New wage code draft rules
8 minutes read

New wage code draft rules

In this post, we will look into the update on the new wage code draft rules.

The topics discussed in this post are given below:


The new wage code draft rules will introduce amendments in the 4 new Labour Codes is the standardization of the definition of ‘wages’. The new Labour Codes will be effective from April 1, 2021. This will affect 4 labour acts and they are:

  • Minimum Wages Act
  • Payment of Wages Act
  • Payment of Bonus Act
  • Equal Remuneration Act

Note: After the enactment of the above mentioned Acts it would be repealed.

The new definition of wages

Wage means “all remuneration” payable to an employee including basic pay, dearness allowance (DA), and other allowances but does not include bonus, contribution to Provident Fund (PF) and pension, HRA, conveyance allowance, overtime, gratuity, etc.

There are multiple definitions of “wages” existing in different statutes for calculating Provident Fund (PF) contribution, gratuity liability, statutory bonus payment, maternity benefit, etc. Thus, it is difficult to fix salary structures, payments, contributions, and other deductions.

The new definition of “wages” has 3 parts:

  1. Inclusion part,
  2. Specified exclusions
  3. Conditions that limit the quantum of exclusions.

The new definition is inclusive as well as covers a wide range. There is a list of components that are specifically excluded and these shall not exceed 50 % of all remuneration. If it exceeds then it will be deemed as remuneration and considered as “wages”.

If remuneration is given to an employee is up to 15% of total wages payable to him then it will be deemed as a part of his/her wages.

So, 50% of the total pay cheque will be regarded as wages and these specified exclusions (HRA, overtime, commission, conveyance, employer contribution to PF, etc) are greater than 50 % of such total.

It will also in gender neutrality, early salary payment, guidance towards working hours, leave, overtime payment, minimum wages, statutory bonus, etc.

Note: The Government has not yet notified of the new wage codes to the existing social security benefit schemes (Bonus, PF, Employee State Insurance (ESI) ).

Impact on Employee and Employer

It will have an impact both on employers and employees as there will be an increased liability for paying a contribution towards PF, ESI, and other benefits. There may also be an increase in the coverage of employees in the organization and many excluded employees may now come under such labour laws/ social security benefits.

The higher contributions are beneficial from a social security perspective, but it would increase the financial burden on the employer through an increase in the employee’s salary cost. There is a significant impact on the take-home income for the employees.

The Wage Code aims to benefit the worker group, but the salaried employee has not satisfied with the new proposed change because of the cut in their take-home and increased contribution to retrials (Provident Fund (PF), ESI, Gratuity, and Superannuation).

Key points on the new wage code

Some major changes after the implementation of the new wage code are given below:

  • Private companies will restructure their wages and pay scale.
  • The allowance can’t exceed 50% of the total salary so, the companies will increase the basic salary, which will increase contributions to Provident Fund (PF) and gratuity.
  • It will result in a lower take-home salary for employees.
  • At least 50% of the employee’s gross remuneration forms the basis to calculate PF and gratuity.
  • Private companies keep allowances high and the basic salary low. This is not possible under the new rules.
  • Companies will contribute more towards Provident Fund (PF) and gratuity.
  • Employees joining an organization during the month will get their salary by the 7th of next month. Also, employees leaving an organization would receive a salary within 2 working days from the date of resignation.
  • Employees get a substituted rest day if they are required/allowed to work on the rest day and get a paid double the regular wages.
  • There will be no gender discrimination at the time of recruitment and payment for the same work /similar nature
  • Deduction from the salary like housing rent, loans, or absence, or fines, etc. cannot exceed 50% of wages.

Note: The Wage Code regulates the wages and bonus payments in all employment sectors.

With that, we have come to the end of this post. Share your queries and opinions with us in the comment section below.


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