A statutory bonus is a payout that is required by law and is a matter of entitlement for the employee, not of choice for the employer. It is a way of sharing the companys profits with their employees. The Payment of Bonus Act, 1965, provides for the payment of a statutory bonus, which is often confused with the incentive bonus paid by employers. Unlike incentive bonus, which is an ex gratia payment, statutory bonus is a compulsory payment by law. The statutory bonus is calculated based on the employees basic salary plus a dearness allowance, and the amount is then multiplied by the number of days worked by the employee during an accounting year. The bonus rate is between 8.33% and 20% based on the ‘available surplus’ as mentioned in the act. All employees whose monthly salaries do not exceed Rs. 21,000 are eligible for this benefit. The minimum quantum of statutory bonus payable to an employee should be in conformity with the rates and calculations specified under the Payment of Bonus Act. The payment of bonus for a financial year has to be made within 8 months of closing the book of accounts.