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WAGE LAW IN INDIA: A COMPLETE GUIDE TO THE CODE ON WAGES

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ChatGPT Image Jun 16, 2025, 02_13_09 PM
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Hari Sri Vidya Lalithambica, Author

Hari Sri Vidya Lalithambica is a 4th-year BA.LLB student at Padala Rama Reddi Law College, Hyderabad Read More

ABSTRACT

The Code on Wages, 2019 represents a significant overhaul of India’s wage-related legislation, consolidating and modernizing key provisions from four major laws: the Payment of Wages Act, Minimum Wages Act, Payment of Bonus Act, and Equal Remuneration Act. The Code aims to simplify and standardize wage regulations, providing a clear framework to ensure timely and equitable wages for workers across sectors. It applies to all establishments with at least one employee and introduces a uniform definition of wages, a step that enhances consistency and reduces ambiguities across the workforce. Additionally, it empowers both central and state governments to set and revise minimum wage rates for different industries, ensuring fairness and adaptability to regional economic conditions.

The Code also mandates the payment of a minimum bonus to eligible workers and outlines the mechanism for its calculation, taking into account the employer’s allocable surplus. While the Code presents significant benefits for workers, particularly in terms of minimum wage protection and bonus entitlements, its successful implementation faces several challenges. These include ambiguity in the uniform wage definition, gaps in awareness among workers (especially in the informal sector), and the readiness of employers to adapt to the new regulations. Additionally, issues of coordination between central and state governments, technology adoption, and the efficiency of grievance redressal mechanisms need to be addressed to ensure that the Code’s objectives are fully realized. The Code on Wages marks a major step toward improving the labour landscape in India, but its success will depend on effective enforcement and proactive engagement from all stakeholders.

KEYWORDS: Labour Reforms, Wages, Minimum Wages, Payment of Bonus, Payment of Wages, Code on Wages, Applicability of Code on Wages

INTRODUCTION

Wages form the cornerstone of labor relations and economic justice in any society. In India, the regulation of wages historically evolved through a patchwork of laws—each targeting specific sectors, categories of workers, or types of remuneration. This fragmented framework often led to confusion, compliance burdens, and exclusion of large swathes of the workforce, especially those in the informal or unorganized sectors.

In a bid to simplify, streamline, and universalize wage-related laws, the Government of India enacted the Code on Wages, 2019, marking a significant overhaul of the country’s labor legislation. As the first of the four labor codes to be passed, it consolidates and replaces four key laws: the Payment of Wages Act, 1936; the Minimum Wages Act, 1948; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976.

This guide offers a comprehensive exploration of the Code on Wages—its objectives, scope, provisions, implications for employers and workers, and the challenges it presents. Whether you’re a legal professional, HR manager, business owner, or worker seeking to understand your rights and responsibilities, this article aims to clarify everything you need to know about India’s modern wage law framework.

BACKGROUND: THE NEED FOR REFORM

The journey toward the Code on Wages, 2019 began with a larger effort to streamline India’s complex and often overlapping labour laws. The turning point came with the Second National Commission on Labour, which submitted its report in June 2002. Recognizing the outdated and fragmented nature of existing labour laws, the Commission recommended a major overhaul. It proposed that the laws be consolidated into five broad categories: industrial relations, wages, social security, safety, and welfare & working conditions.

Acting on these recommendations—and after extensive consultations in tripartite meetings involving the government, employers, and worker representatives—the Government of India decided to move toward a more unified framework. The first step in this direction was the Code on Wages, which aimed to consolidate and simplify four major wage-related laws:

These laws, although well-intentioned, had developed inconsistencies over time in their definitions, compliance procedures, and enforcement mechanisms. The multiplicity of authorities and varying standards across sectors made enforcement challenging—particularly in India’s vast informal economy.

The Code aims to remove this legal clutter, bring in consistency, and ensure better transparency and accountability in wage-related matters. By enabling the use of technology in enforcement, the legislation also seeks to modernize compliance processes. Perhaps one of its most significant changes is the extension of minimum wage protection to all workers, not just those in scheduled employments. This is seen as a major move toward equity and inclusiveness in wage law.

Ultimately, the Code on Wages is part of a broader labour law reform agenda intended to simplify compliance, protect workers, and create a business-friendly legal environment, while upholding the principles of welfare and justice for India’s diverse workforce.

THE CODE ON WAGES, 2019

The Code on Wages, 2019, introduced in the Lok Sabha by the Minister of Labour, Mr. Santosh Gangwar, on July 23, 2019, represents a landmark reform in Indian labour legislation. It seeks to simplify, consolidate, and modernize the country’s wage-related laws by integrating four significant statutes—the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976.

The primary aim of this Code is to create a uniform legal framework that not only facilitates ease of compliance for employers but also strengthens protections for employees. By removing the multiplicity of definitions and authorities, the Code addresses longstanding ambiguities in wage regulation, making enforcement more consistent and predictable.

A key feature of the Coade is the universalization of minimum wages, extending its application to all categories of workers, irrespective of industry or wage ceiling. This provision ensures greater equity in wage distribution and represents a significant step toward inclusive labour welfare. Additionally, the Code emphasizes technology-driven compliance, aiming to enhance transparency, accountability, and efficiency in enforcement mechanisms.

Scheme of the Code

The Code is systematically divided into 9 chapters and 69 sections, each focusing on a distinct aspect of wage regulation. The structure is as follows:

APPLICABILITY

Unlike earlier enactments where the applicability of the Act depends on the wage thresholds or to specific sectors, like the Payment of Wages Act, 1936, applies to wages payable to an employed person in respect of a wage period do not exceed 24,000/- per month or such other higher sum, the code does not restrict applicability.

The Code on Wages Act,  2019, applies to all employees in both public and private sectors, including organized and unorganized sector.

KEY PROVISIONS OF THE CODE

Definition of Employee (Section 2(k)), Employer (Section (l)) and Establishment (Section (m)):

“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, but does not include any member of the Armed Forces of the Union”[1]

In the simplest terms, an employee is anyone who works for wages—whether they’re skilled like a technician, semi-skilled like a machine operator, or unskilled like a helper or cleaner. It also includes people in more white-collar roles, such as clerical workers, supervisors, managers, and even those in administrative or technical jobs. The contract of employment can be made either in writing or just agreed upon verbally. Apprentices hired under the Apprentices Act, 1961, and members of the armed forces are exempted to be an employee.

“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 where the establishment is carried on by any department of the Central Government or the State Government, the authority specified, by the head of such department, in this behalf or where no authority, is so specified the head of the department and in relation to an establishment carried on by a local authority, the chief executive of that authority, and includes,— (i) 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 (63 of 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; (ii) 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; (iii) contractor; and (iv) legal representative of a deceased employer”[2]

Employer is the person or organization hiring and paying the employees. It could be a business owner, a factory manager, or even a contractor who brings in workers. If it’s a government department, then the head of that department—or someone they appoint—is considered the employer. In a factory setup, the occupier or the manager named under the Factories Act fits the bill. For private companies, it could be the managing director or whoever has final control over the operations. Even if the employer passes away, their legal representative steps into that role. This broad definition makes sure there’s always someone accountable when it comes to paying fair wages.

“Establishment means any place where any industry, trade, business, manufacture or occupation is carried on and includes Government establishment”[3]

The term Establishment as defined under the Code is pretty straightforward. It refers to any place where work, as in trade, manufacture, or business is carried and also includes government establishment.

Definition of Wages:

“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,— (i) basic pay;
(ii) dearness allowance; and
(iii) retaining allowance, if any,
but does not include––
(a) any bonus payable under any law for the time being in force, which does not form part of the remuneration payable under the terms of employment;
(b) the value of any house-accommodation, or of the supply of light, water, medical attendance or other amenity or of any service excluded from the computation of wages by a general or special order of the appropriate Government;
(c) any contribution paid by the employer to any pension or provident fund, and the interest which may have accrued thereon;
(d) any conveyance allowance or the value of any travelling concession;
(e) any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment;
(f) house rent allowance;
(g) remuneration payable under any award or settlement between the parties or order of a court or Tribunal;
(h) any overtime allowance
(i) any commission payable to the employee;
(j) any gratuity payable on the termination of employment;
(k) any retrenchment compensation or other retirement benefit payable to the employee or any ex gratia payment made to him on the termination of employment:

Provided that, for calculating the wages under this clause, if payments made by the employer to the employee under clauses (a) to (i) exceeds one-half, or such other per cent. as may be notified by the Central Government, of the all remuneration calculated under this clause, the amount which exceeds such one-half, or the per cent. so notified, shall be deemed as remuneration and shall be accordingly added in wages under this clause:

Provided further that for the purpose of equal wages to all genders and for the purpose of payment of wages, the emoluments specified in clauses (d), (f), (g) and (h) shall be taken for computation of wage.

Explanation.––Where an employee is given in lieu of the whole or part of the wages payable to him, any remuneration in kind by his employer, the value of such remuneration in kind which does not exceed fifteen per cent. of the total wages payable to him, shall be deemed to form part of the wages of such employee”[4]

In simple terms, wages mean everything an employer earns from their employer for the work they do under the employment contract, whether written or implied, expressed in money or can be converted to money. It covers payments made for work done and includes basic pay, dearness allowance (extra money to offset inflation), retaining allowance (if given, usually to keep seasonal workers on payroll).

However, the definition of wages is also a exclusive definition where certain things are not included in wages:

The proviso part of the definition stipulates that if the total of all items excluded from wages goes over 50% of the total salary, then the extra portion will be treated as wages.

For equal pay across all genders and proper payment of wages, even the items like HRA, overtime, court-ordered payments, etc, which are usually excluded, will be included while calculating wages. If part of the salary is given in kind, like food, accommodation, etc., it will count as wages only upto 15% of the total wage amount.

Minimum Wages

Justice Higgins propounded the concept of minimum wage as the irreducible level of wage paid to an unskilled worker, considering him a human being living in a civilised society, that is the worker to get three basic necessities of life, namely, food, clothing and shelter. The concept of minimum wages plays a pivotal role in advancing the ideals of economic justice enshrined in the Indian Constitution. Chapter II of the Code of Wages, 2019, comprising Sections 5 to 14, consolidates and updates the legal framework concerning minimum wage fixation and payment across the country.

Section 5 lays down a non-negotiable mandate: no employer shall pay wages lower than the minimum rate as notified by the appropriate government. This provision acts as a foundational guarantee of wage security for all employees, regardless of sector or form of employment.

Section 6 empowers the appropriate government to fix minimum wage rates either:

To ensure fairness, Section 6(3) requires that even piece-rated employees must receive at least the equivalent of the minimum time-rate wage.

Further, under Section 6(6), while fixing minimum wages, governments must consider:

This multi-factorial approach aligns with the Supreme Court’s stance in Chandra Bhavan Boarding & Lodging v. State of Mysore[5], where the Court emphasized the role of minimum wage laws as instruments of social justice rather than mere economic calculations.

Minimum wages under the Code may comprise a basic wage, cost of living allowance (adjusted periodically in line with the Consumer Price Index) and the cash value of concessional essential supplies, where applicable.

Two procedural mechanisms are provided:

  1. Committee Method – Involves tripartite committees representing employers, employees, and independent members to recommend rates.
  2. Notification Method – The government publishes draft wage proposals and invites objections or suggestions before finalization.

Final wage rates, once notified, take effect after three months unless specified otherwise. Additionally, revision or review is mandated at least once every five years to keep pace with economic shifts.

Notably, where the notification route is chosen, consultation with the Advisory Board under Section 42 is mandatory, ensuring participatory governance.

This provision introduces a national floor wage, to be determined by the Central Government after considering minimum living standards and consulting the Central Advisory Board and State Governments.

The significance of this floor wage is two-fold:

Employees working fewer hours than a normal working day are still entitled to a full day’s wage, unless the shortfall is due to the employee’s own unwillingness to work, or other exceptions as prescribed by the government.

Under Section 11, if an employee performs two or more classes of work, each with different minimum rates, they must be paid proportionally at the applicable rates for the time spent on each task.

Section 12 ensures that in cases where only a time-rate is fixed but the employee is on piece-rate, they shall not be paid less than the minimum time-rate, reinforcing wage security across forms of employment.

The appropriate government may:

However, exemptions exist for sectors involving:

Overtime work must be compensated at twice the normal wage rate. This reflects a principle long upheld by the judiciary.

Payment of Wages

Chapter III of the Code prescribes detailed norms relating to the mode, periodicity, timing and permissible deductions from wages, balancing the interests of both employers and employees.

According to Section 15, wages must be paid in current coin, currency notes, by cheque, bank transfer, or through electronic means. This ensures formal, traceable transactions and reduces the potential for wage-related disputes.

Section 17 specifies the exact deadlines for wage disbursement, depending on the nature of employment:

In cases of termination, resignation, retrenchment, or closure of the establishment, the employee must be paid their due wages within two working days.

To protect employees from unfair or excessive deductions, Section 18 provides a comprehensive list of deductions that are legally permitted. These include:

Importantly, the total deductions in any wage period cannot exceed 50% of the employee’s total wages. If deductions surpass this limit, the excess must be recovered in subsequent wage periods. Moreover, if an employer fails to deposit the deducted amounts into the designated fund (e.g., PF or tax authorities), the employee is not held liable—a significant protection against employer non-compliance.

The Code also sets out procedural safeguards concerning fines and deductions:

These procedural protections ensure that wage deductions are not arbitrary, and that employees are treated fairly in accordance with due process.

Interestingly, the provisions of Chapter III do not automatically apply to Government establishments. They become applicable only if the appropriate Government issues a notification to that effect. This raises important questions around parity and consistency in wage protections across public and private sector employment.

Payment of Bonus

The concept of bonus serves as a bridge between employees’ earnings and an enterprise’s profitability, aiming to foster industrial harmony, employee motivation, and equitable sharing of profits. Chapter IV of the Code on Wages, 2019, consolidates the provisions regarding the eligibility, computation, and payment of bonus.

Employees who have worked at least 30 days in an accounting year and whose wages fall below a specified ceiling are mandatorily entitled to a minimum bonus of 8.33% of their annual wages or ₹100, whichever is higher, even if the employer incurs a loss. For employees earning above the ceiling, the bonus is calculated as if their wages were equal to the prescribed limit or the applicable minimum wage, whichever is higher. Where the employer has adequate allocable surplus, the bonus can be increased proportionally up to a maximum of 20%, with scope for higher bonuses through productivity agreements, subject to the cap.

The Code also provides structured mechanisms for special cases. For new establishments, bonuses are only required if profits are made within the first five years, with gradual application of set-on and set-off rules starting from the sixth year. Employees who work for part of the year receive a proportionate bonus. Days on paid leave, legal layoff, maternity leave, or work-related injury are counted as working days for bonus eligibility. Deductions from bonuses are permitted in cases of proven misconduct, and customary bonuses already paid can be adjusted against legal obligations. Public sector undertakings are included only if they compete with private businesses and earn at least 20% of income from such activities, while certain institutions like RBI, LIC, and nonprofits are exempted. Bonuses must be paid within eight months of the accounting year’s end, with possible extensions up to two years.

ENFORCEMENT AND INSPECTION

The Code on Wages, 2019 introduces a modernized and streamlined enforcement mechanism to replace the fragmented inspection regimes of previous labor laws. Central to this is the introduction of the Inspector-cum-Facilitator, a dual-role authority designed to both enforce compliance and guide employers in understanding their obligations under the Code.

This official has powers to conduct randomized, web-based inspections, examine wage records, and access digital employment data. However, unlike the traditional inspection system, the Code aims to reduce adversarial encounters between employers and authorities. The emphasis is on facilitating compliance through education, digital transparency, and structured feedback rather than immediate penalization.

The enforcement model is further supported by the provision of centralized record-keeping, promotion of e-governance, and integration with online portals for registration, returns, and grievance redressal. This not only improves oversight but also ensures faster and more transparent processes for both employers and workers.

IMPACT ON EMPLOYERS AND WORKERS

The Code on Wages, 2019 brings considerable transformation for both employers and employees across sectors:

For workers, the Code consolidates and simplifies key wage-related rights across four major laws into one framework, improving clarity, uniformity, and access to entitlements. By introducing a universal definition of wages, ensuring minimum wage coverage for all workers, and mandating timely payment of wages, the Code enhances wage security and equity. Workers in unorganized, gig, and contract sectors stand to gain particularly, as they were often excluded under earlier laws.

For employers, the Code provides simplification and standardization, reducing the burden of navigating multiple, overlapping laws. The uniform definition of wages aids in consistent compliance across different obligations like provident fund, bonus, gratuity, etc. The move toward digital filings, standard formats, and single registration reduces administrative overhead and encourages formalization of employment.

However, employers must also adapt to stricter timelines for wage payments, compliance with floor wages as notified by the central government, and proper classification of wage components, which may require restructuring salary models and improving payroll systems.

CHALLENGES AND CONCERNS

While the Code on Wages, 2019 represents a significant step towards consolidating and modernizing India’s wage laws, its implementation faces several hurdles. One key concern is the ambiguity surrounding the new uniform definition of wages, especially in relation to allowances and benefits that may now fall within the wage ambit. This has created uncertainty among employers over payroll structuring and statutory contributions, potentially leading to increased costs. Furthermore, implementation readiness remains a challenge, as many small businesses and labour departments may lack the training, systems, or clarity needed to enforce the Code effectively. Inconsistent state-level rule-making, owing to labour being a concurrent subject, could further fragment the intended uniformity.

Additionally, gaps in awareness and communication—particularly among informal sector workers—pose a significant barrier to the Code’s effectiveness. Without proper knowledge of their entitlements and grievance redressal options, many workers may remain unable to assert their rights. Although the Code introduces digital compliance mechanisms and streamlined dispute resolution systems, these depend heavily on access to technology and institutional efficiency. In areas lacking digital infrastructure or legal literacy, both employers and workers risk falling out of the regulatory net, potentially undermining the Code’s inclusive intent.

CONCLUSION

The Code on Wages, 2019 represents a watershed moment in India’s labor reform journey. By consolidating decades-old legislation into a single, coherent code, it not only simplifies compliance for employers but also enhances wage protection and equality for millions of workers. Its emphasis on inclusivity, digital governance, and transparency signals a forward-looking approach to labor welfare in a rapidly evolving economy.

Yet, the success of this reform will depend largely on its implementation—ensuring that both employers and workers are aware, prepared, and equipped to adapt to the changes. Addressing ambiguities, strengthening enforcement, and promoting awareness will be key to unlocking the Code’s true potential.

As India moves toward greater formalization and labor equity, the Code on Wages stands as both a symbol of progress and a challenge to ensure that every worker receives fair compensation for their contribution to the nation’s growth.

REFERENCES

  1. https://labour.gov.in/sites/default/files/the_code_on_wages_as_introduced.pdf
  2. https://prsindia.org/billtrack/the-code-on-wages-2019
  3. Ahmedullah Khan and Amanullah Khan (2019). Commentary on Labour and Industrial Law. 3rd Edition ed., S.P. Gogia, pp.296–440.

[1] Section 2(k) of the Code on Wages, 2019

[2] Section 2(l) of the Code on Wages, 2019

[3] Section 2(m) of the Code on Wages, 2019

[4] Section 2(y) of the Code on Wages, 2019

[5] AIR 1970 SC 2042


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