Wages

What are ‘Wages’?

Wages generally refer to the monetary compensation paid by the employer to the employee for the services rendered during the term of employment.

Official Definition of 'Wages'

Earlier Wages had multiple definitions under various labour laws such as Payment of Wages Act,1936, the Minimum Wages Act, 1948,​ the Payment of Bonus Act, 1965,​ the Equal Remuneration Act, 1976​, and Industrial Disputes Act, 1947,etc.

Currently, under the newly introduced labour codes, ‘wages’ is primarily defined under The Code on Wages, 2019, and the same definition is adopted in the other labour codes for uniform application.

Under Section 2(y) “Wages” means all remuneration whether by way of salaries, allowances or otherwise, expressed in terms of money or capable of being so expressed, which would, if the terms of employment were fulfilled, be payable to a person employed in respect of his employment or work done in such employment.

Wages includes:

1. Basic Pay
2. Dearness Allowance
3. Retaining allowance, if any

But does not include

1. Bonus not part of regular remuneration
2. Value of house accommodation or amenities such as light,water or medical facilities.
3. Contribution by employer to pension or Provident Fund (PF)
4. Conveyance allowance or travelling concession.
5. Payments made to cover special work related expenses.
6. House Rent Allowance (HRA)
7. Remuneration payable under any award or settlement between the parties or order of a court or Tribunal;
8. Overtime allowance
9. Commission paid to employee
10. Gratuity paid on termination of employment
11. Retrenchment compensation, retirement benefits or ex gratia payments made on termination of employment.

The 50% Rule

If the allowances (except gratuity and retrenchment compensation) exceeds 50% of all remuneration, the excess amount shall be added back to wages. Such added amount shall be treated as wages for statutory purposes. Overtime allowance payment forms a part of the 50 percent wage calculation.

Performance based incentives,Employee Stock Option Plans(ESOPs), variable part of the component or reimbursement-based payments to the employee shall not be part of the wages.

Additionally, for the purpose of ensuring equal wages for all genders and payment of wages, some of these otherwise excluded emoluments i.e, Conveyance allowance, HRA, remuneration under any ward or settlement  and overtime allowance  must still be considered when comparing remuneration.

The provision also recognizes remuneration in kind, such as food or accommodation, but limits its inclusion in wages to 15% of the total wages payable, ensuring that wages remain primarily monetary while preventing employers from substituting cash wages with non-cash benefits.

2.1 ‘Wages' as defined in legislation(s)

The same definition as above is adopted in the other labour codes for uniform application.

Section 2 (zq) of the Industrial Relations Code, 2020

Section 2(88) of The Code on Social Security, 2020

Section 2 (1) (zzj) of The Occupational Safety, Health and Working Conditions Code, 2020

2.1.1 Legal provision(s) relating to 'Wages'

One of the major changes from earlier definitions of wages to the new one is the inclusion of Retaining Allowance in none of the earlier laws that was specifically specified under the definition of wages.

Retaining Allowance while not separately defined under the new labour codes it is  a fixed, periodic payment made by an employer to employees to keep them on the payroll and available for service during off-seasons, slack periods, or when no active work is available, preventing layoff. One definition of Retaining allowance is given under The Employees’ Provident Funds And Miscellaneous Provisions Act, 1952 which states "retaining allowance" means an allowance payable for the time being to an employee of any factory or other establishment during any period in which the establishment is not working, for retaining his services.Section 6

The labour codes maintain a uniform definition of wages, but the application of wage-related rights differs depending on whether a person qualifies as a “worker” or an “employee,” with most statutory wage protections being specifically directed toward workers rather than managerial or administrative employees.[1]

Employee (Section 2(k))

"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.

Code on Wages, 2019 broadens and simplifies the definition of “employee” by removing wage ceilings, expanding the categories of work covered, eliminating the limitation of scheduled employment, and creating a uniform definition applicable across wage-related labour laws. It also clarifies exclusions such as apprentices and allows the government to declare additional categories of employees. (Section 2(k))

Worker   [Section 2(z)]

• Workmen now re-defined as ‘Worker’: The definition of worker is adopted from the Industrial Disputes Act,1947 (ID Act); however, the threshold has increased from earlier INR 10,000 to INR 18,000 and does not include an apprentice. Working journalists and sales promotion employees are now included in the definition.
• Worker does not include any such person

(a) who is subject to the Air Force Act, 1950, or the Army Act, 1950, or the Navy Act, 1957; or

(b) who is employed in the police service or as an officer or other employee of a prison; or

(c) who is employed mainly in a managerial or administrative capacity; or

(d) who is employed in a supervisory capacity drawing a wage of exceeding Rs.18,000.00 per month or an amount as may be notified by the Central Government from time to time.

• It is to be noted that ‘Worker’ definition is used only three times in this Code, for

1. Definition of Contract Labour
2. Definition of industrial Dispute
3. Fixation of National Floor Wage

The Code on Wages, 2019 defines “employee” broadly to include all categories of employment, including managerial and administrative staff, while “worker” is a narrower category limited mainly to operational and labour roles and excludes managerial employees and supervisory employees earning above the prescribed wage limit.

Employee, including worker, whose minimum rate of wages is fixed under the Code on Wages, 2019 is eligible for overtime.

2.2 'Wages' as defined in international instrument(s)  

2.21 C095, Article 1- Protection of Wages Convention, 1949

“In this Convention, the term wages means remuneration or earnings, however designated or calculated, capable of being expressed in terms of money and fixed by mutual agreement or by national laws or regulations, which are payable in virtue of a written or unwritten contract of employment by an employer to an employed person for work done or to be done or for services rendered or to be rendered.” 

2.3 'Wages' as defined in official document(s)

Explanatory materials released by the Ministry of Labour and Employment, Government of India defined wages as “All remuneration whether by way of salaries, allowances or otherwise payable to a person employed. This includes: Basic pay, Dearness allowance, Retaining allowance, if any”

“If the payments/allowances other than Basic pay, Dearness allowance and Retaining allowance exceed 50% or such percentage as notified of all remuneration, then an amount exceeding 50% or such percentage as notified shall be added in the “Wages”.

Performance based incentives,Employee Stock Option Plans (ESOPs), variable part of the component or reimbursement-based payments to the employee shall not be part of the wages.

2.4 'Wages' as defined in official government report(s)

2.4(1) Parliamentary Subcommittee report

The 43rd Report of the Standing Committee on Labour (2017) examines the Code on Wages Bill, 2017. The Committee report highlights the salient features of the Code on Wages are, to provide for all essential elements relating to wages, equal remuneration, its payment and bonus, provisions relating to wages shall be applicable to all employments covering both organised as well as unorganised sector. They looked at simplifying the term wages for easier understanding and recommended changes and suggestions accordingly.  

2.4(2)  Report of the Second National Commission on Labour Vol. I

According to the Report of the Second National Commission on Labour Vol. I

The  Committee  on  Fair Wages defined three different levels of wages  viz;  living  wage,  fair  wage  and minimum  wage

It said the actual wages should depend  on  a  consideration  of  the following  factors:

a. the  productivity  of  labour;

b. the  prevailing  rates  of  wages  in the  same  or  similar  occupations in  the  same  or  neighbouring localities

c. the  level  of  the  national  income and  its  distribution;  and

d. the  place  of  the  industry  in  the economy  of  the  country

2.4 (3) Report On Simplification Of Returns Under Labour Laws

This report by the Labour Bureau highlights the issues with erstwhile labour laws having complex compliance mechanisms and multiple returns to be filed. The report recommended simplification, consolidation and digitisation of reporting systems, which can be seen under the new labour codes.

2.5  'Wages' as defined in case law(s)

Since the new definition of “wages” came into effect from 21st November 2025, there has been no new case laws interpreting this provision. Hence the cited case laws  may only be used to demonstrate how the term was interpreted under the earlier labour laws.

i. M.C. Mehta v. Union Of India, 1998 INSC 492 (Dec 18, 1998)

The Supreme Court held that for the purpose of calculating the shifting bonus, the definition of "wages" under Section 2(h)(vi) of the Payment of Wages Act, 1936, should be applied rather than Section 2(rr) of the Industrial Disputes Act, 1947. This decision was based on the applicability of the Payment of Wages Act to industrial establishments, emphasizing that statutory interpretations should align with the specific legislation relevant to the context.

ii. Regional Provident Fund Commissioner v. Vivekananda Vidyamandir (Civil Appeal No. 6221 of 2011)

It was held that “employers are required to make contributions under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 on certain allowances that comprise an employee’s salary. Specifically, the Apex Court held that special allowances paid by an employer to its employees should be considered as part of Basic Wages for the purpose of computation of PF Contributions, unless they are variable, linked to incentives, or specially paid to those who avail of the opportunity”. [2]

iii. Maniben Maganbhai Bhariya v. District Development Officer, 2022 INSC 473 (Apr 25, 2022)

The issues before the SC were

1. Whether Anganwadi Workers and Anganwadi Helpers appointed under ICDS are “employees” of an “establishment” covered by Section 1(3) of the Payment of Gratuity Act, 1972.
2. If so, whether the honorarium paid to them constitutes “wages” under Section 2(s) of the 1972 Act, thereby entitling them to statutory gratuity with interest.

The SC held  the honorarium is “wages” under Section 2(s). AWWs/AWHs, being employed for wages in an establishment to which the Act applies, satisfy Section 2(e). The State Government is their “employer” under Section 2(f).

3. Variations

3.1 Slight differences and nuances in the concept- (Comparing the Old and the New definition of  wages)

Component	Payment of Bonus Act 1965	Payment of Wages Act 1936	Industrial Disputes Act 1947	Equal Remuneration Act 1976	Minimum Wages Act	Code on Wages 2019
Basic Salary / Basic Pay	✔ Included	✔ Included	✔ Included	✔ Included	✔ Included	✔ Included
Dearness Allowance (DA)	✔ Included	✔ Included (as allowance)	✔ Included	✔ Included	✔ Included	✔ Included
Retaining Allowance	Not specified	Not specified	Not specified	Not specified	Not specified	✔ Specifically included
Overtime Pay	❌ Excluded	✔ Included	Not clearly included	Not specified	Not specified	❌ Excluded
Bonus	❌ Excluded	❌ Excluded unless part of contract/award	❌ Excluded	Could be included as emolument	Not specifically included	❌ Excluded
Allowances (general)	❌ Excluded	✔ Included	✔ Included	✔ Included	✔ Included	Mostly ❌ excluded (subject to 50% rule)
House Rent Allowance (HRA)	❌ Excluded	❌ Excluded	Included as value of accommodation	✔ Included	✔ Included	❌ Excluded
House Accommodation Value	❌ Excluded	❌ Excluded	✔ Included	✔ Included	❌ Excluded	❌ Excluded
Light, Water, Medical Facilities	❌ Excluded	❌ Excluded	✔ Included	✔ Included	❌ Excluded	❌ Excluded
Travel Allowance / Concession	❌ Excluded	❌ Excluded	✔ Included	Possibly included	❌ Excluded	❌ Excluded
Commission	❌ Excluded	Not excluded if part of remuneration	✔ Included	✔ Included	Not specified	❌ Excluded
Employer Contribution to PF / Pension	❌ Excluded	❌ Excluded	❌ Excluded	❌ Excluded	❌ Excluded	❌ Excluded
Gratuity / Retirement Benefits	❌ Excluded	❌ Excluded	❌ Excluded	Not specifically mentioned	❌ Excluded	❌ Excluded
Retrenchment Compensation	❌ Excluded	✔ Included (on termination)	Not specified	Not specified	Not specified	❌ Excluded
Court Award / Settlement Payments	Not included	✔ Included	Not included	Possibly included	Not included	❌ Excluded
Remuneration in Kind	✔ Included (food allowance)	Not clearly included	✔ Included	✔ Included	Not included	✔ Included up to 15%
Special Expenses due to job nature	Not mentioned	❌ Excluded	Not mentioned	Not mentioned	❌ Excluded	❌ Excluded

India’s labour law framework had become complex over time, creating significant compliance burdens through multiple registrations, licences, and returns. Evolving work patterns and new forms of employment underscored the need for a simpler and more coherent system, leading the Government of India to consolidate and rationalise 29 Central Labour Acts into four Labour Codes.

As labour is a subject of the concurrent list, both the Union and the state governments could make laws on this. Because of this each state had their own definition of wages. But now it creates a uniform definition and system for calculating wages. Now, states will have to draft rules based on this uniform definition and the national floor wage set by the Union Government.

Earlier, a company had to comply with nearly 30 different central laws and hundreds of state-level rules. However, it now makes compliance easier for employers.

Minimum wages were only applicable to scheduled employment earlier. Now they exist for all industries and sectors.

“Wages” now means the same thing for PF as it does for Gratuity.

The law shifted from a flexible salary structuring to a regulated wage composition to prevent avoidance of labour benefits. For example, employers would structure salaries with many allowances like HRA, reducing the basic pay or portion counted as wages. This allowed them to avoid statutory obligations like PF, Gratuity, Bonus etc, as these were based on basic pay + dearness allowance.

For example, If the basic pay was say Rs.10,000 and dearness allowance Rs.5000 but allowances like HRA, travel etc was Rs. 35000, even though the actual salary comes upto Rs. 50,000 based on the definition of wages since allowances are not counted it would be seen only as Rs.15000. Hence the benefits like gratuity and PF to be paid were calculated on a much smaller amount and this would in turn affect the employees long-term financial security.

Hence, the new definition of Wages caps the limit of allowance to 50% of total salary for wage calculation. If it exceeds 50% it will be added back to wages. So, taking the earlier example if the total salary is Rs. 50,000, and allowances exceed more than 25,000 like earlier it was Rs.35,000 the excess amount i.e Rs. 10,000 will be added back to wages bringing it to Rs. 25,000.

3.2 Variations in legislative scheme arising from state specific legislations/policy documents

State	Year	Key Observation
Kerala	2021	Early mover; aligns closely with central draft rules with structured provisions on wage calculation and advisory boards.
Tamil Nadu	2022	Moderately detailed; focuses on procedural clarity (registers, inspections) and compliance mechanisms.
Karnataka	2026	Recent draft; reflects updated compliance approach with emphasis on digital record-keeping and streamlined inspections.
Madhya Pradesh	2026	Similar to Karnataka; leans toward administrative efficiency and simplified enforcement provisions.
Assam	2021	One of the earliest drafts; relatively basic, closely mirrors central rules with limited innovation.

4. International Experience

4.1 How other counties have sought to define, operationalise and collect data regarding the concept.

UK

Section 27 of the Employment Rights Act 1996 defines "wages" as any sums payable to a worker in connection with employment.

It explicitly includes fees, bonuses, commissions, holiday pay, statutory sick/maternity pay, guarantee payments, time-off payments, suspension remuneration, reinstatement awards, and non-contractual bonuses treated as wages.

Exclusions cover advances/loans, expense reimbursements, pensions/gratuities on retirement, redundancy payments, and non-worker capacity payments; benefits in kind are generally excluded except certain vouchers.

USA

Wages under the Equal Pay Act (EPA, 29 CFR §1620.10) broadly include all payments as remuneration for employment, regardless of form, timing, or name—such as salary, bonuses, profit sharing, expense accounts, fringe benefits, and in-kind services like hotel or car use.

Under the Fair Labor Standards Act (FLSA), the minimum wage ($7.25/hour federally) covers cash wages, with limited valuation for board/lodging; the "regular rate" for overtime includes total remuneration excluding specific items like discretionary bonuses, gifts, and certain premiums.

State laws may set higher minimums, and exemptions apply to executive/professional roles based on salary/duties tests.

China

The "Interim Provisions on Wage Payment" specify that wages are the remuneration provided to workers by their employer in various forms as stipulated in the labour contract. It is required that wages must be paid in cash and cannot be substituted with goods or securities.  

Wages consist of a fixed base salary stated in the labor contract, plus potential bonuses like 13th-month pay, with total remuneration including allowances and performance elements.  Overtime pay is 150% on weekdays, 200% on rest days, 300% on holidays.*

Minimum wages in China are determined region wise (for 31 provinces) and the highest monthly minimum wage is in Shanghai (2,690 yuan/month) while the lowest minimum wage are in Jilin and Qinghai provinces (1,880 yuan/month). Minimum wages in different regions are determined and adjusted with reference to the following factors: (i) living expense; (ii) the average wage level in the society; (iii) labour productivity; (iv) employment situation; and (v) different levels of economic development between regions. (China)

Russia

Salary is the fixed remuneration for performance of work (for a calendar month) based on and appropriate to the professional skills, difficulty, quantity and quality of labour and working conditions and includes additional payments as compensations for working in conditions other than the normal ones and incentive payments. The relevant law on payment of wages is the Labour Code.

Wages feature a federal minimum wage (used for social guarantees), supplemented by regional minimums, paid twice monthly in rubles. Premiums apply for night work, overtime, holidays; equal pay for equal work is required.

According to the Labour Code, wages must be paid at least twice a month (on fortnightly basis) on the day established by internal labour regulations, collective agreement, labour/employment contract. In the case of the coincidence between the weekend or a non-working holiday and the day specified for payment of wages, wages must be paid on the previous working day. (Russia)

4.2 Deviations from Indian practice/conceptualisation relating to the 'term'

Unlike India's capped exclusions, UK law adopts an expansive "wages" definition encompassing virtually all employment-linked payments—statutory sick/maternity pay, holiday pay, bonuses, and awards—excluding only advances, pensions, or reimbursements. This holistic approach deviates from India's exclusion-heavy structure, prioritizing comprehensive deduction protection over allowance flexibility, potentially reducing structuring abuse but increasing employer liability.

Russia has a unique bi-monthly payment system focusing on cash flow equity.

4.3 Any learnings or Best Practices

China has a really good overtime pay policy which is calculated as 150% on weekdays, 200% on weekends (if not compensated by rest days) and 300% on statutory holidays.

Employers must track hours and ensure work hours and leave in China follow these rules. Failure to comply could lead to fines, disputes, or forced compensation. They also have mandatory social insurance programs such as unemployment insurance and maternity insurance.

5. Appearance of 'wages' in Database

5.1 Database A

The page by the Ministry of Labour and Employment provides an overview of the four labour codes and related resources, including reforms aimed at simplifying and consolidating labour laws in India.

5.2 Database B

This document presents the Wage Rate Index, which tracks changes in wage levels over time and helps analyse trends in wage growth across sectors.

5.3 Database C - Parliamentary Responses

This portal provides government datasets related to wages, including statistics used for policy-making, wage determination, and labour market analysis. Timeline starting from the year 2018.

Database C- State/UT-wise Details of Wages and Salary Including Bonus Based on Annual Survey of Industries (ASI) Data from 2018-19 to 2022-23

5.4 Database D

Availability of reliable statistics on wage rates and earnings in different industries, particularly for various occupations, is of considerable importance for a scientific study of the occupational wage structure in various industries and for the formulation of appropriate wage policy.  The Occupational Wage Survey, thus, constitutes the only data source in the country, which provides such details. However, the last survey done under this was in 2016.

6. Research that engages with the term 'wages'

6.1 Research Document by ILO India Wage Report (ILO)

This report analyses wage trends, minimum wage systems, and wage inequality in India, and recommends evidence-based and inclusive wage policies. (International Labour Organization)

6.2 Research Document by National Commission on Labour

National Commission on Labour, Report of the National Commission on Labour, Vol. I (2002), Ministry of Labour, Government of India, available at Indian Labour Archives

6.3 Research Document by National Board for Workers Education & Development

Agarwal, S., 2024. Dattopant Thengadi National Board for Workers Education and Development (DTNBWED): a need for re-organisation. The CASE Journal, 20(2), pp.405-421.  https://dtnbwed.cbwe.gov.in/images/upload/Code-on-Wages--_03L6.pdf

7. Challenges

Implementation/ enforcement delays

These rules must also be adapted at the state level, taking into account regional variations in wages, labor market conditions, and economic realities. Delays in creating these comprehensive rules have slowed down the enforcement process.

Reduction in take-home salary

The restructuring of wages under the new framework may lead to a reduction in monthly take-home pay, as a portion of flexible allowances is redirected towards statutory components such as Provident Fund and gratuity.

Increased Financial Burden on Employers:

The requirement to shift funds from flexible allowances into mandated retirement savings increases the employer’s contribution towards social security, thereby raising overall compliance costs.

The India Wage Report shows that low pay and wage inequality remain a serious challenge to India’s path to achieving decent working conditions and inclusive growth.

8. Way Ahead

To navigate this complexity, organisations must undertake a thorough analysis of the impact of the new codes on their operations. They should review wage structures, financial impact, manpower arrangements, and existing compliance processes. They should carry out a review of their HR processes and policies etc. to come to a state of readiness.kpmg

• HR and legal teams must collaborate with labour law experts to update internal systems, including employment contracts, HR policies, and compliance procedures.
• Organisations should streamline payment cycles and settlement processes to ensure timely and compliant wage disbursement under the new framework.
• The government and employers can leverage data analytics and digital tools to monitor wage payments, bonuses, and benefits in real time, improving transparency and enforcement.
• Timely issuance of detailed rules and clarifications by the government is essential to reduce ambiguity and facilitate smooth implementation.
• Courts are likely to play a crucial role in interpreting ambiguities within the Code, thereby shaping its practical application over time.

9. Related Terms

1. Minimum Wages Defined under Section 6 of Code on Wages 2019, Minimum wages refer to the minimum rate of wages fixed by the appropriate Government for all employees, ensuring that they receive a basic level of remuneration for their work, irrespective of the sector or employment type.

The Government fixes minimum wages for time work or piece work. These wages may be determined on an hourly, daily, or monthly basis. While fixing minimum wages, the Government considers factors such as:

skill level (unskilled, semi-skilled, skilled, highly skilled)

geographical area

nature and arduousness of work (e.g., hazardous or difficult conditions)

Minimum wages may consist of:

Basic wage, and

Cost of living allowance (linked to inflation), and/or

Cash value of concessions (e.g., subsidised essential commodities)

1. National Floor Wage - Defined under section 9 of the Code on Wages, The Central Government shall fix floor wage taking into account minimum living standards of a worker in such manner as may be prescribed: Provided that different floor wage may be fixed for different geographical areas.

(2) The minimum rates of wages fixed by the appropriate Government under section 6 shall not be less than the floor wage and if the minimum rates of wages fixed by the appropriate Government earlier is more than the floor wage, then, the appropriate Government shall not reduce such minimum rates of wages fixed by it earlier.

1. Living Wage - the wage level that is necessary to afford a decent standard of living for workers and their families, taking into account the country circumstances and calculated for the work performed during the normal hours of work; calculated in accordance with the ILO’s principles of estimating the living wage,
2. Fair Wages - Not expressly defined in the Code on Wages, 2019. Concept developed in Indian labour jurisprudence (e.g., Committee on Fair Wages, 1949) A fair wage is a wage that lies between the minimum wage and the living wage, taking into account: the employer’s capacity to pay, industry standards and overall economic conditions.

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Page created 2026-08-21  ·  Last updated 2026-08-28