Bonus is Not Meant to be Paid Monthly

Under the Payment of Bonus Act, 1965, bonus is not meant to be paid monthly—it is typically an annual statutory payment. However, let’s explore this in both legal and practical terms:

✅ What the Law Says (Legal Standpoint)

1. Section 19 – Time Limit for Payment of Bonus

The Act mandates that:

“Bonus shall be paid within 8 months from the close of the accounting year…”

This clearly shows the bonus is expected to be calculated and disbursed after the close of the financial year, based on profits and allocable surplus.

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⚠️ Monthly Payment of Bonus – Legality & Risks

• Paying "Bonus" monthly is not compliant with the structure of the Bonus Act.

• If you pay fixed amounts monthly under the label “bonus,” it may be treated as:

  • Part of regular wages/salary, not statutory bonus

  • Could not count toward minimum bonus obligations under the Act

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Here are key judgments related to the Payment of Bonus Act, 1965, which clarify whether bonus can be paid monthly or how payments labeled as “bonus” should be treated under the law: 

🧑‍⚖️ 1. Mettur Spinning Mills v. Deputy Commissioner of Labour (1997)

Court: Madras High Court
Citation: 1998 (78) FLR 457

Facts:

The employer had been paying employees an incentive every month and claimed that this should be adjusted against statutory bonus.

Judgment:

• The court held that monthly incentive payments cannot be treated as statutory bonus under the Bonus Act.

• Bonus under the Act is to be computed on the basis of profits or allocable surplus, and such calculations are only possible at the end of the financial year.

Conclusion: Monthly payments labeled “bonus” or “incentive” are not valid substitutes for the statutory bonus payable annually under the Act.

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🧑‍⚖️ 2. Jalan Trading Co. v. Mill Mazdoor Sabha (1966 AIR 691)

Court: Supreme Court of India

Relevance:

• The judgment explains that bonus is a deferred wage, not a voluntary or monthly incentive.

• It must be paid in accordance with the formula provided under the Act and after the accounting year.

Conclusion: Supports the view that bonus cannot be paid monthly as a substitute for statutory annual bonus.

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🧑‍⚖️ 3. National Engineering Industries Ltd. v. State of Rajasthan (2000)

Court: Rajasthan High Court

Citation: 2001 (88) FLR 130

Facts:

The company paid monthly allowances which it claimed were in the nature of bonus.

Judgment:

• The court ruled that statutory bonus cannot be paid in instalments or on a monthly basis.

• The structure of the Bonus Act assumes that bonus is paid after the close of the accounting year, based on available profits.

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🧑‍⚖️ 4. Dharamsi Morarji Chemical Co. Ltd. v. State of Maharashtra (1989)

Court: Bombay High Court

Citation: 1990 I LLN 590

Judgment:

• Bonus under the Payment of Bonus Act must be distinguished from ex-gratia or incentive schemes.

• Payment of any monthly incentive does not absolve the employer of the obligation to pay statutory bonus.

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✅ Key Legal Takeaways:

Legal Point	Supported by Judgment
Bonus is an annual obligation	Jalan Trading Co. case (SC)
Monthly payments can't replace statutory bonus	Mettur Spinning Mills case (Madras HC), National Engineering Industries case (Raj HC)
Payments must be made post accounting year	Jalan Trading Co., Dharamsi Morarji Chemical Co.
Monthly payments may be incentives/ex-gratia, but not “bonus” under the Act	Dharamsi Morarji, Mettur Spinning

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If you’re implementing any monthly incentive scheme, it should be:

• Clearly separated from statutory bonus

• Well-documented in CTC structures or HR policy

• Paid under a performance-linked or ex-gratia scheme, not under the Bonus Act

✅ Practical Alternatives

✅ 1. Advance or Ad-hoc Monthly Payment

You may pay monthly advances against the annual bonus and adjust them at year-end. However:

• You must ensure proper year-end reconciliation

• You must issue a final bonus statement showing:

  • Entitlement under the Act

  • Advance already paid

  • Balance payable or recoverable

⚠️ Note: This method should be clearly documented in your HR policies or employee contracts to avoid disputes.

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✅ 2. Include as Ex-Gratia (not under Bonus Act)

If you wish to offer monthly performance-linked incentives, it is advisable to:

• Term them as “ex-gratia incentive” or “monthly performance bonus”

• Clarify in the appointment letter or CTC that this is outside the scope of the Payment of Bonus Act

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✍️ Summary

Aspect	Bonus under Act	Monthly Bonus (Practically)
Legality	Mandatory, annual	Not compliant if labeled as "bonus"
Time of Payment	After accounting year ends	Monthly advances allowed (with caution)
Alternate Safe Practice	Ex-gratia/incentive scheme	Clearly separate from statutory bonus
Reconciliation Needed?	Yes, if paid in advance	Yes, and well-documented