section 26(2) handles higher-paid employees. Where wages exceed the notified amount, bonus is calculated as if wages were that notified amount, or the minimum wage fixed by the appropriate Government, whichever is higher. Section 33 defines available surplus as gross profits less the sums in section 34, with an adjustment for direct tax. Section 36 lets surplus or shortfall carry forward through set on and set off.

Section 29 disqualifies an employee dismissed for fraud, riotous or violent behaviour on the premises, theft, misappropriation or sabotage of the establishment's property, or conviction for sexual harassment. Section 46 treats disputes on fixation or eligibility for bonus as industrial disputes under the Industrial Disputes Act, 1947.

Key rules to remember

Eligibility (s. 26(1)): Wages ≤ notified ceiling AND at least 30 days' work in the accounting year; The ceiling is set by notification of the appropriate Government. Do not quote a figure unless the question gives it.
Minimum bonus (s. 26(1)): Higher of (8⅓% × wages earned) and ₹100; Payable whether or not there is allocable surplus.
Maximum bonus (s. 26(3)): Proportionate to wages earned, not more than 20% × wages earned; Applies when allocable surplus exceeds the minimum bonus payable. It replaces the minimum bonus.
Wage ceiling for computation (s. 26(2)): Computation wage = higher of (notified amount) and (minimum wage fixed by the appropriate Government); Used where actual wages exceed the notified amount.
Productivity bonus (s. 26(5)): Minimum bonus + productivity or production bonus ≤ 20% of wages earned; Excess over the minimum must come from an agreement or settlement.
Available surplus (s. 33): Gross profits − sums under s. 34 (+ direct tax adjustment under the proviso); The proviso adds the difference in direct tax on preceding year's gross profits, before and after deducting bonus paid or payable.
Set on and set off (s. 36): Carry forward up to and including the fourth succeeding accounting year; Set on: excess surplus, limited to 20% of total wages of the establishment. Set off: shortfall in minimum bonus. The earliest year's carry forward is taken first.
Disqualification (s. 29): Dismissal for fraud; riotous or violent behaviour on premises; theft, misappropriation or sabotage; conviction for sexual harassment; Dismissal for other reasons does not disqualify under this section.

How to solve Bonus Provisions under the Code on Wages questions

Use this order for any bonus question, whether it asks for a calculation or for a legal opinion.

1Read the facts and list: wages, days worked, accounting year, any surplus data and any dismissal.
2Check disqualification first. Was the employee dismissed for a ground listed in section 29? If yes, no bonus.
3Check eligibility under section 26(1): wages within the notified ceiling and at least thirty days' work in the year.
4If wages exceed the ceiling, recompute wages under section 26(2) at the notified amount or the minimum wage, whichever is higher.
5Work out the minimum bonus: 8⅓% of wages or ₹100, whichever is higher.
6Decide whether allocable surplus exceeds the minimum bonus. If yes, bonus is proportionate to wages, up to 20%. Apply set on or set off under section 36 where relevant.
7Check any agreement or settlement for productivity bonus and cap the total at 20% of wages (section 26(5)).
8State the conclusion in one line, and mention that disputes on fixation or eligibility are industrial disputes under section 46.

Quickest way: Four-gate check

When to use it: Use when a short case asks 'is the employee entitled to bonus, and how much?'

Gate 1: dismissed for a section 29 ground? Stop, nil bonus.
Gate 2: 30 days worked and wages within the ceiling? If not, no entitlement under section 26(1).
Gate 3: compute wages (cap at ceiling if higher), then 8⅓% against ₹100, take the higher.
Gate 4: surplus available? Then proportionate bonus up to 20%. Otherwise minimum, with set off of any shortfall.

Common mistakes in Bonus Provisions under the Code on Wages

Saying bonus is payable only if the employer made a profit.
Students remember bonus as a share of profit.
Fix: Minimum bonus under section 26(1) is payable whether or not there is allocable surplus. Only the amount above the minimum depends on surplus.
Adding the 20% maximum on top of the minimum bonus.
Students treat 8⅓% and 20% as two separate payments.
Fix: Under section 26(3) the proportionate bonus is paid in lieu of the minimum. The total never exceeds 20% of wages.
Using actual wages for a high-paid employee.
Section 26(2) is overlooked.
Fix: If wages exceed the notified amount, compute as if wages equal the notified amount or the minimum wage, whichever is higher.
Applying the ₹100 floor wrongly.
Students compute 8⅓% and stop.
Fix: Compare 8⅓% of wages with ₹100 and pay the higher.
Disqualifying an employee for any dismissal.
Section 29 is remembered loosely as 'misconduct'.
Fix: Only the four listed grounds disqualify: fraud; riotous or violent behaviour on premises; theft, misappropriation or sabotage; conviction for sexual harassment.
Carrying forward set on or set off indefinitely.
The time limit in section 36 is forgotten.
Fix: Carry forward only up to and including the fourth succeeding accounting year.

Worked examples

Example 1

Ravi works at Sundaram Textiles Ltd and earned wages of ₹60,000 in the accounting year. He worked 280 days and his wages are within the notified ceiling. He was not dismissed. The company has no allocable surplus. What bonus is he entitled to?

Show the solution

Disqualification: none, he was not dismissed.
Eligibility: 280 days is more than thirty and wages are within the ceiling, so he is eligible.
Minimum bonus: 8⅓% of ₹60,000 = ₹5,000.
Compare with ₹100: ₹5,000 is higher.
No allocable surplus does not matter, since minimum bonus is payable under section 26(1). Any shortfall in funding is carried forward for set off under section 36(2).

Answer: Ravi is entitled to a minimum bonus of ₹5,000.

Example 2

Meena earned wages of ₹1,20,000 in a year at Kaveri Foods Pvt. Ltd. The allocable surplus is ample. The employer and employees have a settlement for production-linked bonus. What is the maximum total bonus she can receive, and is a settlement needed?

Show the solution

Eligibility is assumed met: more than thirty days and wages within the ceiling.
Minimum bonus: 8⅓% of ₹1,20,000 = ₹10,000.
Since allocable surplus exceeds the minimum, the employer pays proportionate bonus up to 20% under section 26(3).
Maximum under the law: 20% of ₹1,20,000 = ₹24,000.
Anything above the minimum on the basis of production or productivity must be fixed by agreement or settlement (section 26(5)), and the total including minimum bonus cannot exceed 20% of wages.

Answer: The maximum total bonus is ₹24,000. A settlement exists here, so production-linked bonus above the minimum is valid up to that limit.

Exam tips

Write the section number with each rule: 26 for eligibility and rates, 29 for disqualification, 33 and 36 for surplus and set on or set off, 46 for disputes.
In case questions, address disqualification before computing. A dismissed employee for a listed ground gets nothing.
Show the comparison of 8⅓% with ₹100 in numbers, even when the answer is obvious.
Do not state the notified wage ceiling as a fixed figure. Say 'as notified by the appropriate Government' unless the question supplies it.
Mention section 30 when the facts involve branches or departments: they form one establishment unless a separate balance sheet and profit and loss account is maintained.

Practice questions from Law of Wages

Bonus Provisions under the Code on Wages in other exams

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

Bonus Provisions under the Code on Wages: frequently asked questions

Who is eligible for bonus under the Code on Wages, 2019?

An employee whose wages do not exceed the amount notified by the appropriate Government and who has worked at least thirty days in the accounting year. Section 26(1) gives this right.

What are the minimum and maximum bonus?

Minimum bonus is 8⅓% of wages earned or ₹100, whichever is higher. Where allocable surplus allows, bonus is proportionate to wages up to 20% of wages.

When is an employee disqualified from bonus?

Under section 29, an employee dismissed for fraud, riotous or violent behaviour on the premises, theft, misappropriation or sabotage of property, or conviction for sexual harassment is disqualified.

What happens if there is no surplus in a year?

Minimum bonus is still payable. The shortfall is carried forward for set off up to and including the fourth succeeding accounting year under section 36(2).

How are bonus disputes resolved?

Under section 46, disputes on fixation or eligibility of bonus, and on application of the bonus provisions to a public sector establishment, are deemed industrial disputes under the Industrial Disputes Act, 1947.