Payment of Bonus — Eligibility, Set-On & Set-Off

Statutory bonus is not a share of profit as of grace — it is a legal right: a minimum 8.33% must be paid even in a loss year.

Eligibility & Rate — Sec. 26–29

A worker is disqualified from bonus for the year if dismissed for fraud, riotous/violent behaviour on the premises, or theft/misappropriation/sabotage (S.28).

Set-On & Set-Off — Sec. 31 & 36

flowchart TD
    SA["Allocable Surplus (bonus pool)"]:::root
    SA --> HIGH["Surplus EXCEEDS the 20% ceiling<br/>the excess is carried forward = SET-ON<br/>for up to 4 future years"]:::setOn
    SA --> LOW["Surplus is LESS than the 8.33% minimum<br/>the deficiency is carried forward = SET-OFF<br/>against future profits, up to 4 years"]:::setOff

    classDef root fill:#FFF8DC,stroke:#000,stroke-width:1px,color:#000;
    classDef setOn fill:#D8F0D8,stroke:#2E7D32,color:#000;
    classDef setOff fill:#FFE4E1,stroke:#8B0000,color:#000;
    linkStyle default stroke:#888,stroke-width:1px;

Allocable surplus = 60% of the available surplus (67% for banking companies). Bonus is paid out of this pool, not out of total profit. Set-on carries a surplus forward to lean years; set-off carries a deficiency forward against future profits — smoothing bonus across good and bad years.

✏️ Sample Solved Problem (IRAC Method)

Problem: Raju earns ₹12,000/month basic and ₹10,000/month HRA. His employer says his “wages” for bonus are only ₹12,000, and pays no bonus, citing no profit this year. Decide.

I — Issue

(a) Whether HRA counts as “wages” for bonus; (b) whether the employer can refuse all bonus citing no profit.

R — Rule

S.2(y) — wages = basic + DA + retaining allowance; HRA is excluded unless excluded items exceed 50% of total pay (then the excess is added back). Where wages exceed ₹7,000/month, bonus is calculated on ₹7,000 (S.26). S.26(3) — a minimum 8.33% bonus is payable even in a loss year.

A — Analysis

Wages: total pay ₹22,000; HRA ₹10,000 = 45.4% — under the 50% threshold, so HRA stays excluded. Raju’s wages = ₹12,000 basic, but since that exceeds ₹7,000, bonus is computed on ₹7,000/month. Bonus: “no profit” does not extinguish the obligation — S.26(3) mandates the minimum 8.33% regardless; any shortfall in allocable surplus is carried as a set-off, but the worker still gets the minimum.

C — Conclusion

HRA is not part of wages here (50% not crossed); bonus is calculated on ₹7,000/month. The employer cannot refuse bonus citing no profit — Raju is entitled to the minimum 8.33% of (₹7,000 × 12) = ₹7,000 for the year.

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