The Code on Wages, 2019: What Changes for Employees

The Code on Wages, 2019 is now in force, replacing four earlier laws that governed wages and bonus for several decades. It brings all workers under a single wage framework, introduces uniform definitions and creates clarity around minimum wages, payment timelines and authorised deductions. For the first time, employees across every sector come under a common wage law that applies throughout India. The earlier system was fragmented and often confusing. This Code attempts to fix that by consolidating and modernising wage rules that had been scattered across separate Acts for more than fifty years.

A Clear and Standardised Definition of Wages

The Code introduces one consistent definition of wages for all purposes. This definition includes basic pay, dearness allowance and retaining allowance. It excludes components such as bonus, HRA, employer provident fund contribution, overtime allowance, commission and gratuity. However, if the excluded components together exceed fifty per cent of the total remuneration, the excess must be added back into wages for calculation. This prevents excessive splitting of salary into allowances and ensures that statutory contributions such as provident fund and gratuity are computed on a realistic wage base.

The Act also states that remuneration paid in kind, up to fifteen per cent of total wages, may be counted as part of wages. These clarifications matter because employees often struggle to understand how wages are computed. This unified definition removes the inconsistencies that existed earlier under the Payment of Wages Act, Minimum Wages Act, Payment of Bonus Act and Equal Remuneration Act, all of which now stand repealed.

Universal Minimum Wages and the Floor Wage

Under this Code, every employee in every industry is entitled to minimum wages. The earlier system limited minimum wages to scheduled employments, which left large sections of the workforce outside its protection. That distinction no longer exists. The government must fix minimum wage rates, and these rates cannot fall below the national floor wage, which is determined after assessing the minimum living standards of workers. States may set higher rates but cannot go below the national floor wage.

The Code also explains how minimum wages may be structured. They may consist of a basic rate plus a cost of living allowance linked to the consumer price index, or an all-inclusive rate. Minimum wages must be reviewed and revised at intervals not exceeding five years.

Working Hours, Weekly Rest and Overtime

The Act allows the government to specify the number of hours constituting a normal working day and to provide for a weekly day of rest. Any work performed on a rest day must be paid at the overtime rate. Overtime wages must be at least twice the normal rate of wages. This is a statutory mandate that applies across establishments.

Where a worker performs more than one class of work, each with different minimum wage rates, the employer must pay wages according to the rate applicable to the work actually performed. Even where a worker is engaged in piece-rated work, wages cannot fall below the notified minimum time rate.

Timely Payment of Wages

The Code sets strict timelines for payment. Monthly wages must be paid before the seventh day of the following month. Wages for daily, weekly or fortnightly workers must be paid at the end of the shift, at the end of the week or within two days respectively. When an employee resigns, is dismissed, retrenched or becomes unemployed due to closure, all dues must be settled within two working days. This strengthens workers’ rights in situations where full and final settlements were previously delayed.

Wages may be paid in cash, cheque, bank transfer or other authorised electronic modes. The government may mandate digital payments for specific establishments to encourage transparency.

Permitted Deductions and Protection Against Unauthorised Cuts

No employer can make deductions unless they are permitted under the Code. The Act lists allowable deductions such as fines, absence from duty, damage or loss due to negligence, house accommodation, authorised amenities, recovery of advances or loans, statutory taxes, cooperative society payments and trade union subscriptions. All deductions together cannot exceed fifty per cent of wages for a wage period. Any excess must be carried forward to the next period.

Before imposing fines or making deductions for damage or loss, the employer must follow due process and give the worker an opportunity to respond. These safeguards prevent arbitrary or unfair wage cuts.

Bonus Provisions Continue with Modifications

The Code continues the bonus framework with certain refinements. Employees earning up to the government-notified wage ceiling who have worked at least thirty days in an accounting year are eligible for an annual bonus of eight and one-third per cent of wages or one hundred rupees, whichever is higher, regardless of whether the employer made a profit. The maximum bonus is twenty per cent of wages. The provisions relating to allocable surplus and adjustments from previous accounting years remain in place.

Record Keeping and Transparency

Employers must maintain registers of employees, muster rolls and wage records. They must display wage rates, payment timelines and an abstract of the Code on the notice board, and provide wage slips in the prescribed format. These requirements are intended to ensure transparency in wage calculation and payment.

Why This Code Matters for Workers and Organisations

The Code on Wages, 2019 brings India’s wage framework into a unified, predictable system. For workers, it provides clarity on wage components, strengthens protections against unfair deductions, guarantees timely payments and ensures universal minimum wage coverage. For organisations, it requires a review of salary structures, HR documentation, payroll systems and compliance processes. While the transition may take effort, the Code lays the foundation for a more transparent, organised and uniform wage environment across the country.

What Comes Next in the Series

The next article in this series will focus on the Industrial Relations Code, 2020. It will explain the new framework for employment contracts, fixed term roles, notice periods, disciplinary processes and the balance between job security and managerial flexibility. The goal is to present the law in practical language so that workers clearly understand how these changes affect their everyday employment relationships.