The Ministry of Labour and Employment has released two notifications which essentially bring good news for employees. These two notifications say that all employees earning up to Rs 21,000 per month can get bonus money from their employer, subject to certain calculation-related conditions. But for those employees who earn more than Rs 21,000 per month, this bonus payment is not mandatory.
The annual bonus which eligible employees can get is a minimum of 8.33% and a maximum of 20% of the wages earned. (The calculation and legal rationale is given in the later part of this article).
Bhavya Sriram, Partner - JSA Advocates & Solicitors, said to ET Wealth Online that as per Section 26(1) of the Code on Wages, 2019, an employee drawing wages not exceeding Rs 21,000 per month is eligible for statutory bonus, provided the said employee has worked for at least 30 days in the accounting year.
Sriram says: “If an employee's monthly wages exceed Rs 21,000, they fall entirely outside the statutory bonus framework and the employer has no legal obligation to pay them bonus under this statute.”
How this bonus is calculated for employees?
The prescribed bonus-calculation amount is effectively the higher of Rs 7,000 per month or the applicable minimum wage. For example you earn Rs 15,000 per month, but work in a state which prescribes that the work you do should get Rs 10,000 as minimum wage. Thus for the purpose of new labour code, your bonus is calculated assuming your wage is Rs 10,000, even though it is Rs 15,000.
This is done by lawmakers to balance both employer’s liability and give bonus money to employees.
Sriram shares two examples A and B to show how it works:
Scenario A:
An employee earns Rs 15,000 per month and the applicable minimum wage for their scheduled employment is Rs 10,000 per month. Since the calculation ceiling under Section 26(2) of the Code on Wages, 2019 is the higher of Rs 7,000 and the applicable minimum wage, the ceiling in this case is Rs 10,000 per month.
The Code on Wages, 2019 requires that the bonus be computed on a wage of Rs 10,000 per month, rather than the actual monthly wage of Rs 15,000. (Our calculations: So the minimum bonus is Rs 10,000 × 8.33% × 12 = Rs 9,996 per year in this scenario.)
Also read: New labour code 2025: Bonus and leave encashment calculator if bonus is 10%, 15%, 20%, 25% of CTC
Scenario B:
An employee earning Rs 20,000 per month, in a state where the applicable minimum wage for their category is Rs 9,000 per month, has their bonus calculated on Rs 9,000 since it is higher than the floor of Rs 7000.
Taking this example further - at the statutory minimum of 8.33%, that’s Rs 9,000 × 8.33% × 12 = Rs 8,996.40 bonus for the year. If the company’s allocable surplus supports the full 20%, it rises to Rs 21,600 for the year (since 20% is the maximum bonus a company can give).
