Bonus Calculation Is Now the Higher of ₹7,000 or Minimum Wages
A Ministry of Labour & Employment notification replaces the old flat ₹7,000 bonus ceiling with whichever is higher: ₹7,000 or the state's notified minimum wage — applied retrospectively from 21 November 2025. Here's what changes and what payroll teams need to do.
For years, statutory bonus calculations under the Payment of Bonus Act ran on a simple assumption: even if an employee earned more, the bonus itself was worked out as if their wage were capped at ₹7,000 a month. A Ministry of Labour & Employment notification issued 25 August 2026 changes that baseline, and it applies retrospectively — from 21 November 2025, the date the Code on Wages, 2019 came into force.
What changed
Under Section 26 of the Code on Wages, the notification directs that the bonus be calculated using whichever figure is higher: ₹7,000, or the minimum wage notified by the appropriate Government for that scheduled employment. The notification's own language is worth reading exactly:
"The bonus shall be calculated as if the wages were ₹7,000 — or the minimum wage notified by the appropriate Government for the scheduled employment, whichever is higher."
In plain terms: ₹7,000 is no longer a ceiling that quietly outran reality as state minimum wages rose over the years. It's now a floor. Where a state's notified minimum wage for a given scheduled employment exceeds ₹7,000 — which is common in 2026 — the bonus calculation uses that higher figure instead.
A worked example
Take an employee earning ₹22,000 a month in a region where the notified minimum wage for their category is ₹11,500.
| Methodology | Annual bonus range (8.33%–20%) |
|---|---|
| Old (capped at ₹7,000) | ₹6,997 – ₹16,800 |
| New (higher of ₹7,000 or ₹11,500) | ₹11,496 – ₹27,600 |
That's roughly a 64% increase in bonus entitlement for the same employee, same eligibility, same statutory 8.33%–20% band — the only thing that moved is the wage figure the calculation is built on.
What this means, by role
- Employers need to stop applying a single national ₹7,000 figure and instead pull the correct notified minimum wage for each state and scheduled employment category their bonus-eligible employees fall under.
- Employees in states where minimum wages have climbed well past ₹7,000 gain real, immediate protection against a bonus ceiling that had become disconnected from actual wage floors.
- Compliance and payroll teams carry the heaviest lift: bonuses have to be recomputed from 21 November 2025 onward, arrears quantified and settled, and the higher-of logic built into payroll systems going forward — not applied as a one-time fix.
Action items for payroll teams
- Gather the notified minimum wage for every state and scheduled employment category where you have bonus-eligible employees.
- Set the bonus calculation base to the higher of ₹7,000 or the applicable minimum wage — per employee, per location.
- Recalculate bonuses retrospectively from 21 November 2025 and quantify any arrears owed.
- Update bonus registers and plan an arrear settlement, rather than folding it silently into the next cycle.
- Build the higher-of logic into payroll going forward, since state minimum wages are revised periodically and a static figure will drift out of date again.
This is exactly the kind of change that a generic payroll setup tends to miss — it depends on knowing the current minimum wage for the right state and employment category, not a single number typed into a settings field once. Connect by Vinpro's payroll runs bonus calculations against the applicable minimum wage per employee, so an update like this is a data refresh rather than a re-engineering project.
This article is informational commentary, not legal or tax advice. Minimum wages and bonus thresholds are revised by state and by scheduled employment — confirm the current notified figures for your specific employment categories before finalising arrears or payroll changes.
