[Analysis] The Code on Wages 2019 – Unified Framework | Key Reforms | Wage Structure

The Code on Wages 2019 is one of India’s four new labour codes that consolidates and replaces four earlier wage-related laws—the Minimum Wages Act, Payment of Wages Act, Payment of Bonus Act, and Equal Remuneration Act. It provides a unified legal framework for minimum wages, payment of wages, equal remuneration, and bonus entitlements across all sectors. The Code standardises key definitions, introduces a national floor wage, ensures uniform overtime rates, and simplifies compliance for employers while offering clearer and broader wage protection for workers.

Table of Contents

1. Introduction
2. Laws That Are Now Replaced by the Code
3. Why Was This Code Needed?
4. Detailed Overview of the Code
5. Some Important Facts and Numbers of the Code on Wages, 2019
6. Practical Impact in Day-to-Day Operations

1. Introduction

India’s wage framework has historically evolved through a patchwork of separate laws, each created at different times to address specific economic and labour conditions. Over the years, this resulted in a system where wage regulation was scattered across multiple instruments, each carrying its own definitions, thresholds, coverage rules and compliance mechanisms. As industries diversified and employment structures changed, this fragmented framework became increasingly difficult to administer. Employers often found themselves navigating more than one set of rules to determine how wages should be calculated, when they should be paid, and what entitlements applied in different situations. Employees, on the other hand, faced uncertainty in understanding their rights, especially when the applicability of rules differed by sector, job category or mode of engagement.

The need for a consolidated and modernised wage law therefore became evident. A law that could harmonise definitions, widen coverage, and reduce overlap. A law that could bring structure where there was fragmentation, standardisation where there was inconsistency, and clarity where interpretation had become complex. The Code on Wages, 2019 is designed precisely with this objective. It offers a unified framework governing wages, equality in pay, payment timelines and bonus entitlements, while ensuring that its provisions apply broadly across establishments, irrespective of sector or size.

By integrating these elements into one framework, the Code aims to make wage compliance more predictable, transparent and uniform. It reflects a shift from a scattered set of obligations to a streamlined structure suited to contemporary labour practices and a rapidly evolving economy.

2. Laws That Are Now Replaced by the Code

The Code on Wages replaces four central Acts. This is provided in Section 69 of the Code on Wages.

• The first law is the Payment of Wages Act, 1936, which controlled wage periods, timelines for payment, authorised deductions and claims.
• The second is the Minimum Wages Act, 1948, which allowed Governments to fix minimum rates of wages but only for scheduled employments.
• The third is the Payment of Bonus Act, 1965, which covered eligibility for bonus, amount of bonus, set-on and set-off, and bonus computation.
• The fourth is the Equal Remuneration Act, 1976, which required equal pay for men and women and prohibited discrimination in recruitment.

All these laws now stand repealed and replaced by a single consolidated Code.

3. Why Was This Code Needed?

There are several reasons why this code became necessary.

• One major reason was fragmentation. Wage law was spread across four different legislations, each with separate definitions, enforcement mechanisms and coverage rules. Employers often had to cross-check which Act applied depending on the nature of work, type of employee, gender, or wage level.
• Another reason was outdated coverage. The Minimum Wages Act applied only to employment listed in a Schedule, which left many modern service industries outside its scope. The Equal Remuneration Act applied only to notified employments, which meant many states never implemented it effectively. The Payment of Wages Act applied only up to certain wage limits. This led to confusion and litigation.
• A third issue was the inconsistent definitions. The word ‘wages’ had different meanings in the Payment of Wages Act, Minimum Wages Act, Bonus Act and Equal Remuneration Act. This directly affected PF, gratuity, bonus, overtime, leave encashment and other calculations because each law used a different method.

The Code resolves these problems by creating uniform definitions, universal coverage, standard timelines, and a simpler compliance structure.

4. Detailed Overview of the Code

Below are expanded and more readable explanations for each key feature of the Code.

4.1 Coverage and Applicability

4.1.1 Wide Definition of “Establishment” Covering Almost Everyone (Section 2(m))

The Code applies to any place where any industry, trade, business, manufacture or occupation is carried on. Even one worker is enough for applicability.

Under Section 2(g) of the Minimum Wages Act, only scheduled employments were covered. Under the Equal Remuneration Act, only notified establishments were covered. Now every type of establishment is included, whether commercial, professional or industrial. This is a complete shift from restricted coverage to universal application.

4.1.2 Minimum Wages Now Apply to All Employment (Sections 5-13)

A major shift under the Code is that minimum wages are no longer limited to scheduled employment. They apply to all employees in all sectors.  This is a clear shift from the Minimum Wages Act, 1948, where minimum wages could be fixed only for “scheduled employments” listed in the Act’s Schedule, as reflected in Section 2(g) and Section 3(1)(a). By removing this restriction, the Code brings every occupation and sector—industrial, commercial or service-based—within minimum wage protection.

4.2 Wage Structure and Calculation Norms

4.2.1 The Definition of “Wages” is Now Central and Uniform (Section 2(y))

This is one of the most impactful changes. Wages now mainly include basic pay, dearness allowance and retaining allowance. Everything else, such as allowances, HRA, overtime, bonus or commissions, is excluded unless the total exclusions exceed fifty per cent of total wages, in which case the excess must be added back.

The old laws used different definitions. The Minimum Wages Act included HRA in the definition of wages. The Payment of Wages Act had a much wider list in Section 2(vi). The Bonus Act used its own definition of salary or wage. The uniform definition under the Code reduces manipulation of salary structures and makes PF, gratuity, ESIC, overtime and bonus calculations more predictable.

4.2.2 Remuneration in Kind Up to 15 Per Cent of Wages is Allowed (Section 2(y))

The Code permits up to 15% of wages to be paid in kind if employees ordinarily receive such benefits.

Earlier, the Minimum Wages Act allowed payment partly in kind but only in ‘customary’ or ‘approved’ cases, and through specific notifications.

The new rule is simpler and more uniform.

4.2.3 Introduction of a National Floor Wage (Section 9)

The Code empowers the Central Government to fix a floor wage. State governments cannot fix minimum wages below this level. This is a new concept. Earlier laws had no provision for a nationwide wage baseline. This prevents states from setting arbitrarily low wage rates and creates some uniformity across India.

4.2.4 Overtime Must be Paid at Twice the Normal Rate (Section 14)

The Code requires that overtime wages be paid at not less than twice the normal rate.

Under earlier laws, double overtime mainly applied to factory workers under the Factories Act. Other sectors had different standards. Now, all employees covered by the Code receive the same overtime protection.

4.3 Payment, Deductions and Timelines

4.3.1 Uniform Rules for Payment of Wages (Sections 15-17)

The Code permits payment through cash, cheque or electronic transfer. Wage period cannot exceed one month. And monthly wages must be paid before the seventh day of the next month.

Earlier, under the Payment of Wages Act, payment deadlines varied depending on the number of employees. Factories with fewer than one thousand employees had different timelines.

The new Code simplifies this by having the same deadline for everyone.

4.3.2 Deductions Cannot Exceed Fifty Per Cent of Wages (Section 18)

Only authorised deductions can be made, and the total deductions cannot exceed half of the wages for that period.  Earlier, the Payment of Wages Act allowed deductions of up to 75% in some cases, especially when cooperative society deductions were included. This is a clear employee-friendly improvement.

4.4 Equality, Bonus and Employee Rights

4.4.1 Equal Remuneration for Men and Women (Sections 3 and 4)

The Code prohibits gender-based discrimination in wages and recruitment for the same work or work of similar nature. Further, when there is any dispute as to whether a work is of same or similar nature, the dispute must be decided by authority as may be notified by the appropriate Government.

Earlier, the Equal Remuneration Act applied only to establishments notified by the Government.  Under the Code, this protection extends to all establishments without the need for any notification.

4.4.2 Bonus Provisions Remain Similar But With Modernised Features (Sections 26-41)

The Code retains the basic structure of the Payment of Bonus Act but centralises some parts. Eligibility now depends on wage ceilings that may be notified by the appropriate Government rather than a fixed figure, such as the earlier twenty-one thousand rupees under the Bonus Act.

The minimum and maximum bonus rates remain unchanged at 8.33 per cent and 20 per cent, and the familiar set-on and set-off mechanism continues with a four-year adjustment cycle. Employers are required to pay bonus within eight months of the end of the accounting year, and the grounds for disqualification—such as fraud, riotous or violent behaviour, theft or sexual harassment—continue as before.

The Code also specifies how working days are counted for bonus purposes, including paid leave, lay-offs, and maternity leave. All branches or departments of an establishment can be treated as a single entity for bonus calculation unless separate accounts are maintained. Employers are allowed to adjust any interim, festival, or customary bonuses already paid, and they may deduct amounts for financial loss caused by employee misconduct. Additionally, the Code explicitly covers public-sector establishments that compete with private-sector undertakings, ensuring that employees in such establishments receive the same bonus entitlements.

4.4.3 Contractors Are Included Within the Definition of Employer (Section 2(l))

The Code expands the definition of employer to include contractors and sub-contractors. Earlier laws treated contractors differently depending on which Act applied. Now, wage obligations flow clearly to whoever is responsible for payment and supervision.

4.5 Compliance, Monitoring and Enforcement

4.5.1 Inspector-cum-Facilitator Replaces the Old Inspector System (Sections 51-53)

Instead of the traditional inspector-driven system, the Code introduces an inspector-cum-facilitator who is expected not only to enforce compliance but also to guide and support establishments in meeting their obligations. This marks a shift from the earlier approach found in the Equal Remuneration Act, 1976 (Section 9), the Minimum Wages Act, 1948 (Section 19), the Payment of Wages Act, 1936 (Section 14) and the Payment of Bonus Act, 1965 (Section 27), where the emphasis was largely on inspections, inquiries and prosecutions, with little focus on advisory assistance.

4.5.2 Agreements Reducing Rights are Not Allowed (Section 60)

The Code says that any agreement under which an employee gives up wages, bonus or any other benefit under the Code is void.

Earlier Acts had individual provisions for this. For example, the Payment of Wages Act provided a similar protection under Section 23. But now the rule applies across all wage-related matters.

4.5.3 The Code Overrides Other Laws (Section 61)

The Code gives its provisions clear supremacy by stating that they will override anything inconsistent in any other law, award, contract or service agreement. This is stronger and more uniform than the earlier framework because only a few of the repealed Acts, such as the Equal Remuneration Act which had an overriding clause in Section 3, carried such explicit priority, while others like the Minimum Wages Act, Payment of Wages Act and Payment of Bonus Act, did not contain a broad override of this nature.

The Code therefore removes doubts that previously arose when internal policies, settlements or appointment terms conflicted with statutory wage rules, and ensures that wage entitlements under the Code cannot be diluted by private agreements.

4.6 Claims, Penalties and Legal Processes

4.6.1 Unified Claims Mechanism With Longer Limitation Period (Sections 43-50)

Claims for unpaid wages, minimum wages, bonus and other dues can now be filed within three years. Under the Payment of Wages Act, the limitation was twelve months. Under the Minimum Wages Act, it varied. The Code brings consistency and gives employees more time to seek remedies.

4.6.2 Penalties Are Now More Rational With Compounding Allowed (Sections 52-56)

Most offences can now be settled by paying a compounding fee without going to court. Earlier, all four Acts relied heavily on criminal prosecution, resulting in longer proceedings and burdening Courts. The Code focuses more on compliance than punishment.

4.6.3 MNREGA and Coal Mines PF Act Excluded

These schemes operate under separate frameworks and remain untouched by the Code.

4.7 Important Timelines Under the Code on Wages, 2019

Topic	Timeline/Limit	Section	Notes/Clarification
Payment of Monthly Wages	On or before the 7th day of the succeeding month	Section 17(1)(iv)	Applies to all establishments; earlier varied under the Payment of Wages Act
Payment to Weekly-paid Employees	Last working day of the week	Section 17(1)(ii)	Explicit statutory obligation
Payment to Daily-paid Employees	At the End of the shift	Section 17(1)(i)	Same-day disbursement
Wage Period	Cannot exceed one month	Section 16	Employer may fix daily/weekly/fortnightly/monthly period
Overtime Wages	To be paid at twice the normal rate	Section 14	Uniform across all sectors
Minimum Wages Revision	Governments must review/revise at least once every 5 years	Section 8(4)	Mandatory periodic revision
Floor Wage Revision	Central Government to revise at intervals “as it thinks fit”	Section 9	No fixed frequency; but revision is expected periodically
Bonus Disbursement	Within 8 months of end of accounting year	Section 39(1)	Earlier under PBA: within 8 months unless extended
Set-on and Set-off Period	Carry forward for 4 accounting years	Section 36	Same as old PBA structure
Limitation for Filing Claims	3 years from date of cause of action	Section 45(6)	Uniform limitation; earlier Acts had shorter and inconsistent timelines
Notice/Display Requirements Relating to Fines	To be displayed continuously (in physical or electronic form)	Section 19	Relates to wage rates, working hours, wage period, etc, as per the Act
Appeal Against Authority’s Order	Within 90 days	Section 49	Appeal must be filed before designated Appellate Authority
Opportunity for Rectification Before Prosecution	Inspector-cum-Facilitator may give time to comply before initiating action	Section 54	–
Compounding of Offences	Within time permitted by the compounding authority	Section 56	Applies to compoundable offences only
Records and Wage Slips	To be issued/maintained as prescribed; generally monthly for wage slips	Section 50	Format to be prescribed in rules

5. Some Important Facts and Numbers of the Code on Wages, 2019

Subject/Item	Amount/Quantum	Section	Notes/Clarification
Wage Composition Rule	Allowances cannot exceed 50% of total remuneration; excess added back to wages	Section 2(y)	This is the most consequential numerical rule under the code
Remuneration in Kind	Up to 15% of wages may be paid in kind	Section 2(y)	Applies where employees ordinarily receive benefits in kind
Minimum Bonus	8.33% of wages	Section 26	Same as earlier Payment of Bonus Act
Maximum Bonus	20% of wages	Section 26	Continues from earlier law
Maximum Deductions	Cannot exceed 50% of wages	Section 18	More employee-friendly than earlier 75% allowance under POWA
Penalty	Up to ₹1,00,000	Section  54	Exact penalty varies based on nature of contravention

6. Practical Impact in Day-to-Day Operations

The Code’s uniform definition of wages under Section 2(y) has an immediate practical effect on salary structuring. Since exclusions cannot exceed fifty per cent of total remuneration, any excess must be added back to wages for statutory purposes.

For example, if an employee earns Rs. 30,000 per month with Rs. 10,000 as basic and Rs. 20,000 as allowances, the exclusion portion crosses the 50% limit (Rs. 15,000). The additional Rs. 5,000 is deemed “wages,” increasing the base for PF, gratuity and bonus calculations. This correction now flows automatically because the Code legally caps the maximum allowable exclusions.

Minimum wages now apply to all types of employment, so service-sector roles such as receptionists, retail workers, delivery staff or entry-level office positions, many of which previously fell outside the minimum wage framework, must now be paid at or above the notified rates. This results in wage upward-revision in sectors that historically faced no statutory floor.

Further, Bonus calculations will also see practical uniformity. Since eligibility now depends on Government-notified ceilings rather than a fixed historic threshold, many establishments may need to reassess who qualifies. In cases where salary restructuring increases the wage component due to the 50% rule, some employees may newly fall within the eligible wage ceiling.