The system of record for how work actually happens.
Two end-of-cycle statutory payouts, two distinct Acts, one calculator. Statutory bonus under the Payment of Bonus Act 1965 — 8.33% floor to 20% ceiling, paid annually within 8 months of FY close. Gratuity under the Payment of Gratuity Act 1972 — 15/26 × last drawn pay × completed years, triggered on exit after 5 years. The studio runs both with the qualifying tests surfaced before the math runs.
Statutory bonus
The Payment of Bonus Act is the only Indian law that mandates annual bonus for employees earning below a salary threshold. Three numbers anchor the calculation: 8.33% as the statutory minimum rate, 20% as the maximum, and ₹7,000/month as the cap on the salary base used for computation. The studio runs each piece explicitly so the result is auditable.
Every eligible employee must receive at least 8.33% of qualifying basic as annual bonus. That's roughly one month's basic. Employers can pay more but cannot pay less than this — it's not a target, it's a legal minimum. Failure to pay triggers penalty under Section 28 of the Act.
Min bonus = 8.33% × qualifying basic
The Act caps statutory bonus at 20% of qualifying basic — about 2.4 months. Most employers pay between 10% and 15% based on company performance for the year. Anything above 20% can still be paid, but it's classified as ex-gratia (discretionary, not statutory).
Max statutory bonus = 20% × qualifying basic
The base salary used for bonus computation is capped at ₹7,000/month (or the minimum wage of the state, whichever is higher). Even employees earning ₹50,000 basic get bonus computed on ₹7,000 × 12 = ₹84,000 annual base, not their actual salary. Reform of this cap has been pending for years.
Base = min(basic, ₹7,000) × 12
Employees earning more than ₹21,000/month basic don't qualify for the statutory bonus at all (per the most recent Act amendment). For above-threshold employees, bonus becomes purely discretionary — employer-policy-driven, not law-mandated. The studio surfaces this at structure time.
Eligible if basic ≤ ₹21,000/mo
Statutory bonus is payable within 8 months of the close of the financial year — typically December 31 for an April-March FY. Diwali and Onam are common cultural targets for payment timing in regions where those festivals matter. Late payment attracts penalty.
Pay by Nov 30 (8 mo. post FY-close)
Statutory bonus is fully taxable as salary income in the year of receipt. No exemption available regardless of source or amount. The studio's TDS engine treats it as a March-month one-time addition to salary — surfaces the bonus-month TDS spike separately on the payslip.
Tax = bonus × employee's slab
Gratuity
Gratuity is the lump-sum payout employers owe an employee at exit (typically after 5+ years of continuous service). The formula is fixed by the Payment of Gratuity Act: 15 days of last drawn salary per completed year of service, with 26 working days assumed per month — hence 15/26 ≈ 0.5769. Multiply by last drawn (basic + DA) × completed years for the payout.
15 days of last drawn salary per completed year. The 26 in the denominator reflects 26 working days assumed per month (standard Indian factory / commercial-establishment working schedule). The ratio 15/26 ≈ 0.5769 multiplies by years × last drawn pay.
15 days' pay per year, 26 working days assumed monthly.
The pay rate at the moment of exit — only basic + DA (dearness allowance) count. HRA, special allowance, reimbursements, and other components don't enter the gratuity calculation. If basic was raised in the final month, that raised figure is the gratuity base.
Base = last month's (basic + DA), not the historical average.
5 years of continuous service required, with a famous exception: the 5th year can be completed with just 240+ days of work (so 4 years and 240 days qualifies). Death or permanent disability triggers gratuity regardless of tenure — the employer pays based on whatever service was completed.
5 years OR 4y 240d OR exit-by-death/disability.
Gratuity exemption from income tax is capped at ₹20 lakh — a lifetime cap across all employers for an individual employee. So if you got ₹15L exempt from one job and ₹10L from another, only ₹5L of the second is tax-exempt; the remaining ₹5L is taxable. The studio's history view tracks lifetime cumulative exemption.
₹20 lakh lifetime exemption (across all employers).
Completed years rounds up if 6+ months of the partial year were worked. So 8 years 7 months counts as 9 years; 8 years 5 months counts as 8 years. Day-by-day calculations don't apply — only the half-year threshold. This single rule often shifts gratuity payouts by ₹50,000-100,000.
6+ months in the partial year rounds up; under, rounds down.
Gratuity must be paid within 30 days of the employee's exit (date of resignation acceptance, retirement, death, etc.). Failure to pay attracts interest at simple-interest rates per the Act. Most settlement processes target 10-15 days for compliance comfort.
Pay within 30 days of exit.
Qualifying tests
Neither bonus nor gratuity is automatic. Both come with statutory eligibility tests that must clear before the calculation runs. The studio surfaces these tests explicitly — answers 'yes / no / partial' before computing the payout amount. Failed eligibility tests block the calculation and flag the reason, so HR doesn't accidentally pay against a non-qualified case.
Basic ≤ ₹21,000/month
Eligibility threshold. Above this, statutory bonus doesn't apply — discretionary policy takes over.
30+ working days in the FY
Employee must have worked at least 30 days in the financial year for which bonus is being computed.
Establishment covered
Factories with 10+ workers and establishments with 20+ workers are covered. Some smaller establishments are exempt entirely.
Not dismissed for misconduct
Section 9 of the Act disqualifies bonus for employees dismissed for fraud, theft, sabotage, or riotous behaviour at work.
5+ years continuous service
The flagship qualifier. The 5th year can be completed with 240 working days (so 4y 240d also qualifies).
Establishment covered
All establishments with 10+ employees are covered. Some specialised establishments (e.g. ports, mines, oilfields) have different rules.
Not absconding employee
Gratuity is forfeitable if the employee leaves under misconduct, riot, or wilful damage to employer property (Section 4(6) of the Act).
Death / disability override
5-year rule waived if employee dies in service or becomes permanently disabled. Gratuity computed on whatever service was completed.
Tax treatment
Tax treatment differs sharply between the two payouts. Statutory bonus is fully taxable as salary income in the year of receipt — no exemption. Gratuity gets an exemption up to ₹20 lakh on retirement / death / disability (a lifetime cap across all employers), and is fully taxable during employment. The studio applies the exemption math automatically; the Form 16 reflects the treatment correctly.
Bonus is treated as salary income in the year of receipt. No category-specific exemption available, regardless of amount or source. Taxed at the employee's marginal slab rate; appears on Form 16 alongside regular salary.
Tax exemption is the minimum of three figures: (a) actual gratuity received, (b) ₹20 lakh lifetime cap, (c) 15 days' last drawn salary per completed year. Government employees get full exemption regardless of amount. Lifetime cap applies across all employers.
Final settlement
An employee exiting doesn't just receive gratuity. The full settlement bundles four components — final-month salary, leave encashment for unused leave balance, notice-pay-in-lieu (if applicable), and pending statutory bonus (if any) — into one settlement statement. The studio's exit cycle aggregates these into a single PDF the employer issues at exit, alongside the final Form 16 for the worked period.
Salary for the partial month worked, pro-rated by days worked / total days in the month. Includes regular earnings (basic + HRA + special) minus regular deductions (EPF + ESI + TDS for that month). The last regular payslip.
Tax · Regular salary tax
Cash payout for unused leave balance. Computed as (last drawn pay / 30) × leave days available. For retirement / death exits, exempt up to ₹25 lakh (post-Budget 2023). For resignation exits, fully taxable for non-government employees.
Tax · Exempt up to ₹25L (retirement)
The 15/26 formula payout for 5+ years of service. Exempt up to ₹20 lakh lifetime for non-government employees on retirement / death. Fully exempt for government employees. Tax treatment from §04 applies here.
Tax · Exempt up to ₹20L
If employee exits before serving full notice period, employer pays "pay-in-lieu-of-notice" for unserved days — or recovers from the final settlement if employee should pay. Typically (basic / 30) × unserved days. Fully taxable.
Tax · Fully taxable
If exit happens before the bonus payout window (within 8 months of FY close), the pro-rata statutory bonus owed for the FY worked is paid in the exit settlement. Fully taxable as bonus income.
Tax · Fully taxable
Year-end reimbursement reconciliation triggered at exit. Unspent allowance for the partial FY is reversed into taxable salary. The cumulative-method engine handles the TDS adjustment in the exit cycle.
Tax · Reversed to taxable salary
The Q&A column
Distinct from the broader payroll questions — these are the end-of-cycle ones. Tenure exceptions, exit scenarios, partial-year handling, lifetime exemption tracking. Operational answers for both employer and exiting employee.
Yes — for the FY worked, they're entitled to pro-rata statutory bonus based on the days they worked in that FY (minimum 30 working days for eligibility). The studio's exit cycle automatically computes pro-rata bonus and rolls it into the final settlement. The exiting employer pays; the new employer doesn't owe bonus for the same FY.
Continue with
Bonus and gratuity sit at the intersection of the salary calculator (which provides the last-drawn pay figure), the TDS calculator (which handles the cumulative-method tax adjustments), the payroll register (which records the settlement cycle), and Form 16 (which surfaces the exempt portions to the IT department).
Payment of Bonus Act and Payment of Gratuity Act, both computed with their qualifying tests upfront. Exit cycles bundle the full settlement — gratuity, leave, notice, bonus — into one statement. The math, the law, and the tax treatment, all in one place.