This article has been written by Aditi Vaid pursuing Diploma in Labour, Employment and Industrial Laws for HR Managers and edited by Shashwat Kaushik.


The Code on Wages Act, 2019, has brought about significant changes to the existing Payment of Wages Act, with the most notable being the redefinition of “Wage.” In this blog, we will explore the implications of the new wage definition in relation to the Act and its impact on employee salaries.

I have authored this blog with the purpose of assisting readers in finding answers to their general inquiries regarding the new salary structure under the Code on Wages Act. The blog aims to address common FAQs related to the act, providing clarity on readers’ queries. If you have any further questions concerning the Act, please feel free to reach out to me. I am here to help.

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The new definition of “wages” according to the Act

The Code on Wages Act, 2019 says:

  • Wages means all remunerations, whether they are called salaries, allowances, or otherwise, expressed in terms of money. 
  • Wages include basic, dearness allowance, and retaining allowance (if any). These components are also called inclusion components of wages.

Alteration of wages as per the new Act

The Payment of Wages Act applies to employees who earn less than  24,000 rupees per month. But there is no such limit as per the new Code. Hence, the Code shall be applicable to all employees, irrespective of their monthly wages.

Limits of included and specified exclusions 

To answer this, let’s delve into the first provisos of Section 2(K) from the Code on Wages Act, provided that, for calculating the wages under this clause, if payments made by the employer to the employee under clauses (a) to (i) exceed one-half, or such other percent as may be notified by the Central Government, of all remuneration calculated under this clause, the amount which exceeds such one-half, or the percent so notified, shall be deemed remuneration and shall be accordingly added to wages under this Clause.

According to the proviso, if the sum of payments made by the employer to the employee under Clauses (a) to (i) exceeds 50%  of the total remuneration calculated under this clause, or any other percentage notified by the Central Government, then the amount that exceeds this 50% (or the notified percentage) will be considered part of the remuneration and shall be added back to the wages under this clause. In other words, the provision states that the specified exclusion components are excluded from wages up to a maximum of 50% of the total remuneration. 

It is important to note here that the Act clarifies that the excluded components must not exceed 50% of the total remuneration. However, it does not impose any specific limit on the included components, therefore leaving room for the included components to be at least 50% of the gross pay. It is possible for wages to be above the 50% limit and even reach 100% of the salary if there are no excluded components or if they constitute less than or equal to 50% of the total remuneration. The Act aims to ensure that a significant portion of the employee’s compensation is related to wages while allowing flexibility in the inclusion of various components in the remuneration package.

Prescribed limit for “basic” salary pay

The Act specifies that the inclusion components of wages are basic, dearness allowance, and retaining allowance, and it stipulates that these components must constitute at least 50% of the gross pay. Dearness allowance (DA) and retaining allowance (RA) are considered part of the “wages” along with the Basic Pay under the Code on Wages, 2019. So when you calculate the 50% threshold, DA and RA are included in the basic components along with the Basic Pay. Therefore, the sum of basic pay, dearness allowance, and retaining allowance should be at least 50% or more of the gross pay. This also means that wages should be at least 50% of the total remuneration.

What are the specific exclusion components of wages

The Act defines the exemption list as below-

  • Any statutory bonus; 
  • Any commission payable to the employee; 
  • Any contribution paid by the employer to provident fund or pension are not part of wages;
  • Any conveyance allowance or travel expense incurred by the employer are excluded from wages;
  • Any payment provided to an employee to cover specific expenses arising from the nature of their job;
  • House rent allowance;
  • Remuneration payable under any award or settlement; or
  • Any overtime allowance, like-
    • Any gratuity payable on the termination of the employment; or
    • Any retrenchment compensation or benefit payable or ex gratia payment made.

The second proviso of Section 2 (K) of the Act says, “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- This provision states that in order to ensure equal wages for all genders and for the purpose of calculating wages, the specified emoluments outlined in clauses (d), (f), (g), and (h) will be considered for the computation of salaries. The specified items are limited to 50% of the total salary. If this limit is exceeded, the excess amount will be considered remuneration and will be included in wages.

Continuity of special allowances in the salary structure

While the Code on Wages Act does not explicitly categorise special allowance as an inclusion or exclusion component, it is important to review the specific details in the appointment letter.
Provided that your appointment letter does not explicitly define the term special allowance’ concerning this point in the exclusion components list, it may be appropriate to consider the Special Allowance as a part of salary structures while calculating the Cost to Company (CTC). In this context, the Special Allowance can be utilised in the salary structure to account for the residual value, which is the gross salary minus basic and other inclusion components. 

Handling dearness allowance (DA) in private companies

In private companies, the dearness allowance is not explicitly defined in the offer letter as it is merged with the employee’s basic salary. If the salaries are paid to the employees above the minimum range, DA can be subsumed.

What is retaining allowance

Under the new Code on Wages, the retaining allowance is classified as wages, necessitating its inclusion in the salary structure if companies have such an allowance outlined in their compensation and benefits policies.

No, the retaining allowance and special allowance are not necessarily equivalent. Ideally, the purposes of both components are different. The retaining allowance is an additional component provided to the employees with the purpose of encouraging them to remain with the organisation for a specific period of time. This component is designed to incentivise employee retention. On the other hand, special allowance is a broader term that encompasses various types of allowances provided to employees. While retention allowance could potentially be included under the umbrella of special allowance, it is important to note that the specific components and their definitions can vary across organisations and industries. Therefore, it’s advisable to refer to the specific policies and guidelines of the organisation in question to determine how these components are defined and categorised within their salary structure.

Meaning of “remuneration in kind”

The definition in the Act mentions that remuneration in kind can be included in wages up to the extent of 15% of wages (gross pay). However , the meaning of the term ‘remuneration in kind’ has not been explained. In general, payment in kind is non-cash remuneration received by an employee for work performed. This can include: food vouchers, grocery, entertainment tickets, fuel, clothing, footwear, free or subsidised housing or transport, electricity, car parking, nurseries or crèches vouchers, training, recreation or club memberships, low or zero-interest loans or subsidised mortgages. Such allowances are given for the personal use or benefit of the employee and family.


The implementation of The Code on Wages Act, 2019, marks a significant milestone in the Indian labour landscape. This comprehensive legislation consolidates and simplifies various wage-related laws, offering greater clarity and transparency for both employers and employees. By setting standardised norms for minimum wages and ensuring timely payments, the Act aims to promote fair labour practises, reduce wage disparities, and enhance the overall welfare of workers across the country.

Furthermore, the Code on Wages Act, 2019, incorporates provisions for regular revision of minimum wages, taking inflation and changing economic conditions into account. This demonstrates a commitment to keeping wages aligned with the cost of living and addressing income inequality.



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