Bonus Act vs. Code on Wages: Eligibility & Disqualification Changes
The Payment of Bonus Act, 1965 has been subsumed into Chapter IV of the Code on Wages, 2019. While the core calculation (8.33% to 20%) remains intact, significant changes in eligibility and disqualification criteria will impact HR policies.
1. Expanded Disqualification Criteria
Previously, an employee could be disqualified from receiving a bonus only for fraud, theft, or violent behavior. The Code adds a critical new ground: Conviction for Sexual Harassment.
New Compliance Protocol
Organizations must update their Employment Contracts and POSH Policies to explicitly state that conviction by the Internal Committee (IC) or Court for sexual harassment will lead to forfeiture of statutory bonus.
2. Wage Threshold Ambiguity
Under the old Act, eligibility was capped at salary up to ₹21,000. The new Code empowers the “Appropriate Government” to notify the ceiling. This implies we may see different bonus eligibility limits for different states or industries, removing the uniform national standard.
3. Comparison Matrix
| Feature | Old Regime (Bonus Act) | New Regime (Code on Wages) |
|---|---|---|
| Eligibility Limit | ₹21,000 per month | To be notified by Appropriate Govt. |
| Calculation Ceiling | ₹7,000 or Min Wage | To be notified by Appropriate Govt. |
| Disqualification | Fraud, Theft, Violence | Fraud, Theft, Violence, Sexual Harassment |
| Time Limit for Payment | 8 months from end of FY | 8 months (Extension only by Govt order) |
4. Strategic Action Plan
Policy Update: Review your “Variable Pay” and “Statutory Bonus” policies. Ensure the definition of “Wages” for bonus calculation aligns with the new 50% CTC rule.
Budgeting: If the government raises the eligibility ceiling (e.g., to ₹25,000), your bonus liability will increase immediately. Provision for this contingency in the current financial year.
Need a Policy Review?
Update your HR Manuals to align with the new disqualification rules.