The contractor pays it. Under the Code on Wages 2019 the contractor is the employer of contract labour, and Chapter IV puts the annual bonus on the employer: a minimum of 8.33% of wages earned, a maximum of 20%, for every worker on wages up to ₹21,000 a month who has put in thirty days in the year. Since the Code commenced on 21 November 2025, the site is the backstop: if the contractor fails to pay, the proprietor of the establishment pays the minimum bonus once the workers or their union give written notice of the default.
Which sites and which workers are inside Chapter IV
Any establishment that employed twenty or more persons on any day of the accounting year, and within it any employee whose wages do not exceed ₹21,000 a month and who worked at least thirty days. The twenty-person test is in section 41 of the Code [VERIFY: sub-section]; it counts persons employed, not permanent headcount, so a plant with twelve direct staff and fifteen contract workers on the floor is in. The Payment of Bonus Act 1965 that the Code replaced applied at ten persons, so the Code narrowed the net for very small units and left every factory and warehouse of any size exactly where it was.
The ₹21,000 eligibility figure is not in the Act itself. Section 26(1) leaves the amount to a notification by the appropriate Government, and the Ministry of Labour and Employment issued it as S.O. 4711(E) on 25 August 2026, deemed in force from 21 November 2025. That nine-month gap matters for the 2025–26 accounting year: the figure now applies to the whole of it, and a contractor who paid nothing on the theory that no ceiling had been notified owes arrears.
Two things about the thirty days. Section 26(1) requires thirty days' work in the accounting year, not thirty days on a single site or under a single contract, so a worker deployed for six weeks in a festive ramp qualifies. And section 28 counts days of lay-off, leave with pay, absence through an employment injury and maternity leave as days worked [VERIFY: section number], so a short accident absence does not knock a worker below the line.
How much bonus is owed
At least 8.33% of the wages earned in the year, or ₹100, whichever is higher, and at most 20%, with the calculation base capped for anyone earning above ₹7,000 a month. The minimum is owed whether or not the employer made a profit; section 26(1) says so in terms. Above the minimum, the rate follows allocable surplus under sections 31 to 36, subject to the 20% ceiling in section 26(3), and a productivity-linked agreement under section 26(4) cannot lift it past the same 20%.
The calculation cap is the piece most sites misread. S.O. 4710(E), issued the same day as the eligibility notification and also deemed in force from 21 November 2025, provides that where an eligible employee's wages exceed ₹7,000 a month, bonus is calculated as if the wages were ₹7,000 or the minimum wage, whichever is higher. For scheduled employments in Tamil Nadu the minimum wage is well above ₹7,000, so in practice the base is the minimum wage for that employment [VERIFY: current Tamil Nadu minimum-wage notification for the relevant scheduled employment], and the ₹7,000 figure is a floor that rarely bites.
| Worker | Code wages | Bonus base per month | Minimum bonus (8.33%) | Maximum bonus (20%) |
|---|---|---|---|---|
| Full year, min. wage ₹7,000 or below | ₹15,000 | ₹7,000 | ₹6,997 a year | ₹16,800 a year |
| Full year, min. wage ₹12,000 (illustrative) | ₹15,000 | ₹12,000 | ₹11,995 a year | ₹28,800 a year |
| Four months, min. wage ₹12,000 (illustrative) | ₹15,000 | ₹12,000 | ₹3,998 for the period | ₹9,600 for the period |
| Code wages ₹22,000 | ₹22,000 | not eligible | nil | nil |
Bonus is proportionate to wages earned, so the four-month worker in the third row earns a third of the annual figure, not nothing. Section 27 reduces bonus in proportion where the worker has not worked all the working days of the year [VERIFY: section number], which is the same arithmetic stated the other way round. The ₹12,000 minimum wage in the table is illustrative, not a Tamil Nadu rate; substitute the rate from the notification that covers the site's scheduled employment.
Who pays: the contractor first, the site if it fails
The contractor is the employer, so the bonus obligation is the contractor's. Section 2(l) of the Code defines employer to include, in relation to contract labour, the contractor, and section 26 places the payment on the employer. There is no route by which a contract worker's bonus is the principal employer's primary liability. The site's exposure is secondary, and it has two legs.
| Instrument | What it says | What triggers it |
|---|---|---|
| Code on Wages 2019, s.43 proviso | Where the employer fails to pay any amount due under the Code, the company, firm, association or other person who is the proprietor of the establishment in which the employee is employed is responsible for the payment | Employer's failure to pay; applies to every amount under the Code, bonus included |
| Code on Wages (Central) Rules 2026, rule 21 [VERIFY: rule number] | Where employees are employed through a contractor and the contractor fails to pay bonus under s.26, the proprietor referred to in the s.43 proviso pays the minimum bonus to those employees | Written information of the failure from the employees or a registered trade union of which they are members, and the proprietor confirming the failure |
| Payment of Bonus Act 1965 (repealed 21 Nov 2025) | No express principal-employer liability for bonus; whether bonus was recoverable from the principal employer as wages under s.21(4) of the Contract Labour (R&A) Act 1970 was litigated site by site | Historical; still governs accounting years that closed before the Code commenced [VERIFY] |
Rule 21 is narrower than section 43 in two ways worth noticing. It attaches only to the minimum bonus, not to anything above 8.33% that the contractor's allocable surplus would have supported, and it is triggered by written notice and confirmation rather than by the default alone. Neither the Code nor the Rules give the site an express recovery route against the contractor; that sits in the service agreement, which is why the agreement should say so. Whether section 43 reaches further than rule 21 in a given dispute is a question for the reader's own counsel on the facts.
When it has to be paid, and who can lose it
Within eight months of the close of the accounting year, by credit to the worker's bank account. Section 39 sets the window; for an April to March year that is 30 November, and the appropriate Government can extend it for sufficient cause up to a total of two years [VERIFY: extension limit]. The bank-credit requirement is new with the Code and closes the cash-envelope practice that made bonus payments hard to evidence during a principal-employer audit.
Section 29 disqualifies a worker who has been dismissed for fraud, riotous or violent behaviour on the premises, theft, misappropriation or sabotage, or, new under the Code, a conviction for sexual harassment. The trigger is dismissal on those grounds, not a warning or suspension, and a worker who left of their own accord after thirty days keeps the entitlement for the days worked. For a newly set-up establishment, section 26(6) limits bonus to years in which the employer earns a profit for the first five accounting years, without set-on or set-off [VERIFY: sub-section and wording], which is the one case in which the 8.33% minimum is not automatic.
What to put in the contract and the monthly pack
Treat bonus as a priced, evidenced line item, not an end-of-year surprise. Three things a principal employer should be able to show, and three things a contractor should be able to produce.
- Rate build-up. The contractor's rate should show the bonus accrual on Code wages explicitly, at not less than 8.33% on the applicable base. A rate that does not carry it is a rate that will be topped up under rule 21 later, at the site's cost.
- Recovery clause. Because the Rules are silent on recovery, the service agreement should provide that any bonus paid by the principal employer under section 43 or rule 21 is recoverable from the contractor's dues, with a right to withhold pending proof.
- Eligibility list. A per-worker list showing Code wages after the section 2(y) test, days worked under section 26(1), and eligibility against the ₹21,000 ceiling, refreshed each quarter so short deployments are not missed.
- Bonus register and proof of credit. The register of bonus prescribed under the Central Rules [VERIFY: form number] and the bank-credit evidence, produced by the contractor before 30 November and filed alongside the monthly compliance pack.
- Accounting-year cut-over. For 2025–26 the retrospective notifications apply to the whole year. A contractor whose 2025–26 bonus was paid on a different assumption owes the difference; the site should ask for the reconciliation now rather than after a notice.
- Tamil Nadu watch. Section 26 leaves both ceilings to the appropriate Government, and for a private factory or warehouse in Tamil Nadu that is the State. The S.O.s of 25 August 2026 are the Central Government's; whether the State has issued or adopted equivalents is a point to confirm with counsel [VERIFY: Tamil Nadu notification under s.26 of the Code on Wages].
Sources
- The Code on Wages, 2019 (Act 29 of 2019), Gazette text hosted by the Ministry of Labour and Employment — s.2(l) employer including contractor; s.2(y) wages; s.26 eligibility and rates; s.27 to s.29; s.31 to s.36 surplus and set-on/set-off; s.39 time limit; s.41 applicability; s.43 proviso [VERIFY: the indiacode copy could not be opened this run; section numbers for s.27, s.28, s.26(6) and s.41 to be confirmed against the Act text]
- Ministry of Labour and Employment, S.O. 4711(E) dated 25 August 2026 — wage ceiling of ₹21,000 per month for eligibility under s.26(1); deemed in force from 21 November 2025 [VERIFY: e-Gazette copy; figure taken from the notification summary]
- Ministry of Labour and Employment, S.O. 4710(E) dated 25 August 2026 — bonus for employees on wages above ₹7,000 a month calculated as if wages were ₹7,000 or the minimum wage, whichever is higher; deemed in force from 21 November 2025 [VERIFY: e-Gazette copy; whether the reference is to the Central or the appropriate Government's minimum wage]
- Code on Wages (Central) Rules, 2026, G.S.R. 343(E) dated 8 May 2026 — rule 21, payment of minimum bonus by the s.43 proprietor on a contractor's default after written information and confirmation [VERIFY: rule number and the bonus register form; the PRS copy of the Rules came back as unreadable binary]
- The Payment of Bonus Act, 1965 (Act 21 of 1965), as amended by the Payment of Bonus (Amendment) Act 2015 — the repealed regime: ten-person threshold, ₹21,000 eligibility and ₹7,000 calculation ceilings carried into the Code notifications [VERIFY: indiacode handle]
- Commencement of the four Labour Codes with effect from 21 November 2025, Ministry of Labour and Employment notification S.O. 5322(E) [VERIFY: notification number]