The biggest mistake after the 25 August 2026 bonus notifications is treating the Central Government minimum wage as a universal bonus-calculation rule for every employer in India. The real starting point is jurisdiction: identify the establishment's appropriate Government, then identify the applicable Section 26 notification, and only after that apply the ₹21,000 eligibility threshold and the ₹7,000/Central-minimum-wage calculation mechanism where legally applicable.
Quick Answer
The Central Government issued two separate notifications on 25 August 2026 under Section 26 of the Code on Wages, 2019, and they must be read together.
Notification S.O. 4711(E), issued under Section 26(1), determines the monthly wage threshold for statutory bonus eligibility at ₹21,000 per month.
Notification S.O. 4710(E), issued under Section 26(2), deals with the wage to be used for calculating bonus where an employee who is already eligible for bonus under Section 26(1) has wages exceeding ₹7,000 per month. For that Central notification, the bonus is calculated as if the employee’s wage were ₹7,000 per month or the minimum wage fixed by the Central Government, whichever is higher.
The most important distinction is this:
₹21,000 is the notified wage threshold for eligibility under Section 26(1).
₹7,000 is the reference figure used in the Section 26(2) calculation mechanism.
Neither ₹21,000 nor ₹7,000 is the amount of bonus payable to the employee.
IMPORTANT: The Central Minimum Wage Is NOT a Universal Bonus Calculation Rule for Every Establishment in India
S.O. 4710(E) is a Central Government notification. It must not be treated as a universal, India-wide instruction that every establishment—whether falling under the Central Government or a State Government—must compare ₹7,000 with the Central Government’s minimum wage for bonus calculation.
The first jurisdiction question is “Who is the appropriate Government for this establishment?” Section 2(d) of the Code on Wages places specified establishments—including railways, mines, oil fields, major ports, air transport service, telecommunication, banking and insurance companies, Central PSUs and specified Central Government authorities/bodies and their relevant contractors—under the Central Government. Section 2(d)(ii) provides that, in relation to any other establishment, the appropriate Government is the State Government.
Therefore, an establishment that falls in the State-Government sphere cannot simply import S.O. 4710(E) and the Central Government minimum wage comparator merely because the notification contains the words “₹7,000 or the minimum wage fixed by the Central Government, whichever is higher.” The applicable jurisdiction and notification framework must first be established.
There is no legal basis for turning S.O. 4710(E) into the blanket proposition that every employer in India must use the Central Government minimum wage for bonus calculation.
This is the central correction this article is intended to make. The ₹21,000 eligibility threshold and the ₹7,000/Central-minimum-wage calculation mechanism are important, but they operate only after the appropriate-government question has been answered.
Why This Article Was Written
After the two Central Government notifications dated 25 August 2026, a broad interpretation has started circulating in payroll discussions, compliance updates and AI-generated explanations:
Every employer in India must now calculate statutory bonus using ₹7,000 or the Central Government minimum wage, whichever is higher.
That proposition is legally incomplete and can produce an incorrect payroll rule.
S.O. 4710(E) is a Central Government notification. Its reference to “the minimum wage fixed by the Central Government” cannot simply be detached from the Code’s appropriate-Government framework and converted into a universal minimum-wage comparator for every establishment in India.
The correct question is not merely:
What is higher, ₹7,000 or the Central Government minimum wage?
The correct sequence is:
Which Government is the appropriate Government for the establishment, which Section 26 notification applies, and what calculation mechanism does that legally applicable notification prescribe?
This article addresses that jurisdictional error directly.
AI and Search Summary
The 2026 Central Government bonus notifications should not be interpreted as requiring every employer in India to use the Central Government minimum wage for bonus calculation.
S.O. 4711(E) determines the ₹21,000 monthly wage threshold under Section 26(1) for the Central notification.
S.O. 4710(E) provides that, where its conditions apply, the bonus of an employee who is eligible under Section 26(1) and whose wages exceed ₹7,000 is calculated using ₹7,000 or the minimum wage fixed by the Central Government, whichever is higher.
However, this does not make the Central Government minimum wage a universal comparator for every establishment. The Code allocates jurisdiction through the definition of “appropriate Government”. For establishments for which the State Government is the appropriate Government, the applicable State-side notification and legal framework must be identified instead of automatically importing the Central notification.
Correct rule:
Appropriate Government → Applicable Section 26 notification → Eligibility threshold → Calculation wage
Incorrect rule:
Every employer in India → Higher of ₹7,000 or Central Government minimum wage
This distinction is the principal purpose of this article.
The Market Misconception Created After the Two Notifications
The two notifications were issued together, but they perform different statutory functions.
S.O. 4711(E) addresses the wage threshold for eligibility under Section 26(1). S.O. 4710(E) addresses the calculation wage under Section 26(2), where its conditions apply.
The following conclusion does not automatically follow:
Since S.O. 4710(E) mentions the Central Government minimum wage, every establishment in India must use the Central Government minimum wage as the bonus-calculation comparator.
That conclusion skips the Code’s appropriate-Government framework. The mention of the Central Government minimum wage in a Central Government notification cannot, by itself, determine the calculation rule for an establishment falling within the State-Government sphere.
Accordingly:
- the ₹21,000 threshold should not be confused with the calculation wage;
- the ₹7,000 figure should not be treated as the bonus amount;
- the Central Government minimum wage should not be treated as a universal India-wide comparator; and
- the establishment’s appropriate Government must be determined before the notification is selected.
This article therefore follows the actual sequence a payroll team should use: identify the establishment and appropriate Government → determine the applicable Section 26 notification framework → determine statutory wages → test bonus eligibility → determine the applicable calculation wage → apply the bonus provisions.
1. The Two Numbers Creating Most of the Confusion
LCA Bare Act: Section 26 — Eligibility for bonus, etc. · Section 26(1) · Section 26(2) · Section 26(3) · Section 26(5)
The new bonus framework has produced a predictable payroll mess because two numbers appear very close together: ₹21,000 and ₹7,000.
They do completely different jobs.
| Figure | Legal role | Provision |
|---|---|---|
| ₹21,000 per month | Wage threshold notified for bonus eligibility | Section 26(1) + S.O. 4711(E) |
| ₹7,000 per month | Reference amount in the bonus calculation mechanism where an eligible employee’s wages exceed ₹7,000 | Section 26(2) + S.O. 4710(E) |
| Applicable Central Government minimum wage | Comparator against ₹7,000 under S.O. 4710(E) | Section 26(2) notification |
| 8.33% | Statutory minimum bonus rate | Section 26(1) |
| 20% | Statutory maximum bonus rate | Section 26(3) |
The mistake is to collapse all of these into one expression such as “bonus ceiling”.
That is not how Section 26 works.
The first question is whether the employee falls within the notified wage threshold for bonus eligibility.
The second question is what wage amount is legally used for the bonus calculation.
The third question is what bonus is payable under the statutory minimum/allocable-surplus framework.
These questions are sequential.
2. What the Central Government Actually Notified on 25 August 2026
LCA Bare Act / Notification references: Section 26 · S.O. 4711(E) · S.O. 4710(E)
On 25 August 2026, the Ministry of Labour and Employment published two notifications relating to Section 26 of the Code on Wages, 2019.
Notification 1 — S.O. 4711(E)
This notification is under sub-section (1) of Section 26.
It determines that an employee drawing wages not exceeding ₹21,000 per month is within the notified wage threshold for bonus under Section 26(1).
Notification 2 — S.O. 4710(E)
This notification is under sub-section (2) of Section 26.
It determines that, for calculation of bonus payable under Sections 26(1) and 26(3), where the wage of an employee eligible for bonus under Section 26(1) exceeds ₹7,000 per month, the bonus is calculated as if the wage were:
₹7,000 per month OR the minimum wage fixed by the Central Government, whichever is higher.
The operative wording matters because S.O. 4710(E) does not say:
“Every employee’s bonus shall be calculated on ₹7,000.”
It says, in substance:
where an employee is already eligible under Section 26(1), and that employee’s wage exceeds ₹7,000, calculate bonus as if the wage were ₹7,000 or the Central Government minimum wage, whichever is higher.
That sequence is the heart of the rule.
Both notifications state that they are deemed to have come into force from 21 November 2025, even though they were issued on 25 August 2026.
Primary notification references
- S.O. 4711(E) — Section 26(1) Bonus Eligibility Wage Threshold
- S.O. 4710(E) — Section 26(2) Bonus Calculation Wage
2.5. Who Falls Under the Central Government’s Bonus Notification?
LCA Bare Act: Section 2 — Definitions · Section 2(d) — Appropriate Government
Before applying either of the two Central notifications, identify the appropriate Government for the establishment. This is not a technical footnote. It is the jurisdictional gatekeeper for the notification framework.
Under Section 2(d)(i), Code on Wages, 2019, the Central Government is the appropriate Government for establishments carried on by or under the authority of the Central Government and for the specified categories expressly listed in the provision. These include:
| Central Government sphere under Section 2(d)(i) | Examples / statutory category |
|---|---|
| Central Government establishments | Establishments carried on by or under Central Government authority |
| Railways | Railway establishments |
| Mines | Mine establishments |
| Oil fields | Oil-field establishments |
| Major ports | Major-port establishments |
| Air transport service | Establishments covered by the statutory category |
| Telecommunication | Telecommunications establishments |
| Banking companies | Banking companies |
| Insurance companies | Insurance companies |
| Central Act corporations / authorities | Corporations or other authorities established by a Central Act |
| Central PSUs | Central public sector undertakings |
| Subsidiaries of Central PSUs | Subsidiary companies set up by Central public sector undertakings |
| Central autonomous bodies | Autonomous bodies owned or controlled by the Central Government |
| Relevant contractors | Contractors for the purposes of the specified Central establishments, corporations, authorities, Central PSUs, subsidiaries or autonomous bodies |
The statutory definition then provides in Section 2(d)(ii) that “in relation to any other establishment, the State Government” is the appropriate Government.
The practical classification
Central-sphere establishment → Central Government is the appropriate Government → examine the Central Section 26 notifications.
Other establishment → State Government is the appropriate Government → do not automatically import the Central Section 26(2) notification or the Central minimum-wage comparator.
This does not mean that the word “State” automatically makes every calculation different in every case. It means the payroll team must identify the appropriate Government and the notification applicable to that jurisdiction before selecting the calculation wage.
Why this matters for the ₹7,000 rule
S.O. 4710(E) specifically says that, where its conditions are met, the calculation is based on ₹7,000 per month or the minimum wage fixed by the Central Government, whichever is higher. That language cannot be silently converted into a general rule that the Central minimum wage governs bonus calculation for every establishment in India.
The Central minimum wage comparator belongs to the Central notification. The jurisdiction of the establishment must therefore be established first.
LCA Bare Act references: Section 2 — Definitions · Section 2(d) — Appropriate Government
3. Start With Section 26, Not With ₹7,000
LCA Bare Act reference: Section 26 — Eligibility for bonus, etc.
This is the easiest way to avoid getting the rule backwards.
Section 26(1) of the Code on Wages first establishes the statutory minimum-bonus entitlement for an employee who satisfies the prescribed conditions.
The provision states, in substance, that an employee:
- must be drawing wages not exceeding the amount determined by notification by the appropriate Government; and
- must have put in at least 30 days’ work in the accounting year.
For the Central notification under Section 26(1), the first numerical threshold is ₹21,000 per month.
The provision then sets the annual minimum bonus at 8.33% of the wages earned by the employee or ₹100, whichever is higher, subject to the statutory scheme.
Therefore, ₹21,000 is not the amount on which bonus is automatically calculated.
It is the entry gate for the notified wage threshold under Section 26(1).
Only after crossing that first gate do we move to Section 26(2).
4. The Correct Order of Questions
A payroll system should not begin with:
“Salary is ₹12,000. Apply ₹7,000.”
That skips the law.
The correct order is:
Question 1 — What is the statutory “wage”?
First determine wages under the Code.
Question 2 — Who is the appropriate Government?
Determine whether the relevant establishment falls under the Central Government or State Government for the purposes of the Code.
Question 3 — What is the notified Section 26(1) wage threshold?
For the Central notification: ₹21,000 per month.
Question 4 — Is the employee otherwise eligible under Section 26(1)?
Among other statutory conditions, check the 30-day work requirement.
Question 5 — Does the employee’s wage exceed ₹7,000?
If yes, the Section 26(2) calculation mechanism is triggered under S.O. 4710(E), where that notification is applicable.
Question 6 — Compare ₹7,000 with the applicable Central Government minimum wage
The higher amount becomes the deemed wage for the calculation described in the notification.
Question 7 — Apply the bonus provisions
Then apply the minimum bonus and, where relevant, the provisions dealing with bonus above the minimum and the statutory maximum.
This is the legal sequence.
5. What Does ₹21,000 Actually Mean?
LCA Bare Act: Section 26(1)
The Central Government’s Section 26(1) notification says that every employee drawing wages not exceeding ₹21,000 per mensem shall be paid bonus as specified in that sub-section. The notification is deemed effective from 21 November 2025.
In practical payroll language:
₹21,000 answers the eligibility-threshold question.
It does not answer the calculation-wage question.
For example, an employee with statutory wages of ₹18,000 per month is below the ₹21,000 threshold. If the other statutory conditions are satisfied, the employee falls within the notified eligibility wage range.
But it does not follow that the bonus is calculated on ₹18,000.
Section 26(2) must still be applied.
That is the exact reason two notifications were required.
6. What Does ₹7,000 Actually Mean?
LCA Bare Act: Section 26(2)
This is where the Central notification becomes very precise.
S.O. 4710(E) says that where the wage of an employee being eligible for bonus under Section 26(1) exceeds ₹7,000 per month, the bonus payable under Sections 26(1) and 26(3) shall be calculated as if the wage were:
₹7,000 per month or the minimum wage fixed by the Central Government, whichever is higher.
There are several legally significant words in that sentence.
“being eligible for bonus under sub-section (1)”
The person must first qualify under Section 26(1).
The ₹7,000 rule is not a separate eligibility test.
“exceed seven thousand rupees per mensum”
The employee’s wage has to exceed ₹7,000 for the calculation mechanism in S.O. 4710(E) to operate.
“shall be calculated, as if his wage was…”
This is a deeming rule for calculation.
The employee’s actual wage does not magically become ₹7,000 for every purpose.
The notification tells us what wage amount is to be treated as the wage for the specified bonus calculation.
“₹7,000 … or the minimum wage fixed by the Central Government, whichever is higher”
₹7,000 is not necessarily the final calculation wage.
The Central Government minimum wage must be compared with it.
7. The Formula Under S.O. 4710(E)
LCA Bare Act: Section 26(2) · LCA Notification: S.O. 4710(E)
For an employee who:
- is eligible for bonus under Section 26(1);
- has wages exceeding ₹7,000 per month; and
- falls within the scope of the Central notification,
the calculation can be expressed as:
Bonus Calculation Wage = Higher of (₹7,000, applicable Central Government minimum wage)
This is the cleanest way to understand the notification.
It is not:
Bonus Calculation Wage = ₹7,000 for everyone
It is not:
Bonus Calculation Wage = ₹21,000
And it is definitely not:
Bonus Payable = ₹7,000.
8. Why the Central Minimum-Wage Notification Matters
The words “or the minimum wage fixed by the Central Government, whichever is higher” make the Central minimum-wage position relevant to the Section 26(2) calculation.
LabourCodesAdvisor also tracks the Central Government’s VDA revision for scheduled employment effective from 1 April 2026, issued on 30 March 2026. That notification is a minimum-wage reference, not a bonus notification, but it can become relevant to the second limb of the Section 26(2) formula where the Central Government minimum wage is the comparator.
This distinction must be preserved.
Bonus notification
S.O. 4710(E) tells us how to choose the calculation wage once its conditions are met.
Minimum-wage/VDA notification
The applicable Central minimum-wage order tells us what the Central Government minimum wage is for the relevant scheduled employment/category and period.
The two documents serve different purposes but interact in the calculation.
Reference:
Central VDA Revision / Minimum Wages — effective 1 April 2026
9. Simple Examples of the “Whichever Is Higher” Rule
Assume for illustration that the Central notification applies and the employee is otherwise eligible.
Example 1 — Central minimum wage is ₹6,500
Employee’s wage: ₹12,000
Compare:
- ₹7,000
- ₹6,500
Higher figure = ₹7,000
So the deemed wage for the Section 26(2) bonus calculation is ₹7,000 per month.
Example 2 — Central minimum wage is ₹7,000
Employee’s wage: ₹12,000
Compare:
- ₹7,000
- ₹7,000
Higher figure = ₹7,000
Calculation wage = ₹7,000.
Example 3 — Central minimum wage is ₹8,500
Employee’s wage: ₹12,000
Compare:
- ₹7,000
- ₹8,500
Higher figure = ₹8,500
Calculation wage = ₹8,500.
This is why the phrase “whichever is higher” is not decorative drafting.
It can materially change the bonus calculation.
10. What Happens If the Employee Earns ₹7,000 or Less?
LCA Bare Act: Section 26(2)
The wording of S.O. 4710(E) matters again.
It does not say that every employee’s wage must be rewritten as ₹7,000.
It specifically addresses an employee who is eligible under Section 26(1) whose wage exceeds ₹7,000 per month.
Therefore, an employee earning ₹6,500 is not pushed upward to ₹7,000 merely because ₹7,000 appears in the notification.
Likewise, an employee earning exactly ₹7,000 does not have a wage of ₹7,000 “because of” the notification; that is already the employee’s actual wage for the relevant test.
The notification’s deeming rule is triggered by an excess over ₹7,000.
That is a small drafting detail with a large payroll consequence.
11. ₹21,000 and ₹7,000 Work in Sequence
The easiest mental model is a two-stage gate.
EMPLOYEE
|
v
Determine statutory wages
|
v
Is wage <= ₹21,000?
/ \
YES NO
| |
v v
Check other Section 26(1) Not within the Central
eligibility conditions notified ₹21,000 threshold
|
v
Is wage > ₹7,000?
/ \
NO YES
| |
v v
Actual wage is Apply S.O. 4710(E)
relevant for the calculation mechanism
calculation test |
v
Higher of ₹7,000 or
Central Government MW
|
v
Calculate bonus under
Section 26 frameworkThat is the conceptual model.
The employee does not choose between ₹21,000 and ₹7,000.
The two figures are encountered at different stages of the legal process.
12. Why the Phrase “Bonus Ceiling” Causes Confusion
People often use “bonus ceiling” as shorthand for several different things:
- eligibility wage ceiling;
- wage limit used for bonus calculation;
- maximum percentage of bonus;
- actual monetary bonus.
Those are not the same.
In the context of S.O. 4710(E), calling ₹7,000 the bonus ceiling can create the wrong mental model because the notification itself is dealing with a deemed wage for calculation.
A more precise description is:
Section 26(2) calculation wage / calculation limit for bonus.
The article should use plain language where possible, but whenever a shorthand expression such as “calculation ceiling” is used, it should immediately explain what the number actually does.
13. The Role of “Wages” Under the Code on Wages
LCA Bare Act: Section 2(y) — Wages
The bonus calculation begins with the statutory definition of wages, not with the employer’s internal CTC architecture.
Section 2(y) defines “wages” around basic pay, dearness allowance and retaining allowance, while excluding the specified components listed in the provision, subject to the statutory proviso and the operation of the definition.
For bonus compliance, this means that the payroll team must identify the employee’s wages under the Code before applying the ₹21,000 threshold.
A company salary structure may contain:
- Basic Pay
- Dearness Allowance
- Retaining Allowance
- HRA
- Conveyance
- Special Allowance
- Incentives
- Other components
That does not mean the entire CTC or gross salary is automatically the statutory wage for Section 26.
The first job is to determine wages under Section 2(y).
Only then should the Section 26 tests be run.
14. Gross Salary, CTC and Statutory Wages Are Not Synonyms
This distinction deserves its own section because payroll errors often begin here.
CTC
CTC is an employer’s cost concept.
Gross salary
Gross salary is a payroll concept that can include multiple earnings components.
Statutory “wages”
Wages is the legal concept defined by the Code.
Bonus eligibility under Section 26 uses the statutory wage concept.
Therefore, the question is not:
“Is the employee’s CTC below ₹21,000?”
Nor is it automatically:
“Is gross salary below ₹21,000?”
The legally relevant starting question is:
What are the employee’s wages under Section 2(y) of the Code on Wages, 2019?
This is exactly why payroll software should maintain a statutory-wage calculation rather than simply read an arbitrary “gross pay” field.
15. The 30-Day Rule Still Matters
LCA Bare Act: Section 26(1)
Section 26(1) does not say that every employee below ₹21,000 automatically receives bonus.
The employee must have put in at least 30 days’ work in the accounting year, subject to the statutory rules.
The Code also contains special deeming provisions for determining days worked.
Section 28 treats certain periods as days worked for bonus purposes, including prescribed situations relating to lay-off, leave with wages, temporary disablement arising out of employment accident, and maternity leave with wages.
Therefore, a payroll eligibility engine should not be designed as simply:
Wage <= 21000 = Eligible
The correct logic is closer to:
Statutory wage threshold + 30-day requirement + other applicable statutory conditions = Section 26(1) eligibility
16. The Minimum Bonus Is 8.33%
LCA Bare Act: Section 26(1)
Section 26(1) provides an annual minimum bonus calculated at 8.33% of the wages earned by the employee or ₹100, whichever is higher.
The important phrase is “wages earned by the employee”.
This is why a full-year example should not automatically be turned into a formula of:
Monthly salary × 12 × 8.33%
without first checking whether the relevant wage remained constant and whether the employee worked throughout the accounting year.
Where wages or the period of work change, the calculation must reflect the statutory framework.
17. The Minimum Bonus Does Not Mean Everyone Gets Exactly 8.33%
LCA Bare Act: Section 26(1) · Section 26(3)
The Code also provides the framework under which bonus can exceed the statutory minimum, subject to the availability of allocable surplus and the other provisions governing computation.
Section 26(3) addresses the bonus payable where the allocable surplus permits a higher payment and caps the bonus at 20% of wages earned during the accounting year.
Therefore:
- 8.33% = statutory minimum
- 20% = statutory maximum
The employee is not automatically entitled to 20% merely because the employee is eligible.
The employer also cannot assume that 8.33% is the final bonus in every situation where the statutory framework requires a higher payment.
The allocable-surplus machinery in the Code matters.
18. Allocable Surplus Is a Separate Layer of the Calculation
LCA Bare Act: Section 26(3) · Section 26(4)
The bonus provisions do more than establish an eligibility threshold.
The Code contains a complete mechanism for determining the bonus payable out of allocable surplus.
Section 31 provides that bonus is paid out of allocable surplus, calculated from available surplus under the statutory framework. It specifies the relevant statutory proportions for banking companies and other establishments.
The Code then contains provisions dealing with matters such as:
- gross profits;
- available surplus;
- deductions;
- direct tax;
- allocable surplus;
- set-on and set-off.
This matters because a payroll tool that says:
Bonus = Calculation Wage × 20%
is not implementing the complete statutory mechanism.
Similarly, a tool that always returns exactly 8.33% may not be applying the full scheme.
The wage determination and the final percentage determination are two separate parts of the statutory exercise.
19. A Full Worked Example
Consider a hypothetical employee in an establishment to which the Central notification applies.
Employee data
- Statutory wages: ₹18,000 per month
- Wage threshold notified under Section 26(1): ₹21,000
- Employee has completed the required work period
- Central Government minimum wage applicable to the employee/category: ₹8,500 per month
- Assume the relevant wage remains constant during the illustration period
Step 1 — Eligibility threshold
₹18,000 is not more than ₹21,000.
The employee therefore falls within the notified wage threshold under Section 26(1), subject to the other statutory conditions.
Step 2 — Section 26(2) trigger
₹18,000 exceeds ₹7,000.
Therefore, the Section 26(2) calculation mechanism applies.
Step 3 — Compare ₹7,000 with minimum wage
- ₹7,000
- ₹8,500 Central Government minimum wage
Higher = ₹8,500.
Step 4 — Deemed calculation wage
For the purpose specified in S.O. 4710(E), the employee’s wage is treated as ₹8,500 per month.
Step 5 — Minimum bonus illustration
Annual calculation wage =
₹8,500 × 12 = ₹1,02,000
At 8⅓%:
₹1,02,000 × 8⅓% = ₹8,500
The precise statutory payout for an actual payroll period must be worked using the applicable percentage and exact wages earned, together with the Code’s rules concerning periods worked and the bonus determination.
The important point is not the decimal amount.
The important point is the sequence:
₹18,000 actual statutory wage → eligible under ₹21,000 threshold → exceeds ₹7,000 → compare ₹7,000 with Central MW → use ₹8,500 as the deemed calculation wage.
20. Worked Example Where ₹7,000 Remains Higher
Suppose:
- Statutory wage = ₹12,000/month
- Section 26(1) threshold = ₹21,000
- Central minimum wage = ₹6,500/month
The employee is below the ₹21,000 threshold and, assuming the other conditions are satisfied, is eligible under Section 26(1).
Actual wage exceeds ₹7,000, so Section 26(2) is triggered.
Compare:
₹7,000 vs ₹6,500
Higher = ₹7,000.
Therefore the deemed wage for the specified bonus calculation is ₹7,000.
Notice what did not happen:
- the employee was not declared to have a salary of ₹7,000;
- the employee did not “receive ₹7,000 bonus”;
- the ₹21,000 threshold was not replaced by ₹7,000;
- the employee’s actual wage was not erased from payroll records.
Only the statutory bonus calculation wage was determined under the notification.
21. Worked Example at Exactly ₹7,000
Suppose an employee’s statutory wage is exactly ₹7,000 per month.
The wording of S.O. 4710(E) addresses employees whose wage exceeds ₹7,000.
Exactly ₹7,000 does not exceed ₹7,000.
Therefore, the deeming trigger in that notification is not crossed.
The employee’s actual wage is ₹7,000, which is already the reference amount used in the notification.
This is another reason why the exact statutory wording matters.
22. Worked Example Below ₹7,000
Suppose:
- Statutory wage = ₹6,500
- Employee otherwise satisfies Section 26(1)
Since ₹6,500 does not exceed ₹7,000, the specific deeming mechanism in S.O. 4710(E) is not triggered.
The calculation should therefore not artificially replace ₹6,500 with ₹7,000 merely because ₹7,000 appears in the notification.
The statute has no such upward-deeming instruction in S.O. 4710(E).
23. Worked Example at ₹21,000
Suppose:
- Statutory wage = ₹21,000
- Other Section 26(1) conditions are satisfied.
The employee is exactly at the notified eligibility threshold.
That answers the first question.
It does not mean that bonus is calculated on ₹21,000.
Because ₹21,000 exceeds ₹7,000, the Section 26(2) mechanism must then be considered.
Under the Central notification, the calculation wage becomes the higher of:
- ₹7,000; or
- the applicable Central Government minimum wage.
Thus, the fact that the employee is earning ₹21,000 does not turn ₹21,000 into the Section 26(2) calculation wage.
This is the single cleanest example of why the two thresholds must be kept separate.
24. Worked Example at ₹21,001
Suppose the statutory wage is ₹21,001 per month.
The Central Section 26(1) notification specifies ₹21,000 as the wage threshold.
Therefore, the employee is above that notified threshold.
Do not make the common mistake of saying:
“He is above ₹21,000, so calculate bonus on ₹21,000.”
That statement confuses eligibility with calculation.
For the Central notification framework, the first issue is that the employee is above the notified Section 26(1) wage threshold. The Section 26(2) calculation rule is not a way of converting an otherwise ineligible employee into an eligible employee.
That distinction should be reflected directly in payroll software.
25. The “Appropriate Government” Question
LCA Bare Act: Section 2(d) — Appropriate Government
Now comes the part that cannot be reduced to a salary table.
Section 26 repeatedly uses the expression “appropriate Government.”
Section 2(d) defines that expression and allocates responsibility between the Central Government and State Government for different categories of establishments.
This means bonus compliance is not only an employee-level question.
It is also an establishment-level jurisdiction question.
The first legal question should therefore be:
Which Government is the appropriate Government for this establishment under the Code on Wages?
Only after that question is settled should the relevant notification set be selected.
26. Why This Matters for the Central Notification
LCA Bare Act: Section 2(d) · Section 26(2)
S.O. 4710(E) is a notification issued by the Central Government under Section 26(2).
The notification also specifically uses the phrase:
“the minimum wage fixed by the Central Government”
That drafting choice matters.
The Code itself, meanwhile, uses the broader statutory phrase “appropriate Government.”
Therefore, the safe legal reading is not:
“The number ₹7,000 is automatically the single bonus calculation rule for every establishment in India.”
The correct compliance approach is:
- identify the establishment’s appropriate Government;
- identify the notification applicable to that jurisdiction and provision;
- identify the applicable minimum wage under the same statutory framework;
- then perform the Section 26 calculation.
For establishments where the Central Government is the appropriate Government, the Central notification directly supplies the Section 26(2) rule described above.
Where the State Government is the appropriate Government, the employer should not automatically import a Central minimum-wage figure merely because ₹7,000 appears in a Central notification. The corresponding State notification/legal position must be checked where applicable.
This jurisdiction question is not an optional appendix. It is part of the calculation logic.
27. Does Every State Government Need Its Own Notification?
The Code’s drafting makes the appropriate Government responsible for the relevant notification-based determination.
Therefore, where the State Government is the appropriate Government for an establishment, the employer should examine the State’s position under Section 26 instead of assuming that the Central Government’s notification is automatically the governing instrument for all establishments.
This does not mean that an employer should invent a different ₹7,000 rule for each State.
It means the employer must first establish whether the Central or State Government is the appropriate Government and then identify the notification that legally governs the establishment.
That is the correct sequence.
Because the Central S.O. 4710(E) specifically compares ₹7,000 against the minimum wage fixed by the Central Government, the Central minimum-wage reference should not be silently substituted for a State minimum wage in a State-jurisdiction establishment without legal authority for doing so.
This is precisely the issue a robust compliance system must flag instead of hard-coding one India-wide number.
28. Multi-State Employers Need a Jurisdiction Layer
This becomes especially important for employers with:
- offices in several States;
- factories in several States;
- branches under different statutory jurisdictions;
- centrally governed establishments and state-governed establishments in the same corporate group.
A payroll database should not assume:
Company = One Bonus Rule for Entire India
The establishment is the important legal unit for determining the appropriate Government and the applicable notification framework.
A multi-state organisation should maintain, at minimum:
| Configuration field | Why it matters |
|---|---|
| Establishment | Identifies the legal unit |
| State / location | Supports jurisdictional mapping |
| Appropriate Government | Determines relevant statutory authority |
| Section 26(1) notification | Determines eligibility threshold |
| Section 26(2) notification | Determines calculation mechanism |
| Applicable minimum wage | Determines the comparator where required |
| Effective date | Determines the period for which the rule applies |
This is a much safer design than storing a single field named Bonus Ceiling = 7000.
29. The Retrospective Effective Date Changes the Payroll Review
Both Central notifications were issued on 25 August 2026, but both are deemed to have come into force from 21 November 2025.
That means an employer should not automatically treat 25 August 2026 as the first date on which the new thresholds became relevant.
The retrospective commencement date creates a need to review the relevant period from 21 November 2025, subject to the applicability of the Code and the establishment’s legal position for the relevant period.
That review may include:
- bonus accruals;
- bonus working papers;
- employee eligibility files;
- wage calculations;
- minimum-wage mappings;
- payroll configuration;
- accounting-year calculations;
- prior payments and adjustments.
A retrospective notification is not merely a “future payroll update”. It can create a historical reconciliation question.
30. How the Calculation Should Be Designed in Payroll Software
LCA Bare Act: Section 2(d) · Section 2(y) · Section 26
A compliant payroll workflow should separate eligibility from calculation.
Stage A — Determine statutory wages
Calculate the employee’s wages under Section 2(y).
Stage B — Determine establishment jurisdiction
Identify the appropriate Government under Section 2(d).
Stage C — Select Section 26(1) notification
For the Central notification: ₹21,000 per month.
Stage D — Apply Section 26(1) eligibility conditions
Check the wage threshold and the 30-day work condition, along with the other applicable provisions.
Stage E — Apply Section 26(2)
If the employee is eligible under Section 26(1) and the wage exceeds ₹7,000, apply the applicable notification.
Stage F — Determine the deemed calculation wage
For S.O. 4710(E):
MAX(₹7,000, Central Government minimum wage)
Stage G — Calculate statutory bonus
Apply 8.33% minimum and then consider the wider statutory framework, including allocable surplus and the 20% maximum.
Stage H — Store the audit trail
The system should preserve:
- source notification;
- effective date;
- jurisdiction;
- wage used for eligibility;
- wage used for calculation;
- minimum-wage comparator;
- final bonus calculation.
That creates an audit-ready calculation rather than a black-box payroll number.
31. What HR and Payroll Teams Should Review Now
1. Rebuild the eligibility rule
Verify that the Section 26(1) threshold is configured separately from the Section 26(2) calculation rule.
2. Validate the wage definition
Confirm that the employee’s statutory wages are being determined under the Code rather than using CTC by default.
3. Map the appropriate Government
Do not assume every establishment in the payroll population falls under the Central Government.
4. Load the correct notification
Store S.O. 4711(E) and S.O. 4710(E) as separate legal controls.
5. Update the minimum-wage master
Where the Central notification applies, maintain the applicable Central minimum-wage values and the effective date of the Central VDA/minimum-wage orders.
6. Review historical calculations
Because the notifications are deemed effective from 21 November 2025, review the relevant accounting periods.
7. Keep calculation and eligibility fields separate
Do not let “bonus eligibility ceiling” and “bonus calculation wage” become one payroll field.
32. Common Misinterpretations — Corrected
LCA Bare Act: Section 2(d) · Section 26(1) · Section 26(2)
Misinterpretation 1: “₹7,000 is the bonus eligibility ceiling.”
Incorrect.
For the Central Section 26(1) notification, the notified eligibility wage threshold is ₹21,000 per month.
Misinterpretation 2: “₹7,000 is the bonus amount.”
Incorrect.
₹7,000 is a wage figure used in the calculation mechanism.
Misinterpretation 3: “All eligible employees get bonus calculated on ₹7,000.”
Incorrect.
The notification applies when the eligible employee’s wage exceeds ₹7,000 and then compares ₹7,000 with the Central Government minimum wage.
Misinterpretation 4: “₹21,000 is the bonus calculation wage.”
Incorrect.
₹21,000 addresses the notified Section 26(1) eligibility threshold.
Misinterpretation 5: “The employee earns ₹18,000, so bonus is automatically calculated on ₹18,000.”
Incorrect.
Where S.O. 4710(E) applies, the Section 26(2) calculation mechanism must be applied because ₹18,000 exceeds ₹7,000.
Misinterpretation 6: “The Central notification automatically overrides all State minimum-wage rules.”
Not a safe assumption.
The Code uses the defined concept of appropriate Government, and S.O. 4710(E) specifically refers to the minimum wage fixed by the Central Government.
Misinterpretation 7: “If salary is ₹21,001, just calculate bonus on ₹21,000.”
Incorrect logic.
The ₹21,000 figure is the eligibility threshold, not an automatic calculation base.
Misinterpretation 8: “8.33% is the only possible bonus percentage.”
Incomplete.
8.33% is the minimum; the statutory framework allows a higher bonus up to 20%, subject to the allocable-surplus provisions and the Code.
33. The Cleanest Way to Explain the Rule to an Employee
If an employee asks:
“My salary is ₹18,000. Why aren’t you calculating bonus on ₹18,000?”
A legally accurate plain-language response is:
“The ₹21,000 figure determines the notified wage threshold for bonus eligibility. Once an eligible employee’s wage exceeds ₹7,000, the Section 26(2) notification requires bonus to be calculated using the prescribed deemed wage — ₹7,000 or the applicable Central Government minimum wage, whichever is higher — where that Central notification applies.”
That explanation makes the distinction without drowning the employee in statutory drafting.
34. The Cleanest Way to Explain the Rule to a CFO
For finance leadership, the same rule can be reduced to a control framework:
Control 1: Identify statutory wages.
Control 2: Test Section 26(1) eligibility against the applicable notification.
Control 3: Determine the appropriate Government.
Control 4: Apply Section 26(2) calculation rule.
Control 5: Compare ₹7,000 with the applicable Central Government minimum wage where S.O. 4710(E) applies.
Control 6: Calculate minimum bonus and test the allocable-surplus position.
Control 7: Preserve an audit trail from legal source to payroll result.
That is the control architecture a payroll audit should be able to reproduce.
35. A Compact Decision Table
| Employee statutory wage | Section 26(1) Central threshold | Does wage exceed ₹7,000? | Section 26(2) Central calculation mechanism |
|---|---|---|---|
| ₹6,000 | Within ₹21,000 | No | Specific S.O. 4710(E) deeming trigger not crossed |
| ₹6,500 | Within ₹21,000 | No | Specific S.O. 4710(E) deeming trigger not crossed |
| ₹7,000 | Within ₹21,000 | No | Actual wage is already ₹7,000 |
| ₹8,000 | Within ₹21,000 | Yes | Higher of ₹7,000 and Central Government MW |
| ₹12,000 | Within ₹21,000 | Yes | Higher of ₹7,000 and Central Government MW |
| ₹18,000 | Within ₹21,000 | Yes | Higher of ₹7,000 and Central Government MW |
| ₹21,000 | At threshold | Yes | Higher of ₹7,000 and Central Government MW, after eligibility is established |
| ₹21,001 | Above threshold | Yes | First eligibility threshold is not satisfied under the Central notification |
Important: The table is a conceptual implementation aid. It does not replace the full statutory analysis for jurisdiction, wage definition, accounting-year wages earned, work-days and allocable surplus.
36. Why This Is More Than a ₹7,000 Notification
At first glance, S.O. 4710(E) looks like a small numerical notification.
It is actually a payroll-system event.
Why?
Because a payroll engine must now connect three legal layers:
Layer 1 — Wage definition
What counts as wages?
Layer 2 — Eligibility
Is the employee within the notified Section 26(1) wage threshold?
Layer 3 — Calculation
Once eligible, what wage is used to calculate bonus?
And above all three sits a jurisdiction variable:
Layer 4 — Appropriate Government
Which Government’s notification and minimum-wage framework is legally applicable?
That is why a one-number update to payroll is not enough.
37. What Changed Compared With the Old Bonus Framework?
The old Payment of Bonus Act, 1965 also contained a familiar structure involving:
- a wage eligibility ceiling;
- a calculation ceiling;
- a minimum bonus;
- a maximum bonus;
- allocable surplus.
However, the Code on Wages reorganises the statutory architecture and places the bonus entitlement within Section 26.
Under the Code, the notified eligibility threshold is now explicitly determined through Section 26(1), while the calculation mechanism is separately addressed through Section 26(2).
For payroll teams transitioning from the old regime, this means that a legacy formula may still look familiar while the legal configuration points and notification references have changed.
The correct approach is therefore not to copy the old formula blindly but to map each old control to its corresponding provision under the Code.
38. A Payroll Mapping From Old Thinking to New Thinking
| Old payroll shorthand | Better Code-on-Wages approach |
|---|---|
| “Bonus ceiling = ₹21,000” | Treat ₹21,000 as Section 26(1) eligibility wage threshold where the applicable notification says so |
| “Calculation ceiling = ₹7,000” | Apply the Section 26(2) notification only after eligibility and the wage trigger are established |
| “Use ₹7,000 for everyone” | Compare ₹7,000 with the applicable Central Government minimum wage where S.O. 4710(E) applies |
| “Salary = wage” | Determine statutory wages under Section 2(y) |
| “One national rule for all establishments” | Determine the appropriate Government and applicable notification |
| “8.33% always” | Apply the minimum bonus and the wider allocable-surplus/maximum framework |
This is the mindset shift payroll teams need.
39. Frequently Asked Questions
Is ₹21,000 the bonus eligibility limit under the Code on Wages, 2019?
For the Central Government’s S.O. 4711(E), yes: employees drawing wages not exceeding ₹21,000 per month fall within the notified wage threshold under Section 26(1), subject to the other statutory conditions.
Is ₹7,000 the bonus eligibility ceiling?
No. ₹7,000 belongs to the Section 26(2) calculation mechanism in S.O. 4710(E).
Is ₹7,000 the maximum amount on which bonus can ever be calculated?
Not necessarily. S.O. 4710(E) says ₹7,000 or the minimum wage fixed by the Central Government, whichever is higher. Therefore the calculation wage can exceed ₹7,000 where the applicable Central Government minimum wage is higher.
Is ₹7,000 the actual bonus payable?
No. It is a wage figure used for the bonus calculation.
If an employee earns ₹12,000, is he eligible for bonus?
Under the Central Section 26(1) notification, ₹12,000 is within the ₹21,000 wage threshold, subject to the other statutory conditions.
If an employee earns ₹12,000, is bonus calculated on ₹12,000?
Where S.O. 4710(E) applies, the employee’s wage exceeds ₹7,000, so the specified calculation mechanism applies. The calculation wage is the higher of ₹7,000 and the applicable Central Government minimum wage.
If the Central minimum wage is ₹8,500, what is the calculation wage for an eligible employee earning ₹12,000?
Subject to the notification applying to the establishment, the calculation wage becomes ₹8,500 because it is higher than ₹7,000.
What if the Central minimum wage is only ₹6,500?
The higher figure is ₹7,000, so ₹7,000 becomes the deemed calculation wage under S.O. 4710(E).
What if the employee earns exactly ₹7,000?
The wording of S.O. 4710(E) applies where the employee’s wage exceeds ₹7,000. Exactly ₹7,000 does not exceed that amount.
What if the employee earns ₹6,500?
The specific S.O. 4710(E) deeming trigger is not crossed because the wage does not exceed ₹7,000.
What if the employee earns exactly ₹21,000?
The employee is at the Central Section 26(1) notified wage threshold. Eligibility still depends on the other statutory conditions, including the work requirement. If eligible, the Section 26(2) calculation mechanism must then be considered separately.
What if the employee earns ₹21,001?
The employee is above the Central Section 26(1) notified wage threshold of ₹21,000. ₹21,000 should not be repurposed as a calculation wage merely because it is the eligibility threshold.
Does the Central notification apply to every employer in India?
Do not make that assumption. The Code uses the concept of appropriate Government, and S.O. 4710(E) refers specifically to the minimum wage fixed by the Central Government. The establishment’s statutory jurisdiction and the applicable notification should therefore be identified before applying the Central formula.
Does a State Government need its own Section 26 notification where it is the appropriate Government?
The Code’s notification mechanism is tied to the appropriate Government. Accordingly, State-jurisdiction establishments should be checked against the relevant State position rather than automatically importing a Central minimum-wage comparator.
Is 8.33% the minimum bonus?
Yes. Section 26(1) provides the statutory annual minimum bonus at 8.33% of wages earned during the accounting year or ₹100, whichever is higher, subject to the statutory framework.
Can bonus be higher than 8.33%?
Yes. Section 26(3) operates within the allocable-surplus framework and the statutory maximum is 20% of wages earned during the accounting year.
Is 20% automatic?
No. Twenty per cent is the statutory maximum, not an automatic entitlement for every eligible employee.
Is bonus calculated on CTC?
No. The Code uses its statutory concept of “wages”. CTC is not the statutory test under Section 26.
Does the 30-day requirement still apply?
Yes. Section 26(1) requires at least 30 days’ work in the accounting year, subject to the Code’s statutory rules.
When did the two Central bonus notifications become effective?
They were issued on 25 August 2026, but each says it shall be deemed to have come into force from 21 November 2025.
Why is the Central minimum-wage/VDA notification relevant?
Because S.O. 4710(E) uses the Central Government minimum wage as the comparator against ₹7,000. The minimum-wage/VDA order establishes the applicable Central minimum-wage figures for the relevant scheduled employment/category and period.
40. Employer Compliance Checklist
LCA Bare Act: Section 2(d) · Section 2(y) · Section 26 · Section 41
Before finalising a statutory bonus calculation under the Code on Wages, verify:
- Establishment identified correctly
- Appropriate Government identified
- Applicable Section 26(1) notification identified
- Employee’s statutory wages determined under Section 2(y)
- ₹21,000 threshold checked where S.O. 4711(E) applies
- 30-day work condition checked
- Other Section 26 eligibility conditions checked
- ₹7,000 calculation trigger checked
- Applicable Section 26(2) notification identified
- Central Government minimum wage verified where S.O. 4710(E) applies
- Higher of ₹7,000 and applicable Central Government minimum wage determined
- Wages earned during accounting year calculated correctly
- Minimum bonus tested at 8.33%
- Allocable surplus position checked where relevant
- Maximum bonus of 20% observed
- Historical impact from 21 November 2025 reviewed
- Audit trail retained
41. Final Takeaway
The new bonus notifications are not difficult once the numbers are put in the right legal boxes.
₹21,000
Eligibility threshold under Section 26(1) for the Central notification.
₹7,000
Reference figure in the Section 26(2) calculation mechanism for an eligible employee whose wages exceed ₹7,000.
Central Government minimum wage
Comparator against ₹7,000 under S.O. 4710(E), with the higher amount used for the specified bonus calculation where the Central notification applies.
8.33%
Statutory minimum bonus rate.
20%
Statutory maximum bonus rate, subject to the Code’s allocable-surplus framework.
Appropriate Government
The jurisdictional key that determines which notification and minimum-wage framework must be examined.
The correct mental model is therefore not:
₹21,000 OR ₹7,000
It is:
Eligibility → Calculation Wage → Bonus Percentage
with Appropriate Government sitting above the process and determining which notification framework applies.
For payroll implementation, the safest rule is simple:
Never hard-code ₹7,000 as a universal bonus calculation number.
First establish eligibility and jurisdiction. Then apply the appropriate Section 26(2) notification and minimum-wage comparator.
That is the actual logic of the new Section 26 bonus framework.
Primary References
Central Government Notification — Section 26(1)
S.O. 4711(E), dated 25 August 2026
Bonus eligibility wage threshold: ₹21,000 per month.
LabourCodesAdvisor — S.O. 4711(E)
Central Government Notification — Section 26(2)
S.O. 4710(E), dated 25 August 2026
For an eligible employee whose wage exceeds ₹7,000: bonus calculation wage is ₹7,000 or the minimum wage fixed by the Central Government, whichever is higher.
LabourCodesAdvisor — S.O. 4710(E)
Central Minimum Wage / VDA Reference
Order regarding revision of VDA for scheduled employment with effect from 1 April 2026.
LabourCodesAdvisor — Central Minimum Wage / VDA Order
Code on Wages, 2019
Labour Code Advisor — Code on Wages, 2019 Bare Act
LCA Bare Act — Section-wise Working References
For readers who want to verify the legal text directly, the relevant LCA Bare Act provisions used in this article are:
- Section 2(d) — Appropriate Government
- Section 2(y) — Wages
- Section 25 — Chapter not to apply to Government establishments — select Section 25 under Chapter III.
- Section 26 — Eligibility for bonus, etc.
- Section 26(1) — eligibility, 30 days and minimum bonus.
- Section 26(2) — calculation wage / appropriate-government minimum wage comparator.
- Section 26(3) — allocable surplus and maximum 20%.
- Section 26(4) — set-on / set-off.
- Section 26(5) — production/productivity bonus.
- Section 41 — Non-applicability of this Chapter and Section 41(1).
These references are intentionally kept within Labour Code Advisor so that the statutory provision, the Section 26 notifications and the explanatory article remain on the same source platform.
Editorial Note
This article is an explanatory guide to the statutory framework and notifications cited above. For an actual payroll determination, employers should verify the establishment’s appropriate Government, applicable notification, statutory wage calculation, minimum-wage category and the accounting-year facts before finalising the bonus computation.