The Ministry of Labour & Employment has issued two crucial notifications under the Code on Wages, 2019, operationalising the provisions relating to statutory bonus for establishments where the Central Government is the appropriate authority. These notifications significantly alter both who becomes eligible for statutory bonus and how bonus must be calculated going forward.
State Governments are expected to issue similar notifications for establishments under their jurisdiction, though the Code allows them flexibility to prescribe different wage ceilings — a possibility that remains unlikely.
1. Eligibility for Statutory Bonus: Wage Ceiling Fixed at ₹21,000
The first notification prescribes that:
Every employee drawing wages not exceeding ₹21,000 per month shall be entitled to statutory bonus. (Section 26(1), Code on Wages)
But what exactly are “wages”?
This is the most important shift.
Under the Code on Wages, “wages” means:
- Basic Pay
- Dearness Allowance (DA)
- Retaining Allowance
Plus the 50% rule: If excluded allowances (HRA, overtime, bonus, special allowance, etc.) exceed 50% of total remuneration, the excess must be added back to wages.
This means eligibility is no longer determined by Basic alone (as was common under the old Payment of Bonus Act). Instead, eligibility is based on wages as defined under the Code, which may be significantly higher.
Practical Impact
Many employees who were earlier eligible because their Basic was within ₹21,000 may now lose eligibility if their Code-defined wages exceed the limit.
Conversely, some employees with lower Basic but high allowances may newly fall within the eligibility threshold depending on the 50% rule.
2. Ceiling for Calculation of Statutory Bonus: ₹7,000 or Minimum Wage
The second notification prescribes the ceiling for calculating bonus:
If wages exceed ₹7,000 per month, bonus shall be calculated as if wages were ₹7,000 OR the applicable minimum wage — whichever is higher.
Again, “wages” here means wages as defined under the Code.
3. Retrospective Effect from 21 November 2025
Both notifications are retrospective, effective from 21 November 2025. This date is significant because it is when the Payment of Bonus Act, 1965 was repealed and Chapter IV of the Code on Wages came into force.
Implications for Employers
Employers under Central Government jurisdiction must:
- Reassess bonus eligibility for FY 2025–26 onward.
- Recalculate bonus for eligible employees using:
- Code-defined wages
- Minimum wage or ₹7,000 ceiling (whichever is higher)
- Identify employees newly eligible due to the revised definition.
- Make retrospective adjustments where required.
Notification : Calculation
Notification : Eligibility