Everything you need to know about Code on Wages 2019

The Code on Wages bill was passed in December 2019 to merge four laws and refine their details. This bill is implemented from 1st April 2021. The Code on Wages is applicable to all employees. As a result of the wages, the Central Government fixes a floor wage which is based on the living standards of the workers.

I. Key Highlights of the Code on Wages 2019

1. Change in the wages definition which will increase the EPF & Gratuity contribution & may decline take-home salary.
2. The allowances offered to employees cannot be >50% of total salary.
3. All the wages shall be payable to the employees within 2 working days from the date of termination/ retirement /removal or dismissal, for instance.
4. Code on wages includes below 4 labour laws
   1. Minimum Wages Act, 1948, 
   2. Payment of Wages Act,1936, 
   3. Payment of Bonus Act, 1965 
   4. Equal Remuneration Act 1976 
5. Code is applicable to all the establishments

II. How wages are defined

“Wages” means 

Category A :
Basic pay + Dearness allowance (DA) + Other Retaining Allowances
But does not include
Category B :
House Rent Allowance (HRA), Bonus, Overtime allowance, Conveyance allowance, Commissions, Contribution to PF, Gratuity

Note: Moreover, the allowance component (Category B) cannot be more than 50% of the total salary. 

The following example shows the restructuring of the Pay components due to the code on wages:

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The restructuring to be performed since the allowances (HRA +Conveyance +Commission) cannot be >50% of total salary 

III. Impact on EPF contribution 

“basic wages” includes all components but does not include— 
(i) the cash value of any food concession;
(ii) any dearness allowance on account of a rise in the cost of living 
(iii) house-rent allowance, overtime allowance, bonus commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment; 
(iv) any gifts given by the employer; 

Amount of PF to be contributed:

IV. Impact on Gratuity Contribution 

Wages includes all components but does not include –  any bonus,  commission,  house rent allowance,  overtime wages and any other allowance. 

Amount of Gratuity to be paid:

V. Time limit to pay salaries

All the wages shall be payable to the employees within 2 working days from the date of termination/ retirement /removal or dismissal  In addition to that, the code on wages has also laid out the time limit within which the payment has to be made.