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Written by

Abhijit Divekar

in

What is the Code on Wages?

What is the Code on Wages?

Code on Wages

Definition

The Code on Wages, 2019 is one of the four Labour Codes that consolidates and replaces four existing wage-related legislations: the Minimum Wages Act (1948), Payment of Wages Act (1936), Payment of Bonus Act (1965), and Equal Remuneration Act (1976). It establishes a universal framework for wages, bonus, and gender pay parity applicable to all employees across all establishments.

Detailed Explanation

The Code on Wages represents a fundamental shift in how wages are defined and regulated in India. One of the most significant changes is the new definition of “wages,” which specifies that basic pay must constitute at least 50% of the total remuneration. This means allowances (excluding certain specified allowances) cannot exceed 50% of the total compensation. This definition has a cascading impact on statutory contributions like EPF, ESIC, and gratuity, all of which are calculated on basic wages.

Under the existing framework, many employers structure compensation with a low basic salary (sometimes 20-30% of CTC) to minimize statutory contribution costs. The Code on Wages will require restructuring of salary components to ensure the basic wage threshold is met. For an employee with a CTC of INR 10,00,000, the basic salary would need to be at least INR 5,00,000, significantly increasing EPF and gratuity liabilities.

The Code introduces a national floor wage set by the central government, below which no state can fix its minimum wage. It also expands minimum wage coverage to all employees, including those in the unorganized sector who were previously outside the scope of the Minimum Wages Act. The payment of wages timeline is standardized: daily-wage workers must be paid by the end of the day, weekly by the last day of the week, fortnightly by the second day after the fortnight, and monthly by the 7th of the following month.

Bonus provisions under the Code apply to employees earning up to INR 21,000 per month, with the minimum bonus at 8.33% and maximum at 20% of wages. Equal remuneration provisions prohibit gender-based discrimination in wages and recruitment for the same or similar work.

Key Rules

  • Basic wages must be at least 50% of total remuneration under the new wages definition
  • A national floor wage will be set by the central government, applicable across all states
  • Minimum wages will cover all employees in all establishments, not just scheduled employments
  • Bonus is payable to employees earning up to INR 21,000 per month at 8.33% minimum
  • Equal pay for equal work regardless of gender is mandated with penalties for violations
  • Wage payment timelines are standardized based on the payment frequency
  • Non-compliance penalties range from INR 10,000 to INR 1,00,000 with imprisonment for repeat offences

How TMS Helps

TMS provides comprehensive advisory on Code on Wages readiness, including salary restructuring analysis, impact assessment on statutory contribution costs, and payroll system upgrades. Our team helps clients model different CTC structures under the new wages definition and prepare compliant employment contracts and salary structures before the Code takes effect.

Related Terms

  • Labour Codes 2020
  • Minimum Wages Act
  • CTC (Cost to Company)
  • Payroll Processing

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Status update: the Code on Wages is now in force

The Code on Wages, 2019 ceased to be a pending reform on 21 November 2025, when it was brought into force alongside the other three Labour Codes. Everything described above in the future tense — the unified wages definition, the national floor wage, universal minimum wage coverage, standardised payment timelines — is now operative law. The four statutes it replaces, including the Minimum Wages Act and Payment of Wages Act, no longer govern new compliance.

The transition is not entirely complete: draft central rules were published for consultation at the end of December 2025, and states are notifying their own rules on differing timelines, with several large industrial states already finalised. During this window, employers must comply with the Code's substantive provisions while procedural details — register formats, return filings, inspection protocols — settle state by state. Minimum wage rates themselves continue to be revised by each state; current applicable rates for every state are maintained on the TMS minimum wage India tracker, verified and date-stamped by the TMS compliance team.

What employers must do now that the wage code applies

The highest-impact obligation is the wages definition. Because excluded allowances cannot exceed half of total remuneration, any structure with a low basic component must be rebalanced — and the knock-on effects run through every wage-linked benefit:

Payroll headWhy the Code on Wages affects itDirection of impact
Provident fundContributions computed on "wages"; a larger basic component raises the contribution baseEmployer and employee outgo rises where basic was below half of remuneration
GratuityCalculated on last-drawn wages; the wider definition raises the base and accrued liabilityLiability rises; provisioning should be re-actuarialised
Statutory bonusEligibility and computation tied to the wage ceiling notified under the CodeCoverage may widen as basic components rise
Leave encashment and overtimeComputed on wage rates that now follow the unified definitionPer-day and per-hour costs rise proportionately
Take-home salaryHigher statutory deductions from a larger basicMay dip modestly in the first restructuring cycle

Model the combined effect before communicating revised structures to employees — the CTC to take-home calculator and PF calculator show the employee-side view, which is where most restructuring resistance originates.

Common compliance gaps under the Code on Wages

  • Restructuring only new hires. The wages definition applies to the existing workforce, not just future offers. Legacy structures with 25–35% basic remain exposed until corrected.
  • Ignoring wage payment timelines. The standardised deadlines — including monthly wages by the 7th — are enforceable now; delayed salary runs are a direct violation, not merely poor practice.
  • Treating the floor wage as a ceiling. The national floor wage is a minimum below which no state may fix rates; the binding rate for any establishment remains the applicable state minimum wage for that scheduled employment and skill level.
  • Missing equal-remuneration exposure. Gender pay parity for the same or similar work is a live obligation with penalties; pay-band audits are the practical safeguard.

Frequently asked questions

Is the Code on Wages implemented in India?

Yes. It came into force on 21 November 2025 along with the other three Labour Codes. Final central rules and some state rules were still being notified through 2026, but the Code's core provisions — the wages definition, floor wage, universal minimum wage coverage and payment timelines — apply now.

What is the Code on Wages in simple terms?

It is a single law that merges India's four older wage statutes into one framework covering minimum wages, timely payment of wages, statutory bonus and equal pay. Its most consequential feature for employers is a uniform definition of "wages" requiring basic pay to be at least half of total remuneration.

How does the wage code change salary structures?

Structures where allowances dominate must be rebalanced so the basic component meets the 50% threshold. That enlarges the base for PF, gratuity, bonus and leave encashment, typically raising employer cost and trimming take-home pay slightly in the first cycle while improving long-term retirement benefits.

Does the Code on Wages apply to small companies?

Yes. Unlike the old Minimum Wages Act, which applied to scheduled employments, the Code covers all employees in all establishments regardless of sector or headcount. Small employers who were previously outside minimum wage coverage are now within it.

TMS restructures salaries, re-baselines statutory liabilities and manages ongoing wage-code compliance as part of its statutory compliance services. Contact the TMS team for a wage-code impact assessment.

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