The Code on Wages was enacted to amend and consolidate India’s laws on payment of wages, minimum wages, bonus, and equal remuneration.
What Is “The Code on Wages”?
A code, in the legal sense, brings scattered laws together under one roof.
India currently has more than 44 Acts covering labour and employment, each with its own set of procedural rules. To simplify this, the Central Government consolidated these laws into four codes:
- The Code on Wages, 2019 — covers wages and bonus.
- The Industrial Relations Code, 2020 — covers trade unions, conditions of employment, and industrial dispute resolution.
- The Code on Social Security, 2020 — extends social security to employees and workers across organized, unorganized, and other sectors.
- The Code on Occupational Safety, Health and Working Conditions, 2020 — covers occupational safety, health, and working conditions.
This article focuses on the Code on Wages, 2019, and what it means for your business.
Muthu Manickam, former Deputy Chief Labour Commissioner (TN & Puducherry), has noted that this Code isn’t about the authority of any single law like the Factories Act, ESI, or PF — it draws together four separate labour laws into one.
Key Objectives
The Code on Wages, 2019 reforms India’s wage and bonus laws for greater uniformity, transparency, and accountability. Its draft rules were notified in 2020.
Spread across 9 chapters and 69 sections, the Code integrates and simplifies four existing Acts:
- The Minimum Wages Act, 1948 (MWA) — sets and revises minimum wages for scheduled employment.
- The Payment of Wages Act, 1936 (PoW) — applied to employees earning up to ₹24,000 a month.
- The Payment of Bonus Act, 1965 (PoB) — applied to establishments with 20 or more employees, for staff earning up to ₹21,000 a month.
- The Equal Remuneration Act, 1976 (ERA) — prohibits gender discrimination in wages, recruitment, transfers, and promotions.
Highlights of the Code
- Extends minimum wages to all employment, bringing unorganized-sector workers (previously excluded under “scheduled employment”) into coverage.
- Introduces a Floor Wage, set by the Central Government.
- Requires states and UTs to fix their minimum wages at or above this Floor Wage, and simplifies how minimum wages are set — mainly by geography and skill level.
- Mandates timely salary and bonus disbursement and settlement.
- Removes the wage threshold for payment of wages, extending coverage to all employees.
- Unifies the definition of “wages,” replacing the separate definitions of salary, remuneration, and wages used across different labour laws.
- Consolidates record-keeping, registers, notices, wage slips, and return filing.
- Replaces “male and female employees” with “gender,” with provisions to ensure equal pay and opportunity.
- Reforms the inspection process and standardizes the claims limitation period at 3 years for minimum wages, bonus, equal remuneration, and related claims.
Aparna Surabhi, CFO of Caliber Technologies, has shared her perspective on the Code’s practical implications and the challenges of implementing it.
Applicability
- Applies across all of India.
- The Central Government will notify, in the Official Gazette, when the Code takes effect — either as a single date for the whole Code, or different dates for different provisions.
- Applies to all establishments, employers, and employees unless a provision expressly exempts them.
Compliance
Form I – Register of Wages, Overtime, Fine, Deduction for damage and Loss
Form II – Single Application under Section 45 (5)
Form III – Appeal under Section 49(1) before the Appellate Authority
Form IV – Employee Register
Form V – Wages Slip
Form VI – Application under Section 56(4) for Composition of Offence
Components of Wages
The Code treats basic pay, dearness allowance, and retaining allowance as “wages.” It excludes PF and pension contributions, bonus, gratuity, retrenchment compensation, retirement benefits, ex-gratia payments, award/settlement remuneration, commissions, and allowances covering travel, conveyance, overtime, housing, utilities, medical care, and similar amenities.
For equal remuneration and payment-of-wages calculations specifically, conveyance, travel, house rent, overtime allowances, and award/settlement remuneration are included.
If the total of these excluded allowances (apart from gratuity, retrenchment compensation, retirement benefits, and ex-gratia) exceeds 50% of total remuneration, the excess amount gets added back into wages.
In-kind remuneration up to 15% of total wages payable also counts as part of wages.
Example — the 50% rule in practice:
Monthly salary payable to XYZ:
| Particulars | Amount (INR) |
|---|---|
| Basic | 10,000 |
| Dearness Allowance | 5,000 |
| Bonus | 1,000 |
| Employer’s Contribution to PF | 1,800 |
| Conveyance Allowance | 6,000 |
| House Rent Allowance | 4,000 |
| Overtime Allowance | 4,000 |
| Total | 31,800 |
| 50% of total remuneration | 15,900 |
| Payables not included as wages | 16,800 |
| Difference over the 50% cap | 16,800 − 15,900 = 900 |
| Amount added back to wages | 900 |
The Legal Definition (Section 2(y))
Wages means all remuneration — salary, allowances, or otherwise, expressed or expressible in money — payable to a person for their employment or work done. It includes:
- Basic pay
- Dearness allowance
- Retaining allowance, if any
It excludes:
- Statutory bonus not forming part of contracted remuneration
- Value of housing, light, water, medical attendance, or other excluded amenities
- Employer PF/pension contributions and accrued interest
- Conveyance allowance or travel concessions
- Special expense reimbursements tied to the nature of employment
- House rent allowance
- Remuneration payable under an award, settlement, or court/tribunal order
- Overtime allowance
- Commission
- Gratuity payable on termination
- Retrenchment compensation, retirement benefits, or ex-gratia payments on termination
If the excluded components under points (a)–(i) above exceed 50% (or a Central Government–notified percentage) of total remuneration, the excess is added back into wages. For equal-pay and payment-of-wages purposes specifically, house rent allowance, overtime, and award/settlement remuneration are always included in the wage calculation.
In-kind remuneration up to 15% of total wages payable is treated as part of wages.
Minimum Wages
Most of India’s unorganized-sector workforce was previously excluded from the Minimum Wages Act because it only applied to “scheduled employment.” The Code drops that concept entirely, extending minimum wage coverage to unorganized-sector workers as well.
- The Central Government sets a Floor Wage.
- States and UTs must set their minimum wages at or above this floor. Where existing minimum wages are already higher, they stay in effect.
- Minimum wage slabs are based on geography and worker skill level.
- Employers must pay at least the prescribed minimum wage.
- Wage slabs can be set for time work or piece work, calculated hourly, daily, or monthly.
Minimum wage can be structured as:
- A basic rate plus a cost-of-living allowance, or
- A basic rate plus the cash value of essential-commodity concessions (where cost-of-living allowance isn’t factored in), or
- An all-inclusive rate combining the basic rate, cost-of-living allowance, and cash value of concessions
The Code also lays out detailed procedures for fixing and revising minimum wages, setting normal working hours, calculating piece-work rates, handling partial-day or multi-role work, and computing overtime wages.
Payment of Wages
The Code applies to all employees, removing the ₹24,000/month threshold that previously limited coverage under the Payment of Wages Act.
Employers are responsible for:
- Structuring wages
- Disbursing wages on time — before the 7th of the following month
- For contractor-employed staff, paying the contractor early enough that the contractor can pay employees on time
- Settling full and final dues within 2 working days for employees who resign, are removed, dismissed, retrenched, or lose their job due to establishment closure
Employers can set the wage period as daily, weekly, fortnightly, or monthly, and must pay within the timelines that period requires.
Permitted wage deductions include fines, absence from duty, damage or loss caused by the employee, standard service deductions, and recovery of advances or loans. Total deductions in any wage period cannot exceed 50% of wages; any excess is recovered as prescribed. Employers remain responsible for statutory remittances.
Payment of Bonus
- Applies to establishments with 20 or more employees on any day of the accounting year.
- The appropriate government notifies the salary threshold for bonus eligibility; currently, the Payment of Bonus Act covers employees earning up to ₹21,000 a month.
- Annual bonus ranges from 8.33% to 20% of the employee’s wages, or ₹100, whichever is higher.
- Bonus must be paid within 8 months of the accounting year’s close.
An employee dismissed for the following reasons forfeits their bonus:
- Fraud
- Riotous or violent behaviour on establishment premises
- Theft, misappropriation, or sabotage of establishment property
- Conviction for sexual harassment
The Code also details how to compute working days, proportionate deductions, bonus from allocable surplus, gross profits, deductible sums from gross profits, employer’s direct tax liability, adjustment of interim bonus, and exemptions for certain establishments.
Equal Remuneration
Equal pay for equal work is a constitutional principle. The Code prohibits gender-based discrimination in wages paid by the same employer for the same work or work of a similar nature.
Advisory Boards
Central and State Governments each maintain Advisory Boards to decide on:
- Fixing or revising minimum wages and related matters
- Expanding employment opportunities for women
- Any other matter under the Code
Disbursement of Dues and Claims
Dues
Employers must pay all wages, remuneration, bonuses, and other dues promptly, within prescribed timelines.
If an employee dies or can’t be located before dues are paid, the employer pays the nominee. Without a valid nominee — or if payment to the nominee isn’t possible — the employer deposits the amount with the designated authority, which then disburses it to the deceased’s dependants as prescribed.
Claims
Disputed claims go to appointed Authorities.
- Claims must be filed within 3 years of arising.
- They can be filed by the employee, a registered trade union the employee belongs to, or the Inspector-cum-Facilitator.
- The Authority can award compensation up to 10 times the claim amount, depending on the circumstances, and must decide claims within 3 months.
- If the employer doesn’t pay the awarded amount, the Authority issues a recovery certificate to the District Collector or Magistrate. The amount is then recovered as arrears of land revenue and passed on to the employee.
Inspector-cum-Facilitator
Appointed by the government to inspect establishments, registers, and records, and to advise employers and employees on compliance. The government can run web-based inspections and assign inspectors across jurisdictions.
Offences and Penalties
- Underpayment of wages: fine up to ₹50,000. A repeat offence within 5 years carries up to 3 months’ imprisonment, a fine up to ₹1,00,000, or both.
- Other Code violations: fine up to ₹20,000. A repeat offence within 5 years carries up to 1 month’s imprisonment, a fine up to ₹40,000, or both.
- Poor or missing records: fine up to ₹10,000.
Records, Returns, and Notices
Employers must maintain registers covering:
- Details of persons employed
- Muster roll
- Wages and related details
Employers must also display a workplace notice covering:
- An abstract of the Code
- Category-wise wage rates
- Wage period
- Payment day/date and time
- Name and address of the jurisdictional Inspector-cum-Facilitator
Employers must issue wage slips in the prescribed form.
These provisions don’t apply to employers with 5 or fewer employees engaged purely in agricultural or domestic work relating to the employer’s own home or family — not connected to any establishment, industry, trade, business, or occupation.
Draft Rules
The Central Government has notified the Draft Code on Wages (Central) Rules, 2020, effective from final Gazette publication alongside the Code itself. Once effective, these rules will replace:
- Payment of Wages (Procedure) Rules, 1937
- Payment of Wages (Nomination) Rules, 2009
- Minimum Wages (Central) Rules, 1950
- Minimum Wages (Central Advisory Board) Rules, 2011
- Ease of Compliance to Maintain Register under Various Labour Laws Rules, 2017 (to the extent made under the Equal Remuneration Act 1976, Minimum Wages Act 1948, and Payment of Wages Act 1936)
- Payment of Bonus Rules, 1975
- Equal Remuneration Rules, 1976
- Central Advisory Committee on Equal Remuneration Rules, 1991
Key Definitions
Employee — anyone engaged on wages for skilled, semi-skilled, unskilled, operational, or manual work, including managers, supervisors, and administrative staff, plus anyone the appropriate government declares an employee. Excludes Apprentices Act apprentices and Armed Forces members.
Employer — anyone employing people directly or indirectly (through a contractor). Includes factory occupiers (as defined under the Factories Act, 1948, or a named factory manager), whoever has ultimate control over any other establishment (or its manager/managing director), contractors, and the legal representative of a deceased employer.
Establishment — any place carrying on industry, trade, business, manufacture, or occupation, including government establishments. This is broad enough to cover virtually every workplace, unless the Code specifically exempts it.
Contractor — someone who delivers a result for an establishment (not just supplying goods) through contract labour, or who supplies contract labour as manpower; includes sub-contractors.
Contract Labour — a worker hired by or through a contractor for establishment-related work, including inter-state migrant workers. Excludes regularly employed contractor staff on standard, permanent-style terms with periodic increments and welfare benefits.
Worker — anyone in an industry doing manual, unskilled, skilled, technical, operational, clerical, or supervisory work for pay, including working journalists and sales promotion employees, and (for industrial dispute proceedings) anyone dismissed, discharged, or retrenched in connection with that dispute. Excludes:
- Air Force, Army, or Navy Act personnel
- Police service employees or prison officers/staff
- Managerial or administrative staff
- Supervisory staff earning above ₹15,000/month (or a notified higher amount)
- Apprentices Act apprentices
Same work or work of a similar nature — work requiring the same skill, effort, experience, and responsibility under similar conditions, where any gender-based differences aren’t practically significant to employment terms.