The new ‘Code on Wages’ - a primer


The Ministry of Labour and Employment, Government of India (“Government”) labour reforms included laws to merge forty-four (44) existing labour laws into four broader categories which included wages, social security, industrial safety and welfare, and industrial relations for easier compliance. The stage has been set and three (3) new labour laws have been set in motion in both houses of the Parliament of India. However, the road for them is still long and Code on Occupational Safety, Health and Working Conditions, Industrial Relations Code and Social Security Code after receiving the President’s assent will also require rules for practical application. One Code that may come to being before the aforesaid three (3) codes is The Code of Wage, 2019 (“Code”) which is one of the first of the four (4) labour codes that amalgamates the four labour laws that are The Payment of Wages Act 1936 (“PWA”), the Minimum Wages Act 1948 (“MWA”), the Payment of Bonus Act 1965 (“Bonus Act”) and the Equal Remuneration Act 1976 (”ERA”). Since these various legislations had different definitions, provisions and applicability, different labour laws were applicable to different sections of workers. The Code seeks to simplify the existing labour laws while amalgamating and merging the existing ones.

TheCode was introduced as the ‘Wages Bill, 2017’ in the Lok Sabha on August 10, 2017. Thereafter, the same was referred to the Standing Committee on Labour 2018-19 (“Standing Committee”) for examination, pursuant to which the Standing Committee released a report with its recommendations in December 2018. However, due to dissolution of the Parliament, the ‘Wages Bill, 2017’ lapsed. After taking into account the report of the Standing Committee, the Code on Wages Bill was again introduced in the Lok Sabha on 2 August 2019. Within a short span of time, the bill was passed by the Parliament and the same received the assent of the President on August 8, 2019.

Recently, vide a notification dated July 10, 2020 the Government has brought out a copy of the draft rules under the Code (“Draft Rules”) for comments. Interestingly, in a push to have the Code functional, it appears that a lot of deadwood from the previous labour laws has still been retained. However, post the suggestion period from various stakeholders, one does expect certain pragmatic changes to the Code and rather than just consolidation, it will present a new required standard from minimal labour compliance.

In this update, we critically examine the various provisions of the Code by comparing them to the laws that it consolidated. In doing so we first analyze what both the Code and the previous legislations included, what got lost in the consolidation and what was added. In each analysis, we also examine the reasons behind the inclusion of various new provisions to the Code.



The definition of an ‘employee’ in current Acts often causes a lot of ambiguity in understanding the aforesaid term. This poses a grave problem in deciphering inall the rights guaranteed by these several acts applied to them and what happens in case of a conflict amongst acts. This is especially problematic as the labour laws which are meant to especially guarantee rights to these very employees.

There exists varying and several definitions of employees in the said acts. Bonus Act defines an employee to be any person employed on a salary not exceeding twenty-one thousand per month (INR 21,000). In a relatively broader definition, theMWA describes it as any person employed for hire or reward to do any work in scheduled employment in respect of which minimum rates of wages have been fixed. The PWA does not seem to provide a description for employees or workers at all, instead just described its applicability to extend to all ‘employed persons’ in government establishments and various other sectors provided in whose monthly salary threshold is up to rupees twenty-four thousand (INR 24,000) per month. Even the ERA does not provide a definition of an employee or a worker but just only extended to workers of any establishment. Therefore, it appears that the ambit of the definition for the term ‘employee’ provided in these acts is too narrow to encompass most type of workers or they are hard to decipher.

In an attempt to broaden the applicability of labour laws, the Code consolidates many meanings within certain definitions. To ensure that the Code guarantees the rights to all employees, Section 2(k) of the Code provides that the definition of an employee includes all those “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 those declared to be an employee by the Appropriate Government.Furthermore, the Code separately defines ‘contract labourer’ in Section 2(g) to include all workers who are hired in or in connection with work by or through a contractor, with or without the knowledge of the principal employer, including ‘Inter-State Migrant Workers’. This Section mainly includes workers who are not regularly employed or receive a periodical increment in their salary or any other welfare benefits. Section 2(z) of the Code provides the definition of a ‘worker’ to be any person employed in any industry to do any “manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward and includes working journalists’ sales, promotion employees.”The term ‘employee’ also includes persons employed at the supervisory and managerial level. Therefore, going forward, service conditions of senior-level employees will be regulated by the provisions under the Code.

Therefore, these definitions by the Code have helped solve a lot of the problems that the earlier acts posed. Even though the MWA was only applicable to scheduled employments, the Code does not support this limitation and makes it universally applicable throughout the territory of India. Furthermore, the Code also seeks to also cover individuals employed in unorganized sectors, unlike the previous legislations that were only applicable to contract-based organised employments. To ensure that individuals involved in supervisory, managerial, and administrative work, are also included under the ambit of the Code, the Code lays down separate definitions for employees and workers.

The coverage of the Code is much more universal, and hence, all employees will get the benefits of provision for timely payment of wages regardless of their level of salary. By abolishing the concept of scheduled employment for entitlement of minimum wages, a large portion of the workforce, which was out of the purview of the benefits available under the existing MWA, will now benefit to all the workers who have been left' from these benefits up till now.


The definition of 'wages' also varies across labour legislations in India. The Bonus Act and MWA describe‘wage’ to mean all remuneration capable of being expressed in terms of money that which would be given to the employee if the terms of employment were fulfilled. The ERA describes it as the basic wage or salary and any additional emoluments whatsoever payable, either in cash or in kind, to a person employed in respect of employment or work is done in such employment. It is only the PWA that provides a comprehensive definition of the same as it defines wages to include “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”. This definition of wage includes – (i) all remunerations payable under any settlement between parties; (ii) wages to be paid for overtime work or leave period; (iii) bonuses and any other sum that the employee might be entitled to due to either by reason of the termination of employment of the person employed is payable under any law; and (iv) contract or instrument which provides for the payment of such sum, whether with or without deductions.

Therefore, it is clear that there are several definitions of wages, where several components such as bonus and wages for overtime work were included in some, such as the PWA but excluded in the rest. The Code seeks to provide a single uniform definition of 'wages' as applicable to minimum wages, payment of wages and payment of bonus, as opposed to different definitions provided under the MWA and the PWA. The definition of wages under the Code is now inclusive of three (3) parts – (i) an inclusion part; (ii) the part containing specified exclusions; and (iii) the part containing conditions which limit the quantum of exclusions. The definition under the Code includes basic pay, dearness allowance and retaining allowance. Section 2 (y) of the Code defines the term wages to be inclusive of the salaries, allowances or other components which are expressed in monetary terms. It specifically excludes components such as statutory bonus, the value of house accommodation and utilities such as light, water, medical etc., employer contribution to provident fund or pension, conveyance allowance or travelling concession, the sum paid to defray special work expenses, house rent allowance, remuneration payable under the settlement, overtime allowance, commission, gratuity and retrenchment compensation. However, such excluded components from the definition of wages, shall not exceed one half of the remuneration which becomes payable to the employee. And in the event of exceeding, such excess amount shall be deemed as remuneration and will be considered as "wages". This is aimed at ensuring that companies do not adopt compensation structures which result in wages being reduced below fifty percent (50%) per cent of the total remuneration.

It is pertinent to note that for the first time, a condition is attached in the Code stating that payment made under any of the excluded components other than gratuity, retrenchment compensation, other retirement benefits and exgratia payments cannot exceed 1.5% or such other percentage as notified by the Central Government of all the remuneration calculated. In case if such amount exceeds such 1.5% or such percent so notified, the amount in excess shall be accordingly added in wages. Therefore, by consolidating the various the definitions, the term ‘wages’ under the Code, now includes salary, allowances and other components expressed in monetary terms. This helps gain more clarity as to what constitutes wages for all provisions in the first place. The aforesaid definition lists down the specific items including certain allowances such as conveyance and house rent allowance which are excluded from the ambit of ‘wages. This helps ensure that employers cannot exploit workers by including such ambits within the scope of wages and cannot deny them their rightful income.

Fixing a minimum wage

The concept of minimum wages was thoroughly established by the MWA. The minimum rate of wages under Section 4 of the MWA defined it as wage that may consist of – (i) a basic rate of wages and a cost of living allowance ora basic rate of wages, with or without the cost of living allowance, and; (ii) the cash value of concessions in respect of the supply of essential commodities at concession rates (if authorized) or an all-inclusive rate allowing for the basic rate, the cost of living allowance and the cash value of the concessions. The actual fixing of the minimum wage was defined as the duty of the “Appropriate Government” and could be done in a way that different levels of minimum rates of wages may be fixed for different scheduled employments, classes of work, age according to adults, adolescents, children and apprentices as well as different localities.

Under the MWA, there was no specific formula that was given to determine minimum wages. The calculation for fixation of minimum wages was mainly based on the recommendation of the‘Tripartite Committee of the Indian Labour Conference- 1957’that had formulated five norms for the fixation of'minimum wage'. The same aspect was also highlighted in the judgment by the Supreme Court (“SC”) in matter of Workmen v. Reptakos Brett & Co. Ltd.(1992 AIR 504). Therefore, under the Code, the minimum wages need to be fixed in a manner similar to MWA keeping in mind – (i) the standard working class family which includes a spouse and two children apart from the earningworker; an equivalent of three adult consumption units; (ii) a net intake of 2700 calories per day per consumption unit; (iii) 66 meters cloth per year per standard working class family; (iv) Housing rent expenditure to constitute 10 per cent of food and clothing expenditure; (v) Fuel, electricity and other miscellaneous items of expenditure to constitute 20 percent of minimumwage; and (vi) Expenditure for children education, medical requirement, recreation and expenditure on contingencies. Furthermore, the concept of minimum wages under Section 6(6) of the Code mimics the concept under MWA and provides that “for the purpose of fixation of factors for determining minimum wages, the appropriate Government shall take into account the skill required, the arduousness of the work assigned to the worker, geographical location of the place of work and other factors which the' appropriate Government considers necessary".

Also,the Code videits Section 9 enhances on the concept of a ‘floor wage’andmandates the Government to fix a floor wage taking into account minimum living standards of a worker. The Code does allow for different levels of floor wages. This concept provides that the minimum wages set shall not be less than the floor wage and if the minimum rates of wages fixed by the appropriate Government earlier are more than the floor wage, then, the appropriate Government shall not reduce such minimum rates of wages fixed by it earlier. Further, the Code prescribes that the minimum rate of wages is to be reviewed and revised by the appropriate Government in intervals not exceeding five (5) years as was also the case in the MWA.

Therefore, it appears that the Code in terms of minimum wages has followed the old path in the MWA. This is just an incorporation of the provisions of the MWA into the Code rather than a nuanced study and view point.

Incorporation of acts under provisions of the Code


One provision that this Code has incorporated is guaranteeing no discrimination on the basis of gender for the employee which is in line with the ERA. ERA prohibits gender-based discrimination in terms of payment of wages, recruitment and similarly Section 3 of the Code prohibits employer from resorting to discrimination amongst employees on the grounds of gender in matters related to wages in respect of the “same work or work of similar nature” done by any employee. According to Section 29(v) of the Code“Same work or work of a similar nature” means work in respect of which the skill, effort, experience and responsibility required are the same when performed under similar working conditions by employees of any gender. In case there is a dispute on the question of work is of the same or similar nature, such dispute shall be decided by such authority as may be notified by the Appropriate Government. Also, akin to the ERA, an employer is also not allowed to reduce the wage for the purpose of complying with the requirement of non-discrimination in payment of wages. Furthermore, like the ERA discrimination is not just prohibited on the basis of remuneration but also in recruitment on the ground of gender.

While earlier under the ERA, the work of similar nature included similarity in skill, effort and responsibility, after Standing Committee suggestions, experience has also added as an additional ground in the Code. However, even after such changes several key features of the ERA appear to havebeen lost out in trying to consolidate all four (4) acts into one Code. One such feature is that there exists no provision in the code that specifically bans discrimination on the basis of gender in promotion or any other employment conditions that can profit the employee.

However, it is also to be noted that providing increasing employment opportunity for women has however been made a point for consideration for the Central Advisory Board under Section 42 (3) (b), (c) and State Advisory Board under Section 42 (4)(b) & (c) of the Code. It has been addressed by the Standing Committee that this is supposed to adequately deal with issues regarding to gender discrimination based in employment conditions. Section 6 of the ERA also mentioned that the appropriate Government shall constitute one or more Advisory Committees to advise the establishment with regard to the extent to which women may be employed in such establishments or employments as the Central Government and focus on recommending ways to increase employment opportunities for women.

Furthermore, it is to be noted that Section 4 of the ERA only prohibited discrimination the basis of sex and provided for rules to ensure equal remuneration to specifically men and women. Section 2(d) also described only “man” and “woman” meaning to be male and female human beings.The Code, however, prohibits discrimination on the basis of all genders instead and does not specify ‘gender’ to primarily refer to only the binary, i.e, man and woman, and hence appears to incorporates the transgender community as well.

The Code in Section 4 specifies that any dispute as to whether a work is of same or similar nature shall be decided by such authority as may be notified by the appropriate Government. This is different from the ERA in which the provisions of Section 33-C(1) of the Industrial Disputes Act, 1947 were to apply for the recovery of monies due from an employer arising out of the decision of an authority appointed. Therefore, the Code in Section 3 and 4 has tried to consolidate all of ERA. Further, the Code ensures that the non-discrimination does not get restricted to only employees and covers all class of workers which was not the case in ERA.

Bonus Act

Another fundamental aspectthat deals with the Code vide various provisions is under the Bonus Act. The Bonus Act provides for the payment of statutory bonus to the employees, employed in every establishment in which twenty (20) or more people are employed. Generally, bonus under the Bonus Act is to be paid regardless of whether the employer has made a profit or loss in the accounting year in which the bonus is payable. Under Bonus Act, bonus was not considered to be a part of wages and was to be paid separately to an employer apart from the actual salary. Under Section 10 of Bonus Act, a minimum bonus constituting 8.33% of the salary or wage earned by the employee during the accounting year was set. as per an amendment of 2015, the provisions of the Bonus Act apply to only those employees whose salary did not exceed twenty-one thousand rupees (INR 21,000) per month.

These provisions relating to computation of bonus find their place in Chapter IV of the Code are woman, and largely consistent with the terms of the of Bonus Act. Expanding on the same terms, it provides that requirement of bonus payment as given under the Code shall apply to only those establishments employing at least twenty (20) employees.The Code provides that every employee, drawing wages not exceeding such amount as decided by the authorities (per month) as notified by the central or state government will be entitled to an annual bonus. It is to be noted that under Section 29 of the Code provides that dismissal from service due to conviction for sexual harassment, along with fraud, riotous or violent behaviour on the premises of the establishment or theft, misappropriation or sabotage of any property of the establishment, would also be considered as a ground for disqualification for receipt of bonus under the Code. The provision for disqualification present in Section 9 of the Bonus Act did not include sexual harassment.

Furthermore, the Code expands the definition of new establishments that are exempt from paying bonuses under the previous laws to include “trial running of any factory” and “prospecting stage of any mine”. This means that existing establishments can also escape payment of bonuses by being on trial runs or prospecting stages, as there is no time limit specified for either of these activities. Therefore, Chapter IV of the Code, namely ‘Payment of Bonus’, is a reflection of the Bonus Act.

Time limit of bonuses and wages

What only found recognition in the object and purposes of PWA before, occupies an entirely new section in Section 17 and 39 of the Code for time limit set on the payment of wages and bonus respectively. Under PWA, it was only merely mentioned that a wage period shall not exceed one (1) month and prescribed two different time limits for payment of wages based on the number of employees in an establishment. The employer could pay wages to their employees within ten (10) days after expiry of the wage–period, in case the establishment has more than one thousand (1000) employees. Section 17 of the Code express provisions have been for the employer to fix the wage period for the employees on a daily, weekly, fortnightly or monthly basis and stipulates the time limits for payments by the employer under each of such wage. Different wage periods are supposed to be fixed for different establishments and can be daily or weekly or fortnightly or monthly basis. Time limit is prescribed depending upon the wage period is fixed within which the payment of wages has to be made. In case of monthly basis, before the expiry of the seventh (7th) day of the succeeding month. In the event if an employee is removed, dismissed, retrenched, resigns or becomes unemployed due to closure of the establishment, the wages are required to be paid within two (2) working days. The Code makes it mandatory for the employer to pay within seven (7) days from expiry of the wage period, irrespective of the size of the establishment. The Code also mandates payment of wages, within a period of two (2) working days, from the date of the employee's removal, dismissal, retrenchment or resignation from employment. While the current PWA has a similar provision for payment of wages within two(2) days from the date of termination of his employment, payment of wages on account of voluntary resignation by employees has been brought within the same time limits. This would imply that companies would have to expeditiously process full and final settlements for their exiting employees. This inclusion acts in favour of workers migrating out of the formal sector as monthly basis payments are becoming less relevant.

Section 39 of the Code seeks to provide the time limit for payment of bonus. The bonus payable to an employee shall be paid by crediting in the bank account of the employee by his employer. It also specifies regarding the extension of the period for payment of bonus in certain cases and the upper limit of the extension which shall not exceed two (2) years and in case of a dispute for payment at a higher rate, the employer shall pay eight and one third per cent of the wages earned by the employee as per the provisions of the proposed legislation within the time limit.

Furthermore, under Section 45 of the Code, a limitation period of three (3) years, which is calculated from the date on which claims arose, for filing of claims by an employee as against the existing time period varying from six (6) months to two (2) years, to provide a worker more time to settle his claims. The Code also allows the trade union of which the employee is a member to file claims.

New provisions

Inspector cum facilitator and penalties

Chapter VII of the Code provides for appointment of inspectors-cum-facilitators and their powers as an introduction in the inspection regime. These authorities would have a dual function – providing compliance advisory to employers and workers and conducting inspections. They will carry out the onsite inspection throughout the state or such geographical limits assigned in relation to one or more establishments. The Code also introduces a web based randomizedcomputerized inspection scheme, jurisdiction free inspections, calling of information electronically for inspection and the composition of fines as part of the inspection scheme. The Rules of the Code only incorporated a single role for the inspectors. The Committee Report on the Rules later recommended that the term ‘facilitator’ must be replaced by ‘inspector’, so as to ensure that the wordings of the Code appear strict for better enforcement. The role of the inspector would also be strengthened as the facilitator will also have the responsibility of preventing any violations of the provisions of the Code by way of providing guidance to both employers and workers. They have also stated that the inspection scheme is proposed to provide for risk-based inspections and make it more effective and reduce arbitrariness.

As per the Code, any inspection that shall be conducted by inspector-cum-facilitator may be decided by the Appropriate Government. If it is deduced that the employer has contravened the provisions of the Code, the employer shall be given an opportunity of being heard before the initiation of any such action by the inspector-cum-facilitator.The employer shall be allowed to remedy such contravention. In the event, it is found that the employer has repeated the contravention, within five (5) years from the date of such first contravention of the provisions of the Code, the employer will not be provided with the opportunity of being heard and the inspector-cum-facilitator shall have the right to initiate an action, as it may deem fit, against the employer.

Penalties and offences

Chapter VIII of the Code provides a graded penalty system for any contraventions. The quantum of fines for contraventions under the Code has seen a significant increase. Additionally, it is to be noted that the offences of non-maintenance or improper maintenance of records and registers in the establishment are punishable only with a fine.

The Code provides that any employer who pays to any employee less than the amount due to such employee under the provisions of the Code, shall be punishable with fine which may extend to rupees fifty thousand (INR 50,000). If the offence is repeated for the second time and the employer is again found guilty within five (5) years from the date of the commission of the first or subsequent offence, the same will be punishable with an imprisonment for a term which may extend to three (3) months or with fine which may extend to rupees one lac (INR 1,00,000) or with both.

Non-maintenance or improper maintenance of records in the establishment, shall make the employer punishable with fine which may extend to rupees ten thousand (INR 10,000). The Code also provides for an ability to compound offences at any time before or after initiation of the prosecution. Offences under the Code can be compounded for a sum of fifty percent (50%) of the maximum fine prescribed. However, once compounded, another compounding will not be permitted within a period of five (5) years of the commission of a similar offence which was earlier compounded.


In an attempt to consolidate previous legislations, the Code contains substantial portions of the various Acts, and seems to be a decent attempt to replace their obsolete provisions. By consolidating all rules and creating definitions of wage, employees and minimum wage, removing of superfluous and archaic provisions, the Code solves the many problems of multiplicity of statutory definitions, overlapping enforcement authorities and reduction in reporting requirements, number of statutory registers to be maintained and cost of statutory compliance, to name a few that exist in the various labour Acts. By doing so, the Code offers protection to both organised and unorganized sectors of the workforce. While the existing laws offered statutory protection of wages to about forty percent (40%) percent of the organised workforce, the Code covers hundred percent (100%) percent of the total workforce in one stroke – organised as well as unorganized – including even the managerial and supervisory employees who were previously exempt. Another significant change that this new code brings in for workers is the universality of application of the provision for minimum wage which will now apply to all employees and workers irrespective of the sectors and the areas they are employed.

Another major improvement for employees/workers that the code introduces is empowering the Government to fix the floor wage rate for different geographic areas. The state governments will not be allowed to set the minimum wages below the floor wage rate fixed by the Union. This will bring some uniformity in the level of minimum wages across the regions. It will also prevent the states from race to bottom in terms of fixing the minimum wage rate to attract investment. Further, the Code seeks to change the 'Inspector Raj' perception in relation to the Government's regulation of labour by introducing inspectors-cum-facilitators instead of merely inspectors. The Code has also created a pivotal transformation with respect to offences and penalties. It also encourages technology adoption in matters such as mode of payment of wages, inspection procedures, which are aimed at achieving its digitalization goals in governance.

Therefore, as a whole, the Code is beneficial to both employees and the employer. Although a lot of provisions of the previous acts have been lost in the art of consolidation of the same into small provisions of the Code, something greater has been achieved. The Code ensures that the basic principles of all these legislations, be it equal remuneration or minimum wage, is provided in a way that is clear, elaborative and extends to all sectors of the workforce. There do remain limitations such as reduction of penalties, lack of universalprovisions prohibiting discrimination in terms of employment, no setting of a minimum level of floor wage universally etc. However, the Code provides much more clarity on the issues that it does cover.

This update is by Rohitaashv Sinha, Advocate & Associate Partner at Agarwal Jetley & Co., Advocates & Solicitors along with Khushi Joshi, 1st year law student at West Bengal National University of Juridical Sciences, Kolkata. Contact: Email: or Mob: (+91) - 9999565393