Bonus refers to the extra lump-sum income, awarded by an organisation to its employees usually on an annual basis. It may be provided to the employees on special occasions like festivals, new year and other important celebrations. Some firms even distribute bonus to its employees as a token for their contribution in the high performance of the firm. All such gestures by an enterprise help in boosting the confidence of the employees in their efforts as well as in the organisation.

In India, the payment of bonus by an establishment is governed by the Payment of Bonus Act,1965. The Act imposes statutory liability upon the employers of every establishment covered under the Act to pay bonus to their employees. According to the Act,the term 'employees' means any person employed on a salary or wage not exceeding certain prescribed amount  per month in an industry to do any skilled or unskilled,manual,supervisory,managerial,administrative,technical or clerical work for reward.

The Act applies to every factory where 10 or more workers are working and every other establishment in which 20 or more persons are employed, on any day during an accounting year,excluding employees covered under Life Insurance Corporation of India (LIC) ,port and dock workers,universities,etc.

Under the Act,every employee is entitled to be paid by his employer a bonus in an accounting year subjected to the condition that he/she has worked for not less than 30 working  days of that year. However,this bonus shall be payable by employer only when the employer derives profit from running organization as bonus is payable out of these profits. Also,wherever the salary or wage of an employee exceeds a particular mentioned amount(per annum),then the bonus payable to such employee shall be calculated as if his/her salary or wage was equal to that particular amount only.

The Act further provides for payment of minimum and maximum bonus and linking the payment of bonus with the production and productivity. Every employer shall pay minimum bonus at the rate of 8.33% of the salary or wages earned by an employee in a year or one hundred rupees,whichever is higher. Here it is not required that the employer has any allocable surplus in the accounting year. Whereas,when the allocable surplus exceeds the amount of minimum bonus payable to the employees,the employer shall in lieu of such minimum bonus,be bound to pay bonus equivalent to the amount in certain proportion of salary or wages earned by employees.

Such a benefit in the form of bonus serves as an incentive to the employee to work harder and contribute his best for the growth of the organisation.