Bonus, Overtime and Arrears Calculator for 2026

The calculation base under the Payment of Bonus Act is not your actual salary. The formula is: take the lower of your actual Basic+DA and a ceiling, where the ceiling is the higher of Rs 7,000 and the minimum wage notified by your state for the lowest grade in your scheduled employment.

If you earn Rs 18,000 in Basic+DA and your state’s minimum wage for your category is Rs 9,500, your calculation base is Rs 9,500, not Rs 7,000 and not Rs 18,000. This is the most widely misunderstood part of the Act, and it is the source of the most common underpayments. Employers who use Rs 7,000 flat in states where the minimum wage is higher are in violation of the Act, and the shortfall accumulates as bonus arrears with interest at 9% per annum from the payment due date.

All bonus received from a private sector employer is fully taxable as salary income under Section 17(1) of the Income Tax Act. There is no exemption of Rs 3,500 or any other amount for statutory bonus from a private employer. The Rs 3,500 figure you may see on some websites is outdated and based on a misreading of the Bonus Act, which sets Rs 100 as the minimum in rare low-salary cases, not as a tax exemption.

Statutory bonus, performance bonus, Diwali bonus, and joining bonus are all fully taxable in the year of receipt and must appear in Form 16. TDS is deducted by the employer in the month of payment. Government employees may have some exemptions under separate provisions, but private sector employees have none.

The standard overtime rate in India for factory workers is twice the ordinary rate of wages, as mandated by Section 59 of the Factories Act 1948, now maintained by the OSH Code 2020. The ordinary rate is Basic+DA per hour, calculated as monthly Basic+DA divided by 26 working days and then by 8 hours. This gives the per-hour ordinary rate.

Doubling it gives the overtime rate. The number of overtime hours (those worked beyond 9 hours a day or 48 hours a week) is then multiplied by this double rate to arrive at the overtime pay. It is critical that the base is Basic+DA only, not gross salary. HRA, special allowance, food allowance, and similar components are not included in the base for overtime calculation purposes.

Section 89(1) of the Income Tax Act provides relief when salary arrears received in one financial year relate to an earlier financial year, and receiving them all in the current year causes the employee to pay more tax than they would have paid had the salary arrived on time. The relief is computed by re-spreading the arrears back across the financial years they actually relate to, calculating the tax that would have applied in each year, and comparing it to the tax actually applicable in the current year due to the bunching. The difference is the relief.

To claim it, the employee must file Form 10E on the Income Tax e-filing portal before submitting their ITR for the year. If Form 10E is filed after the ITR, the relief cannot be claimed. The relief applies only when the arrears relate to a prior financial year than the year of receipt.

Under the Payment of Bonus Act (now Chapter VIII of the Code on Wages 2019), employees whose Basic+DA exceeds Rs 21,000 per month are not eligible for the mandatory statutory bonus. The eligibility ceiling is an absolute threshold: even Rs 21,001 takes an employee outside the Act’s protection.

However, many employers voluntarily pay a Diwali bonus or ex-gratia to all employees, including those above the ceiling, as a gesture of good will and employee motivation. Such payments are not mandatory and not governed by the Act, but they are fully taxable as salary income. If your employer calls it a Diwali bonus and you earn above Rs 21,000, you receive it only at the employer’s discretion, not as a right.

The Payment of Bonus Act (now Code on Wages) requires bonus to be paid within eight months of the close of the accounting year. For companies following the standard April to March financial year, the FY 2025-26 bonus must be paid by 30 November 2026. Failure to pay attracts interest at 9% per annum on the unpaid amount from the due date.

The labour officer can recover it as arrears of land revenue. Under Section 28 of the Bonus Act (preserved in the Code), the employer and every person responsible for the contravention can be imprisoned for up to six months or fined up to Rs 1,000, or both. In practice, the most immediate consequence for employers is a poor compliance record on the Shram Suvidha portal, which affects subsequent inspections in PF, ESI, and other areas.

Yes, and this is an important compliance point. ESI contributions apply to employees whose monthly wages do not exceed Rs 21,000. Wages for ESI purposes include basic pay, dearness allowance, and many other components, including overtime.

If an employee’s regular salary is Rs 19,500 and they earn Rs 2,000 in overtime in a particular month, their total wages for that month are Rs 21,500, which crosses the ESI ceiling. This can create complex situations where the employee’s ESI coverage status changes for that month, and it often leads to ESIC audit mismatches if payroll software does not correctly account for overtime in the wage ceiling calculation. Employers should monitor this carefully for workers close to the Rs 21,000 threshold.

Technically yes, under the set-off provisions of the Bonus Act. If the allocable surplus (a specific calculation based on the company’s financial statements) is zero or negative, the minimum bonus of 8.33% can be deferred and set off against future surplus years. However, the minimum bonus cannot be permanently avoided.

Once the company returns to profitability, the deferred amounts must be paid, plus the relevant adjustments. In practice, most small and medium employers simply pay the minimum 8.33% every year regardless of profit, because the accounting and legal complexity of invoking the set-off provisions outweighs the short-term saving. Only large employers with significant loss years formally use the set-off mechanism.

The Occupational Safety, Health and Working Conditions Code 2020 (OSH Code), which consolidates 13 prior labour laws including the Factories Act, maintains the 2x overtime rate but extends it to all establishments, not just factories. It also introduces a quarterly cap of 125 overtime hours (the Factories Act had a more complex cap) and requires prior written consent from the employee for overtime work. As of April 2026, the OSH Code has been notified in various states progressively.

Where the Code has come into force, it supersedes the Factories Act for overtime rules. The double-pay rate itself is unchanged, which is why this calculator uses 2x throughout. Check your state’s notification status to confirm which law applies to your establishment.

The Payment of Bonus Act defines the accounting year as the year for which the books are maintained, which for most companies is April to March. Companies with a different accounting year (such as January to December or any other 12-month period) must compute the bonus and the allocable surplus based on their own accounting year.

The eligibility ceiling and the calculation formula remain the same. The deadline is still eight months from the close of the relevant accounting year. Employees who join or leave partway through an accounting year receive proportionate bonus based on months worked, as long as they meet the minimum 30 working days threshold.

Statutory bonus is a mandatory payment under the Payment of Bonus Act for eligible employees, calculated on the capped formula at between 8.33% and 20% of the annual calculation base, payable within eight months of the accounting year end. It is not discretionary. Ex-gratia is a voluntary payment made by the employer as a goodwill gesture, completely at the employer’s discretion, with no formula, no statutory rate, and no deadline.

Many employers pay ex-gratia to employees above the Rs 21,000 eligibility ceiling as a substitute for the statutory bonus those employees are not entitled to. Both are fully taxable as salary income. The distinction matters for compliance records: calling an ex-gratia payment a statutory bonus in payroll documents creates a compliance paper trail that may be audited against the actual statutory calculation.

For statutory bonus, the Bonus Rules 1975 require four records: Form A for computation of allocable surplus, Form B for set-on and set-off of allocable surplus, Form C for employee-wise bonus details including amounts paid and deductions, and Form D for the annual return filed with the labour inspector within 30 days of payment. These must be kept for eight years.

For overtime, employers must maintain an overtime register under the Factories Act or OSH Code, recording hours worked, double-rate pay, and employee details. Both sets of records are commonly inspected during combined labour inspections covering PF, ESI, and wage compliance simultaneously. Digital records are acceptable provided they can be produced on demand.

No. The eligibility threshold of Rs 21,000 for statutory bonus is based on the monthly wage (Basic+DA) alone, not total monthly earnings including overtime.

Even if an employee’s total monthly earnings exceed Rs 21,000 due to overtime, if their basic monthly wage is Rs 20,000, they remain eligible for the statutory bonus. Conversely, the calculation base for the bonus is also Basic+DA capped at the ceiling, not total earnings. Overtime is a separate salary component with its own rules and does not affect bonus eligibility or calculation.

Contract workers who are on the direct payroll of the establishment and meet both eligibility conditions are entitled to statutory bonus. The key test is whether they are genuinely employees of the establishment itself, not workers of a third-party contractor or staffing agency. Workers deployed through a contractor under the Contract Labour (Regulation and Abolition) Act are generally the bonus responsibility of the principal employer in some interpretations, or the contractor in others, depending on specific facts and the terms of the contract.

Supreme Court and high court decisions have varied on this across different industry contexts. In practice, many establishments exclude all contract workers from bonus payments, which creates legal risk if those workers are later found to have been regular employees in substance. When in doubt, legal advice specific to the engagement structure is essential.

Central government employees are generally outside the scope of the Payment of Bonus Act under its exemption provisions, and their bonus is governed by separate Central Government Bonus Rules based on the Pay Commission recommendations. The 8th Pay Commission is expected to revise the ad hoc bonus structure for government employees, but the new rates and eligibility have not yet been officially notified as of mid-2026.

Once notified, the new figures will determine the non-productivity linked bonus for Group C and Group D government employees. Private sector employees are unaffected by Pay Commission decisions. This calculator applies the Payment of Bonus Act formula, which governs private sector bonus, not the government bonus rules.

The Payment of Bonus Act requires that statutory bonus be paid in cash. Paying it in kind (goods, vouchers, or benefits) is not permitted and does not satisfy the statutory obligation. An employer who pays food packets or gifts instead of cash bonus is in breach of the Act.

Separately, employers sometimes offset bonus against employee loans or advances. The Act does not prohibit deductions from bonus for genuine loans, but any deduction must be authorised by the employee and documented. Deducting bonus without employee consent to recover an advance is a labour grievance waiting to happen. The safest practice is to pay bonus in cash or bank transfer and manage loan recoveries through the regular salary deduction process.