THE CODE ON WAGES, 2019

Introduction and Background:

The Code on Wages, 2019 is a landmark piece of legislation that represents a fundamental reform of India’s labour law framework. The Code on Wages is the first consolidated codes enacted covering wages, industrial relations, social security, safety, and working conditions.

Before this Code, employers and employees had to navigate four separate laws each with its own definitions, authorities, and compliance requirements. The Code merges all four into a single, coherent statute applicable to every establishment and worker in India.

Why Was Consolidation Needed?

The four predecessor laws had overlapping definitions, different wage thresholds for applicability, multiple inspecting authorities, and inconsistent penalty structures. The existing four Act namely, The Payment of Wages Act, 1936; The Minimum Wages Act, 1948; The Payment of Bonus Act, 1965; and The Equal Remuneration Act, 1976 have been consolidated into one Act from 21.11.2025.

For example, the Payment of Wages Act, 1936 applied only to employees earning up to ₹24,000 per month, leaving a large portion of the workforce without recourse. The new Code removes all such ceilings and extends protections universally.

Example:

An accounts executive earning ₹34,000/month had no right to claim wages under the Payment of Wages Act (ceiling was ₹24,000). Under the Code on Wages, 2019, all employees regardless of wage level are covered under the payment of wages provisions.

Key Definitions Under the Code

Understanding the definitions is fundamental to compliance. The Code uses precise terms whose meanings significantly affect an employer’s obligations.

1. Meaning of Wages: –

   As per Sec 2(y) of the Code on Wages, 2019, Wages means all remuneration whether by way of salary, allowances or otherwise, expressed in terms of money or capable of being so expressed which would, if the terms of employment, express or implied, were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment, and includes Basic Pay + Dearness Allowance (DA) + Retaining Allowance (if applicable). These three components together form part of wages.

Certain allowances and payments are not considered wages. Some major exclusions are: Bonus (performance or statutory), House Rent Allowance (HRA), Overtime allowance, Conveyance/travel allowance, Leave encashment, Employer PF contributions, Gratuity, Commission, Value of amenities (utilities, food, medical, etc.), Any special allowances.

2. The 50% CTC Rule:

   Wages must be at least 50% of total CTC. If the total of all excluded components is more than 50% of total remuneration, then the excess amount must be added back to wages. The fact that allowances cannot exceed 50% of the total salary, forcing a recalculation of basic pay

Note 1: – for the calculation of excluded component, gratuity and retrenchment compensation, ex-gratia and other retirement benefit at the time of termination should be excluded.

Note 2: – for the calculation of CTC, remuneration in Kind shall form part of the wages, only to the extent of 15% of total wages payable to him.

Example:

Mr. Gupta’s CTC: Basic ₹20,000, HRA ₹18,000, Conveyance ₹5,000, LTA ₹5,000, Other allowances ₹12,000. Total ₹60,000. Excluded components = ₹40,000 (67% of total). Since this exceeds 50%, the excess ₹10,000 (₹40,000 – ₹30,000) is added back to wages. So, wages = ₹20,000 + ₹10,000 = ₹30,000. Minimum wage calculation, bonus ceiling, and PF compliance must use this adjusted figure.

3. Meaning of Contractor: –

   As per Sec 2(f) of the Code on Wages, 2019, A “contractor” means a person who: –

• undertakes to produce a given result for the establishment, other than a mere supply of goods or articles of manufacture to such establishment, through contract labour; or
• supplies contract labour for any work of the establishment as mere human resource and includes a sub-contractor;

So, Contractor is a person or agency that Employs workers and supplies them to another establishment to perform work or a service and includes: –

• Sub-contractors
• Agencies that provide manpower
• Service contractors (security, housekeeping, facility management, etc.)

4. Meaning of Contract labour: –

   As per Sec 2(g) of the Code on Wages, 2019, A “contract labour” means a worker who shall be deemed to be employed in or in connection with the work of an establishment when he is hired in or in connection with such work by or through a contractor, with or without the knowledge of the principal employer and includes inter-State migrant worker but does not include a worker (other than part-time employee) who ––

   • is regularly employed by the contractor for any activity of his establishment and his employment is governed by mutually accepted standards of the conditions of employment (including engagement on permanent basis), and
   • gets periodical increment in the pay, social security coverage and other welfare benefits in accordance with the law for the time being in force in such employment;

Hence, if contract labour is regularly employed by the contractor and getting period increment, it can be treated as regular employee.

5. Meaning of Employee: –

   As per Sec 2(k) of the Code on Wages, 2019, An “employee” means,

• any person (other than an apprentice engaged under the Apprentices Act, 1961),
• employed on wages by an establishment
• to do any skilled, semi-skilled or unskilled, manual, operational, supervisory, managerial, administrative, technical or clerical work
• for hire or reward,
• whether the terms of employment be express or implied, and also includes
• a person declared to be an employee by the appropriate Government,
• Excludes: Armed forces personnel

6. Treatment of Retainer: –

   Retainer is not define under new wage code. There is no clarity whether retainer will be treated as “Employee”. Retainer to be treated as Employee, there has to be substance of employer–employee relationship. e.g. employer exercises control over work, working hours/days, supervision, leave, provides tools, etc.

Retainer fee paid to an independent consultant will be outside the ambit of employee definition.

The distinction should be fact-dependent: whether there is control, permanence, regularity, employer-employee relationship in substance and not just the label “retainer” will matter.

7. Meaning of Worker: –

   As per Sec 2(z) of the Code on Wages, 2019, a “worker” means,

• any person (except an apprentice as defined under clause (aa) of section 2 of the Apprentices Act, 1961)
• employed in any industry
• to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work
• for hire or reward,
• whether the terms of employment be express or implied, and includes
• working journalists as defined in clause (f ) of section 2 of the Working Journalists and other Newspaper Employees (Conditions of Service) and Miscellaneous Provisions Act, 1955; and
• sales promotion employees as defined in clause (d) of section 2 of the Sales Promotion Employees (Conditions of Service) Act, 1976,

But excludes those who:

• Are in managerial or administrative roles
• Do supervisory work earning above ₹18,000/month (amended vide Gazetted notification number S.O. 454(E) dated 30.01.26)
• Are from armed forces
• Are from police forces

So, in a nutshell, every worker is an employee, but every employee is NOT a worker.

8. Difference between ‘Employee’ and ‘Worker’

Feature	Employee	Worker
Scope	Broader — includes managerial, administrative, supervisory, technical, clerical roles	Narrower — manual, unskilled, skilled, operational, clerical, supervisory
Wage Ceiling for Minimum Wages	No ceiling — all employees covered	No ceiling — all workers covered
Supervisory Cap	No specific cap	Supervisors earning above ₹18,000/month are excluded
Armed Forces	Excluded	Excluded
Apprentices	Excluded (Apprentices Act, 1961)	Excluded (Apprentices Act, 1961)

 

9. Meaning of Employer: –

   As per Sec 2(l) of the Code on Wages, 2019, An “employer” means,

• a person who employs, whether directly or through any person, or
• on his behalf or on behalf of any person, one or more employees in his establishment and includes,
• in relation to an establishment which is a factory, the occupier of the factory as defined in clause (n) of section 2 of the Factories Act, 1948 and,
• where a person has been named as a manager of the factory under clause (f) of sub-section (1) of section 7 of the said Act, the person so named;
• in relation to any other establishment, the person who, or the authority which, has ultimate control over the affairs of the establishment and where the said affairs is entrusted to a manager or managing director, such manager or managing director;
• contractor; and
• legal representative of a deceased employer;

10. Minimum Wages: –

    Central Government will notify Floor wages based on skill levels, geographic areas, and job conditions such as temperature, humidity, or hazardous environments. No state can fix minimum wages below this level. Payment has to be made within 7^th of every month.

As per section 5 of the Code on Wages, 2019, No employer shall pay to any employee wages less than the minimum rate of wages notified by the appropriate Government in accordance with the provisions of section 8.

Example:

Suppose the Central Government notifies a floor wage of ₹188/day for Zone A cities. The State of West Bengal cannot set minimum wages below ₹188/day for any category of worker in Zone A cities. However, if West Bengal already has ₹200/day for a category, it cannot reduce it to ₹178 even if it wants to reduce.

11. Prohibition of discrimination on ground of gender: –

    As per Sec 3 of the Code on Wages, 2019, Employer to ensure that there is no discrimination among employees on the basis of gender in matters relating to wages for the same work or work of similar nature. Wages can not be reduced to complying the provisions of the wages code.

12. The Overtime Double-Pay: –

    As per section 14 of the Code on Wages, 2019, if an employee whose minimum rate of wages has been fixed by hour/day/period, has worked for more than the “normal working hours” in a day, then any excess hours (or part-hours) must be paid at an overtime (OT) rate at least twice the “normal rate of wages.

Example:

Normal working hours: 8 hrs/day. Normal wage rate: ₹150/hr. Overtime rate must be at least 2 × ₹150 = ₹300/hr. If an employee works 10 hours on a day, the 2 extra hours are paid at ₹300/hr each, making overtime pay ₹600 in addition to the normal ₹1,200 for 8 hours.

13. Payment of due wages: –

    As per Sec 17 of the Code on Wages, 2019, The employer will have to pay the due wages within 7^th of succeeding month.

The 2-Day Exit Settlement: In case of removal, dismissal, resignation, retrenchment and closure of unit, payment has to be made within 2 working days from the last day of employment.

However, it is pertinent to mention that section is silent about retirement. So, it is not obligatory to pay within 2 working days in case of retirement. It can be settlement as per standard practice of the establishment.

PAYMENT OF BONUS:

1. Applicability for Bonus: –

   As per Sec 26(1) of the Code on Wages, 2019, Every employee drawing wages not exceeding such amount per mensem, as determined by notification, by the appropriate Government, shall be eligible for bonus by his employer.

Note: – Wages limit yet to be notified by appropriate government. Till that time, earlier wage limit of Rs 21,000/ month will be applicable.

2. Eligibility for Bonus: –

   As per Sec 26(1) of the Code on Wages, 2019, an employee must have worked for at least 30 working days in an accounting year to be eligible for bonus. This includes both regular and temporary employees.

3. Payment of Minimum Bonus (8.33%): –

   As per Sec 26(1) of the Code on Wages, 2019, If the establishment has allocable surplus or NOT (defined as the available surplus after certain deductions), the employer is required to pay a minimum bonus of 8.33% of the employee’s wages or Rs. 100, whichever is higher. This means that even if there are no profits of the establishment, the minimum bonus payable to an employee is 8.33% of their salary or wages or Rs. 100, whichever is more.

4. If there is no allocable surplus:

   If the establishment has no allocable surplus, but there is a shortfall in that particular year, then this shortfall will be carried over till fourth accounting year. In this case, the minimum bonus would be calculated based on this treated allocable surplus.

5. Maximum Bonus Calculation (20%):

   As per Sec 26(3) of the Code on Wages, 2019, if the allocable surplus exceeds the amount of minimum bonus payable to the employees, the employer shall in lieu of minimum bonus, be bound to pay an amount proportionate to wages earned by employee during the accounting year subject to a maximum of 20% of such wages.

6. Bonus where wages exceeds such amount as determined by appropriate government:

   As per Sec 26(2) of the Code on Wages, 2019, If an employee’s monthly wage is higher than the bonus wage ceiling notified by the government, bonus will be calculated on the wage ceiling or the minimum wage, whichever is higher.

Example:

Let’s assume, an employee is drawing Wages of Rs 50,000 /month. Present wage ceiling for bonus calculation is Rs 21,000/ month. Notified Minimum wage (say) Rs 18,000/ month.

 You must choose the higher of ₹21,000 and ₹18000 → ₹21,000

Bonus must be calculated on Rs 21,000 and NOT on ₹50,000.

So, bonus will be calculated on the wage ceiling or the minimum wage, whichever is higher. So, we should choose the higher of Rs 21,000 and Rs 18,000 → Rs 21,000

Hence, Bonus amount will be Rs 21,000*12*20%= Rs 50,400 (assuming allocable surplus is more than 20% bonus amount).

Note: – The bonus is calculated on “wages” as defined under Sec 2(y) of the Code on Wages, 2019, which includes:

Basic Pay + Dearness Allowance + Retaining Allowance

(Excludes allowances such as HRA, conveyance, overtime, bonus, etc.)

7. When to pay eligible bonus:

   As per Sec 39(1) of the Code on Wages, 2019, bonus shall be paid within 8 months from the close of accounting year.

However, this may be extended to maximum 2 years from the close of accounting year by appropriate authority on request from employer with sufficient reasons.

Example: – for accounting year 2024-25, the closing date is 31.03.2025. So, bonus has to be paid within 30.11.2025.