Aishani Partners
India’s labour laws evolved incrementally since independence, with statutory provisions scattered across multiple enactments dating back to the pre-independence period. The collective of numerous sector-specific legislation created a complex regulatory maze. The Second National Commission on Labour, 2002 recommended consolidation of these laws into functional groupings to simplify compliance, enhance clarity, and align Indian labour law with contemporary global practice[i].
With a view to simplify and streamline labour laws, the Government of India has, in November of last year, implemented four (4) new labour codes in place of the older twenty-nine (29) statutes. The new labour codes boost employment and workforce welfare, aiming to make strong industries, and facilitating ease of doing business in the country.
We review the key features of each code in our 4-part series.
Part I – Code on Wages, 2019: Review of critical changes
Introduction
The Code on Wages, 2019 (the “Code”) subsumes and repeals four wage-related enactments:
- the Payment of Wages Act (1936),
- the Minimum Wages Act (1948),
- the Payment of Bonus Act (1965), and
- the Equal Remuneration Act (1976).
This Code fundamentally expands wage protections from covering 30% of workers (scheduled employments only) to covering virtually all workers across all sectors, irrespective of employment type or organization size[ii].
States have been afforded a transition period to frame the necessary rules and wage notifications. In the interim, employers are required to immediately review and recalibrate their compliance obligations under the Code.
Critical changes
1. Universal Minimum Wage Applicability:
The Code extends statutory minimum wage protection to all workers in all sectors – formal, informal, and gig workers alike. Previously, only “scheduled employments”, as notified by the government, were covered. Now, even single-employee establishments trigger the applicability of the Code. Contractors and sub-contractors are explicitly deemed employers with corresponding wage obligations. Each organisation must comply regardless of sector, workforce size, or worker classification. This expansion represents India’s first universal wage floor in history.
2. Expansion of the term ‘Establishment’
‘Establishment’ is now any place where any industry, trade, business, manufacture, or occupation is carried on. The applicability of the Code is not dependent on the size of the workforce, and the engagement of even a single worker is sufficient to attract its operation. As a result, the Code applies across a wide range of work arrangements.
This approach contrasts with the more limited coverage under the earlier wage-related legislations. Apart from the limited coverage to scheduled employments under the Minimum Wages Act, 1948, the Equal Remuneration Act, 1976 applied within a narrower regulatory framework and was primarily enforced in relation to notified establishments and employments.
These statutes, taken together, operated on a model of selective applicability rather than comprehensive coverage. By removing the dependence on sector-specific notifications and schedules, the Code establishes wage regulation as a generally applicable legal standard rather than a conditional or exceptional one.
3. Expansion of the term ‘Employer’
The Code expands the definition of employer to include contractors and sub-contractors and specifies that obligations under the Code flow clearly to the entity/person responsible for payment of wages and supervision of the employee.
4. Equal pay rule
The Code on Wages strengthens the framework governing parity of remuneration by prohibiting discrimination in matters of remuneration and recruitment on the ground of gender. In doing so, it adopts a more inclusive approach than the earlier statutory regime by extending the principle of equal pay beyond narrow wage components. The benchmark for determining pay parity is not limited to amounts classified as “wages” under the Code but also takes into account components that are otherwise excluded from the wage definition.
5. The 50% Wage Rule:
Consolidation of definition of ‘Wages’
Section 2(y) introduces a wage definition rule: excluded allowances cannot exceed 50% of total remuneration.
| What qualifies as “Wages”: | What may be excluded: |
| Basic pay | House rent allowance |
| Dearness allowances | Conveyance allowance |
| Retaining allowance | Leave travel concession |
| Any other expressly agreed allowance | Bonus |
| Overtime payments | |
| Special allowances | |
| Commission | |
| Performance-linked incentives | |
| Reimbursements |
If the excluded allowances exceed 50% of total remuneration, the excess is automatically reclassified as “wages” for calculating:
| Provident fund contribution |
| Gratuity |
| Bonus entitlements |
| Pension benefits |
| All statutory social security benefits |
Illustration: If an employee’s total cost-to-company is Rs.1,00,000/-, and the mandatory wage components comprising basic pay, dearness allowance, and retaining allowance aggregate to Rs.40,000/-, while excluded allowances such as house rent allowance, special allowance, commission, and performance bonus together amount to Rs.60,000/-, the statutory threshold is exceeded. Since excluded allowances exceed fifty per cent of total remuneration Rs.50,000/-, the excess Rs.10,000/- is automatically reclassified as wages. Consequently, the wage base for statutory benefit calculations increases to Rs.50,000/-, ensuring that social security contributions and terminal benefits are computed on at least half of the total remuneration.
Why this matters?
Most Indian organisations maintain basic pay at 30-40% of cost-to-company, deliberately minimising statutory contribution liabilities. This practice is now prohibited. The Code mandates that at least 50% of the total remuneration must qualify as wages for benefit calculations.
6. Overtime Compensation:
Section 14 establishes uniform double-wage compensation for all overtime work across all sectors. Previously, only factory workers received guaranteed double overtime; other sectors had varied standards or no protections. Now the standard applies uniformly – retail, services, IT, hospitality, manufacturing, all sectors.
Any work exceeding prescribed normal working hours requires 2 times of the normal wage payment per hour (or part thereof). Working hour limits are 48 hours per week maximum with flexibility permitting up to 12 hours daily. This creates financial incentives to rationalize working hours rather than relying on unlimited overtime extension.
7. Minimum Wage Fixation (Floor Wage) and Revision:
The Central Government establishes a “floor wage”—the national minimum beneath which no state-level minimum wage can fall. States must now revise minimum wages every 5 years (opposing to indefinite intervals previously, which resulted in stagnant minimum wages for decades). Employers may expect regular minimum wage increases requiring periodic salary adjustments across workforces.
8. Timely payments
The Code prescribes a uniform and mandatory time limit for the payment of wages and removes the earlier distinction based on the size of the establishment. Under the previous regime, different timelines applied to establishments employing one thousand or more employees and those employing fewer than one thousand employees. The Code eliminates this bifurcation and establishes a common statutory deadline for wage payments across all establishments. It also extends the obligation of timely payment to all categories of employees, regardless of sector or nature of employment, and empowers authorities to impose penalties for delays or non-compliance, thereby strengthening enforcement and ensuring greater certainty in wage disbursement.
Concluding Remarks
The steps taken by the Indian Government certainly show a well-reasoned addressal for balancing the needs of workers and employers in India, in order to enable harmonious industrial relations as well as promoting ease of doing business in the country.
The revisions in the rules, such as, making applicable the wage rule on all kinds of workers, setting the revolutionary 50% wage rule, expanding the scope of ‘employer’ and ‘establishment’, provisioning for overtime compensation and floor wage rule, are a welcome change as they ensure that the workmen are fairly compensated by their employers, which in turn ensures better workforce protection.
Contributed by Akash Sajan (Associate, Corporate Commercial)
[guidance from Aditi Verma Thakur (Managing Partner)]
[i] National Commission on Labour. (2002). Report of the Second National Commission on Labour. Ministry of Labour and Employment, Government of India.
[ii] Ministry of Labour and Employment, Government of India. (November 23rd, 2025) Code on Wages, 2019 Safeguards Workers, Induces Growth, Empowers Women & Enhances Employment.