A company-wide email saying "we made a loss, so there will be no statutory bonus" does not settle the question. For an eligible employee in a covered establishment, section 26 of the Code on Wages ordinarily requires minimum bonus even without allocable surplus. A genuine new establishment can fall under a different rule during its initial accounting years. The useful first step is to ask which rule the employer relies on, for which establishment and accounting year.
Part of the employment and labour law practice at S Jain & Attorneys, Bangalore.
Keep the cancellation email, twelve months of wage slips, appointment letter and earlier bonus statements together. Ask payroll to identify the statutory calculation, the applicable wage ceiling notification, the establishment's first commercial year and any amount already paid as interim or customary bonus. Those particulars allow a meaningful claim. A debate about whether the company is "doing well" usually does not.
Key takeaway. Loss, cash shortage and lack of allocable surplus are different questions. First establish coverage and eligibility, then test the employer's stated exception against its records.
Is this statutory bonus or a performance incentive?
Identify the payment before challenging its withdrawal. A statutory bonus arises from the Code's bonus chapter. A sales incentive, retention payment or discretionary annual award may instead depend on the employment contract and the scheme governing it. An employer's payroll label does not conclusively determine which payment it is.
Read the previous year's statement. Does it refer to a percentage of statutory wages, minimum bonus, an accounting year or an adjustment of festival bonus? Compare that with the offer letter. A performance plan referring to targets and individual ratings raises different questions from a statutory payment based on coverage, eligible wages and days worked.
There can be both kinds of payment in the same workplace. Cancellation of a discretionary award does not answer whether statutory bonus remains due. Equally, an employee cannot assume that every amount once described as "bonus" must recur under the Code. Preserve the policy version that applied when the work was done, including any conditions about payment date and continued employment.
Your written request can say: "Please confirm whether the cancelled amount is statutory bonus under Chapter IV of the Code on Wages or a contractual incentive. If both were included in the earlier payment, please provide the separate amounts and the reason for withholding each." This avoids accidentally arguing about a scheme that does not govern the disputed sum.
Does the bonus chapter cover this establishment and employee?
Coverage comes before the loss-year argument. Subject to its exclusions, section 41 applies the chapter to establishments employing twenty or more persons on any day during an accounting year. It also contains exclusions for specified categories of employment and institutions. Do not infer coverage solely from the organisation's brand, the number of people on your immediate team or a company's registration certificate.
The employee definition under the Code is wider than an everyday distinction between blue-collar and office work. It includes managerial and administrative work, while apprentices engaged under the Apprentices Act are excluded from that definition. Bonus eligibility nevertheless has its own wage ceiling and work requirement. A senior job title does not decide the issue by itself.
Section 26 ordinarily requires at least thirty days' work in the accounting year and wages within the amount notified by the appropriate government. Record your joining date, attendance and the relevant wage components. Cost to company is not automatically the statutory wage figure. The Code's wage definition and its inclusions and exclusions need to be applied to the actual salary structure.
Ask which legal entity employed you and whether the establishment has departments or branches treated together for bonus. Section 30 addresses that question, including the relevance of separate balance sheets and profit-and-loss accounts. A profitable branch does not necessarily mean a separate bonus calculation, and a loss-making branch cannot simply be isolated because that reduces the payment.
Which government notification supplies the wage limits?
Check the appropriate government for the establishment. Under section 2(d), central jurisdiction includes specified sectors and establishments, while other establishments ordinarily fall under the State government. An office being located in Bengaluru, Delhi or Mumbai does not by itself resolve that allocation. Nor does incorporation under a central company statute make every employer a central-sphere establishment.
For the central sphere, S.O. 4711(E), dated 25 August 2026, specifies an eligibility ceiling of Rs 21,000 per month and is deemed effective from 21 November 2025. The separate S.O. 4710(E) governs the calculation base. Where an eligible employee's wages exceed Rs 7,000 per month, it uses Rs 7,000 or the centrally fixed minimum wage, whichever is higher. Eligibility and calculation are therefore separate steps.
Do not transfer those notifications to a State-sphere employer without checking the applicable State instrument and any relevant saved notification. Section 69 contains repeal and saving provisions. A demand covering an earlier accounting period also needs a transition check rather than an assumption that today's section numbers and notifications govern every past payment.
The substantive Code provisions discussed here commenced on 21 November 2025 under S.O. 5322(E). The Central Rules followed in May 2026. When requesting a calculation, identify the accounting year and ask payroll to attach the notification it actually used. That gives both sides a fixed document to examine instead of competing internet calculators.
Why does an ordinary loss year not end minimum bonus?
Section 26(1) ordinarily requires an annual minimum of eight and one-third per cent of the relevant wages earned, or Rs 100, whichever is higher, even where there is no allocable surplus. This rule is subject to eligibility, coverage and the special provisions for new establishments. It is not a promise that every employee receives that percentage of their entire gross salary or CTC.
Where allocable surplus supports more, section 26(3) provides for a higher payment, subject to the statutory maximum of twenty per cent. The figure "twenty per cent" is a ceiling in this calculation, not a guaranteed annual entitlement. A previous year's higher percentage does not itself establish that the same percentage is due in the present year.
A management email may mix three explanations: the accounts show a loss, customers have not paid and there is no money in the bank. Each may describe a real business difficulty. None, without the statutory analysis, establishes that an otherwise payable minimum bonus has disappeared. The legal question is what the chapter requires for that establishment and year.
For example, consider an established covered employer that has paid statutory bonus for many years and now reports its first loss. The employee should ask for the minimum-bonus calculation and any claimed exception. The initial response should not be a demand for the same higher percentage paid during a profitable year. Separating the undisputed minimum from a disputed additional amount makes the issue easier to assess.
Identify The Payment
Separate statutory bonus from performance incentives before relying on the employer's loss explanation or calculating a demand.
Check The Establishment
Record coverage, employee numbers, commercial commencement and the accounting year before assuming the ordinary minimum rule applies.
Verify The Wage Base
Find the appropriate government's eligibility and calculation notifications, then apply them to the actual wage components and days.
What changes if the employer says it is a new business?
The new-establishment exception is substantial and must be checked honestly. Under section 26(6), during the first five accounting years following the accounting year in which the employer first sells its goods or renders services from the establishment, bonus is payable only for an accounting year in which it derives profit from that establishment. The usual set-on and set-off provision does not apply during that initial period.
The clock is tied to the statutory commercial event, not simply the date printed on a certificate of incorporation. Ask for the first sale or service date, the corresponding accounting year and the employer's year-by-year calculation. Trial-run sales have a specific treatment under the provision. A statement that "we are a startup" does not supply these facts.
Profit for this purpose also involves the statutory explanation, including depreciation and the treatment of earlier losses and depreciation. A headline profit on a presentation is not a substitute for that analysis. Conversely, an informal assertion of accumulated losses does not establish that the statutory conditions are met. The relevant accounts and commercial history matter.
The sixth and seventh accounting years have transitional set-on and set-off rules under section 26(7). The ordinary section 36 framework applies from the eighth year under subsection (8). New departments, undertakings or branches require consideration of subsection (9) as well. Do not treat a renamed business, a new office or a group restructuring as automatically restarting the initial five-year period.
If the employer invokes this exception, narrow your request to those records first. You may discover that the exception applies, that the employer counted the years incorrectly, or that the disputed entity is not the establishment whose commercial history was cited. Each result leads to a different claim. Avoid a categorical demand that assumes the exception can never apply to your workplace.
Does carrying forward a deficit excuse payment this year?
For the ordinary regime, section 36 provides a mechanism for carrying forward excess allocable surplus or a deficiency. The set-on and set-off balance can be carried into later accounting years within the statutory four-year limit, with the earlier balance used first. It is part of the multi-year bonus calculation, not a general permission to cancel minimum bonus whenever a deficit appears.
Ask for a schedule showing the accounting year, allocable surplus, minimum liability, actual bonus and the opening and closing set-on or set-off balances. A single negative figure without its year cannot show whether it remains available for adjustment. The absence of such a schedule from the employee's papers does not itself prove misconduct, but it identifies the record needed to test the explanation.
There is a further distinction between book profit, available surplus and allocable surplus. Sections 31 to 35 prescribe the statutory calculation, including deductions and different allocable percentages for banking companies and other establishments. Employees should not try to reproduce the entire computation from a revenue announcement or an unaudited screenshot circulated in a group chat.
Where the dispute genuinely concerns the accounts, use the available legal procedure for obtaining and testing the relevant material. The Code gives audited financial statements a particular evidentiary treatment under section 47. That does not mean a request for clarification is pointless, or that every employee has an unrestricted right to circulate the employer's confidential accounts publicly.
Can earlier payments, absence or misconduct reduce the amount?
Some reductions have a statutory basis. Section 37 permits adjustment of a customary festival bonus or an interim bonus paid for the same accounting year against the bonus payable under the chapter. Check the period and description of the earlier payment. An employer should not merely point to an unrelated reimbursement, salary advance or a payment from a different year.
Section 27 addresses proportional reduction where an employee has not worked for all the working days in the accounting year. Section 28 treats specified periods as days worked, including certain lay-off periods, paid leave, temporary disablement caused by an employment accident and maternity leave with wages. A simple attendance count excluding every day away from the office can therefore produce the wrong result.
Disqualification under section 29 is narrower than an unfavourable appraisal. It concerns dismissal for the specified grounds, including fraud, specified violent conduct and theft, misappropriation or sabotage of establishment property, as well as conviction for sexual harassment. A pending accusation, a poor rating or an ordinary resignation should not be casually substituted for the statutory conditions.
Section 38 separately addresses deduction for financial loss caused by an employee's misconduct. The deduction is tied to that loss and the bonus for the relevant accounting year, with any balance payable. It is not a device for making an individual employee bear the business's general trading loss. Request the alleged act, finding, quantified loss and calculation rather than accepting an unexplained deduction code.
| Employer's explanation | Record to request | Question it answers |
|---|---|---|
| The company made a loss | Minimum-bonus calculation and claimed statutory exception | Whether ordinary minimum liability remains |
| We are a new establishment | First commercial transaction and accounting-year sequence | Whether the initial-year exception applies |
| We paid festival bonus already | Payment entry, description and accounting year | Whether a same-year statutory adjustment is justified |
| The employee caused a loss | Misconduct basis, quantified loss and deduction calculation | Whether section 38 is being used for its proper purpose |
| The amount is discretionary | Applicable incentive policy and statutory-bonus breakdown | Which legal source governs each component |
Check whether payroll has reduced both the days and the wage total for the same absence. The calculation should be explained well enough to see whether the same event was counted twice. A maternity period treated as unpaid absence, for example, raises a different issue from a lawful proportional calculation for an employee who joined late in the year. Submit the leave approval and payment entry with the disputed row.
If several payments were combined in one bank credit, obtain the corresponding payslip or ledger description. A bank statement proves that money arrived, but it may not identify whether it was salary, reimbursement, festival bonus or an advance. The amount and the purpose of payment are separate evidentiary questions. A clear reconciliation can resolve the dispute without requiring an argument about the employer's entire financial position.
When should the money be paid?
Section 39 ordinarily requires bonus to be credited to the employee's bank account within eight months of the close of the accounting year. An employer asking for more time should identify any extension granted by the appropriate government or specified authority. The provision permits an extension on sufficient reasons, subject to its maximum. A payroll email announcing a unilateral extension is not the statutory order.
Where a bonus dispute is pending before the relevant authority, the section separately addresses payment within a month of an enforceable award or operative settlement. A dispute about a higher rate does not give an unrestricted excuse to postpone the minimum amount. Read the proviso dealing with that situation rather than assuming every disputed component can be held back together.
Put the accounting-year close and ordinary due date in your request. An annual bonus may be payable after the employee leaves. The analysis still depends on eligibility and the relevant year, not merely on whether the employee appears on the current payroll list. Ask the employer to identify a legal basis if its only reason is that you resigned before the payment run.
If an amount is offered, record what it represents. Acknowledging receipt of a specified part payment is different from signing an unrestricted release of every claim. Section 60 prevents contracting out of monetary rights under the Code to the extent of the relinquishment. Nevertheless, an ambiguous receipt can create an avoidable factual dispute about payment and settlement.
Common mistake. Asking for last year's percentage without first separating minimum bonus, additional bonus and contractual incentives can obscure the strongest part of the claim.
What should a useful written request contain?
Keep the first request factual and limited. Identify your employee number, employment dates, establishment, accounting year and the cancellation message. State the payment you understand to be statutory bonus and ask for correction if payroll uses a different classification. Attach relevant wage slips and earlier statements, not unrelated confidential company files.
A workable request is: "Please provide the statutory-bonus calculation for the accounting year ending [date], including eligibility wages, days counted, applicable notification, percentage and earlier payments adjusted. Your email cites a company loss. Please identify the provision relied on to withhold minimum bonus and, if the new-establishment exception is claimed, the first commercial year and the year count." Replace the brackets with verified facts.
For a group complaint, prepare a common issue sheet and a separate employee calculation. Different joining dates, wage components and earlier payments may produce different amounts. An identical figure copied for everyone can weaken an otherwise shared complaint. Do not include colleagues' salary or medical-leave details without authority merely because the employer's decision affected the whole workplace.
Retain proof of delivery and the reply in their original form. If the employer supplies a calculation, mark the exact disputed entry rather than repeating the entire complaint. This helps distinguish a genuine disagreement over the law from a missing attendance entry, incorrect wage component or duplicated festival-bonus adjustment.
Preserve The Explanation
Keep the cancellation email and any later change in reasons so the claim addresses the employer's actual position.
Request A Calculation
Ask for the year, wage base, days, percentage and adjustments instead of relying on a single unexplained payroll total.
Choose The Forum
Identify the appropriate government and the nature of the bonus dispute before filing with a notified statutory authority.
Where can an unresolved bonus dispute go?
The route depends on what is disputed. Section 45 provides for claims before the authority appointed by the appropriate government, including applications by an employee, a registered trade union or an Inspector-cum-Facilitator. It allows a claim within three years from when it arises, with delayed applications possible on sufficient cause. Do not treat that outer period as a reason to postpone gathering the records.
Section 46 separately treats specified disputes about fixation of bonus, eligibility and the application of the chapter to public-sector establishments as industrial disputes. A contested eligibility or accounting issue therefore needs the correct route checked, rather than an assumption that every bonus disagreement is a simple recovery application. Jurisdiction should be settled from the facts and current procedural framework.
Where section 45 applies, the authority may award compensation in addition to the claim, subject to the statutory limit. The maximum is not an automatic entitlement. Nor is the provision's aim of deciding claims within three months a guarantee of the actual disposal date. A sound request states the unpaid amount and supporting facts without promising a particular award.
For central-sphere claims, the 2026 Central Rules prescribe the filing framework, including Form II and supporting documents. State-sphere procedure must be checked separately. Give the adviser the cancellation message, calculation request, response, wage records and establishment history together. The central decision remains concrete: does the employer have a recognised reason to withhold this payment, or only a general statement that the business lost money?
Frequently Asked Questions
Does a loss automatically remove minimum bonus?
No. The ordinary section 26 rule applies despite absence of allocable surplus, subject to coverage, eligibility and statutory exceptions, including the initial years of a new establishment.
Does every employee earning below Rs 21,000 qualify?
Not automatically. That is the current central-sphere eligibility notification. Appropriate government, establishment coverage, statutory wages and the work requirement still need checking.
Is bonus always calculated on Rs 7,000?
No. The central calculation notification uses Rs 7,000 or the centrally fixed minimum wage, whichever is higher, in the situation it covers. State notifications and individual wage facts matter.
Can a new startup pay no bonus in a loss year?
It may fall within section 26(6). The first commercial accounting year, the following year count and the statutory profit calculation must support that position.
Can the employer adjust a Diwali payment?
Section 37 permits specified customary or interim bonus adjustments for the same accounting year. Obtain the payment record and check what the amount represented.
Does resignation before the payment date end the claim?
Resignation alone does not answer statutory eligibility for work already performed in the relevant year. Check the actual qualifying conditions and any asserted disqualification.
Can the employer postpone payment because cash is short?
Cash shortage is not itself a statutory extension. Ask for any extension order and check section 39 against the accounting-year close.
Can I claim the maximum compensation automatically?
No. Compensation under section 45 depends on the authority's decision and the facts. A statutory maximum should not be presented as a promised recovery.
This article is for general informational purposes only and does not constitute legal advice. Consult a qualified advocate for advice on your specific situation.
