Establishments that are exempt from paying a bonus!

Can we know which establishments are exempt from paying bonus to their employees?


Hi Nisha,

As per payment of Bonus Act a newly formed company is exempted from paying bonus to its employees for first five years. But if the company in these five years generate profits then it is liability of the company to pay bonus (Minimum 8.33%)to its employees.

Lets see what other 's view on the same.



Interesting question @Nisha .

From a bit of research the information shows that -any establishment which is newly set up is exempted from paying a bonus to its employees in the first five years. If however, the employer gains profits in the first five years then he has to pay a bonus to its employees.

And there is no such exemption even during pandemic at this moment.

There can be more thoughts on this, let’s hear from members here…


Welcome to the community & Congratulations on you first post!

Thanks and hope to see you around :slightly_smiling_face:

~Moderator team.


Is giving the bonus mandatory?


Dear Nisha,
What the exemption cited by the above learned friends is a time-bound exemption from the liability of payment of bonus to any newly set up establishment for a specified period of first 5 accounting years only in which the employer does not derive any profits out of the sale of goods produced or manufactured or services rendered. Please kindly go through the entire provisions of Sec.16 of the PB Act,1965.
But the exact answer to your query of exemption from the entire PB Act,1965 lies in Sec.32 of the Act that too in respect of certain classes of employees of certain specified institutions only as follows: They are employees of LIC of India, registered or listed under the Dock Workers Act,1948, employed in any industry carried on by any department of the Central or State Government or a Local Authority, Indian Red Cross Society or other institution of like nature, Universities and other Educational Institutions, institutions including hospitals, chambers of commerce and social welfare institutions established not for purposes of profit, the RBI, IFCI, DIC, NABARD, UTI, IDBI, etc.



The Payment of Bonus Act, 1965, gives to the employees a statutory right to a share in the profits of his employer.

The Act enables the employees to get a minimum bonus equivalent to one month’s salary or wages (8.33% of annual earnings) whether the employer makes any profit or not or maximum ceiling on bonus payable under the Act is (20% of annual earnings).

Company is bound to pay statutory bonus @ 8.33% whose wages are equal to or less than 21,000/-.(Bonus Wages). Any employee whose Bonus wages is more than 21,000/- company is not liable to pay which is called Ex-gratia.

I hope this information will help you.


Thanks, Arpana.

So does this mean all the establishments including IT company who has more than 20 employees on any given day falls under this Act and they have to pay the Bonus?


Hi @shefalipatil

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Yes Shefali. It is applicable to all the establishment having equal to or more than 20 employees.


Another thing to keep in mind is the definition of “employee” under each Act.
Under the Payment of Bonus Act the definition is as below:
"“employee” means any person (other than an apprentice) employed on a
salary or wage not exceeding 1
[three thousand and five hundred rupees] per
mensem in any industry to do any skilled or unskilled manual, supervisory,
managerial, administrative, technical or clerical work for hire or reward,
whether the terms of employment be express or implied; "

So one could interpret it as per that definition.


True @VallariD.

and congratulations on your first post :slight_smile: - Regards- greytHR team!

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