Decoding definition of ‘WAGES’ as per the New Wage Code- India

June 29, 2022

By Rupin Chopra and Apalka Bareja

The Ministry of Labour and Employment in order to integrate the different regulations governing the well- being of the labour at central and state levels, introduced four new Bills in 2019 to consolidate 29 labour laws in order to simplify and modernize the labour regulations in India. The Codes regulate: (i) Wages; (ii) Social Security; (iii) Industrial Relations; (iv) Occupational Safety, Health and Working Conditions. The Bills have been codified and enacted as follows:

  1. The Code of Wages, 2019
  2. The Code on Social Security, 2020
  3. The Industrial Relations Code, 2020
  4. The Occupational Safety, Health and Working Conditions Code, 2020

The Code on Wages, 2019

The Code consolidates the following four legislations regulating the wages, bonus and matters incidental thereto:

  1. The Payment of Wages Act, 1936;
  2. The Minimum Wages Act, 1948;
  3. The Payment of Bonus Act, 1965;
  4. The Equal Remuneration Act, 1976

The Code provides a common definition of “Wages”. This is one of the notable changes introduced so as to provide a uniform definition of the term “Wages” as opposed to the definitions under the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976. The New Code will allow the employers to follow a standard procedure for computation of wages and avoid different interpretations of the term.

The new definition of wages under the Code comprises of three elements- meaning & inclusion part, specified exclusions and conditional inclusions.

  • Meaning and Inclusion Part: As per the Code, “Wages” means all remuneration whether by way of salaries, allowances or otherwise, expressed in terms of money which would in terms of employment, express or implied, where fulfilled, be payable to a person employed in respect of his employment and includes:
  1. Basic pay;
  2. Dearness Allowance; and
  3. Retaining Allowance, if any

The basic pay should be 50 % of the total salary. The definition also provides that if an employee is given remuneration in kind, the value of such remuneration up to 15% of the total wages payable to the employee shall be deemed to be part of “Wages”.

  • Specified Exclusions: The following items will be not be a part of Wages;
  1. House Rent Allowance (HRA);
  2. Statutory bonus payable but not forming part of remuneration;
  3. Conveyance Allowance or value of travelling concession;
  4. Value of house accommodation and utilities (such as light, water, medical attendance, etc.);
  5. Employer contribution to Provident Fund/ pension together with accretions;
  6. Sum paid to defray special expenses due to nature of work;
  7. Remuneration payable under any award settlement;
  8. Any overtime allowance;
  9. Any commission payable;
  10. Any gratuity payable on termination;
  11. Any retrenchment compensation/ benefit payable or ex gratia payment made.

It has been stipulated that the specified items shall not exceed the cap limit of 50%, and in case the limit exceeds, such excess amount shall be deemed as remuneration and will be considered as “Wages”.

  • Conditional Inclusions: Conveyance allowance/ value of travel concession, house rent allowance, remuneration payable under award or settlement and overtime allowance shall however be taken for computation of wages – for the purpose of equal wages to all genders.


  • The basic pay should be 50 % of the total wages. The computation of wages as per the New Code includes Basic pay, Dearness Allowance and Retaining Allowance (if any). It specifically excludes House Rent Allowance, conveyance allowance, statutory bonus, overtime allowance and commissions.
  • The expansion in the definition of wages will thus have an impact both on the employer and the employees. Since the Provident Fund is determined on the basic pay, the PF will also increase with an increase in the basic pay. The increase in contribution to PF and gratuity of employees will result in increased benefits after the retirement.
  • The employees would also be entitles to overtime wages.
  • The Code also introduces a new concept of floor wage, which will be determined by the Central Government after taking into account the minimum living standards of workers in a manner to be prescribed, which may differ from area to area.
  • The Code also provides the penalties for offences committed by an employer in contravention of the provisions of the Code. The penalties depend upon the nature and gravity of such an offence. The highest limit of penalty prescribed is imprisonment for a period of three months and/ or fine up to Rs. 1,00,000
Old Provisions New Provisions          
1.      In interval of 5 years, the central government must revise the minimum wages The period of 5 years shall not be exceeded by the central or state government for revision of minimum wages.
2.      the laws provide for Central Advisory Board comprising of :

(i)                 employers;

(ii)              employees in equal number as employers

(iii)            independent persons (not exceeding one third of the total members)

The Code provides for the Central Advisory Board comprising of:

(i)                 employers;

(ii)              employees in equal number as employers

(iii)            independent persons (not exceeding one third of the total members)

(iv)             five representatives of the state government to be nominated by the central government.

3.      The term ‘employer’ includes any person who employs more than one or more persons at an establishment The term ‘employer’ includes both persons who employs directly and indirectly employs one or more persons at the establishment
4.      The Payment of Wages Act was applicable only to employees under wages below Rs. 24,000 per month. There is no such limit as per the New Code. Hence the Code shall be applicable to all employees irrespective of their monthly wages.



The New Code is introduced by the Government in order to boost labour reforms, however, its implementation will have quite an impact on the establishments. The New Wage Code will significantly impact the computation of basic pay and Provident Fund. The employers till date have been formulating their own wage structures but now 50% of the total wages are capped for the allowances which means the other 50% would be basic pay. The employers have been splitting the wages of the employees into different allowances to reduce PF contributions, but with the New Code, PF will be calculated on the prescribed 50% basic pay which means increased liability for the employers. With the implementation of the New Code, the employers will have to amend the wage structure and non-compliance of the provisions would result in hefty penalty on employers.

On the other hand, the revised definition of wages has brought all employees under its ambit which means all employees will be entitled to minimum wages. The Code would also result in reduced exploitation of employees financially by the employers. Increase in the contribution to PF and gratuity will result in increased retirement benefits for the employees. The Code will also ensure that the employment matters are dealt in a discrimination free manner.

Therefore, although the Code will have an impact on both employers and employees, the effectiveness and efficiency of the same will however be determined after the final implementation of the Code.

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