Note on New Wage Code

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Note on New Wage Code

April 7, 2021

The government passed Wages Code Bill in the parliament last year, likely to come into effect shortly (Not from 1st April, 2021). Following are few of the critical changes the law will bring into effect:

  • The basic salary should be 50 per cent or more of the total salary. In this case, the structure of the salary of the employees will change. The computation of ‘wages’ under the new code includes components like basic pay, dearness, retaining and special allowances. Specified items like HRA, conveyance, statutory bonus, overtime allowance and commissions have been excluded for computing wages, which, under the code, should be at least 50% of the total remuneration.
  • Since the provident fund is based on the basic salary, the PF will increase with the increase in the basic salary, which means that there will be a cut in the take-home salary or in-hand salary. An increase in the gratuity of employees and contribution to PF will increase the amount received after retirement.
  • Employees would be entitled to ‘overtime wages’ which will be at least twice the normal rate of wages. According to the new code, over 15 minutes of work would qualify as overtime. Currently, less than 30 minutes of work after the working hours is not considered overtime.
  • Over five hours of continuous work is prohibited. A break of 30 minutes would be mandatory after every five hours of work.
  • The new code also proposes that work hours may be extended to 12 hours from 9 hours and having only 4 working days a week.
  • Under the new code, the gratuity becomes mandatory for fixed-term employees, irrespective of five years completion norm.
  • The new code also allows the encashment of leaves. No worker in an establishment will be allowed to work for more than six days a week, except as provided for by Code. Every worker shall be entitled to one day of leave for every 20 days of work per calendar year.
  • The labour codes, however, do not contain a provision requiring employers to change their CTC (cost to company) structure. “Whether it is still a good practice to do so needs to be considered by each employer based on the CTC structure, especially if the basic salary plus other included components is less than 50% of the total remuneration.
  • The Code lays down penalties for offences committed by an employer in contravention of any provisions of the Code. Such penalties depend on the nature and gravity of such an offence. The highest penalty prescribed is imprisonment for 3 months and/or a fine up to INR 1 lakh. The Inspector-cum-Facilitator is required to give employers who are first-time offenders an opportunity to comply with provisions of the Code before initiating prosecution.
  • The definition of ‘wages’ varies across labour legislations in India. The Code seeks to provide a single uniform definition of ‘wages’ as applicable to minimum wages, payment of wages and payment of bonus.
  • Previously, the Payment of Wages Act was applicable only to employees drawing wages below INR 24,000/- (Indian Rupees Twenty-Four Thousand only) per month. However, the Code makes no mention of any such threshold and it appears that the payment of wages provisions in the Code will be applicable to all employees across the board.
  • The Code introduces the concept of a floor wage, which is to be determined by the Central Government after taking into account the minimum living standards of workers in a manner to be prescribed, which may be different for different geographical areas. The appropriate Government can, under no circumstance, fix a minimum wage rate which is lower than the floor rate determined by the Central Government. However, if the existing minimum wages fixed by the appropriate Government is higher than the floor wage, they cannot reduce the minimum wages.
  • The Code has added dismissal from service due to conviction for sexual harassment as a new ground for disqualification for receipt of bonus.
  • The Code prescribes a limitation period of three for filing of claims by an employee as against the existing time period varying from six months to two years. The Code now allows the trade union of which the employee is a member to file claims. Additionally, the Code places the burden of proof on an employer to prove that the amounts claimed by the employee have been paid.

Author: Prashant Jain, Co-Founder & Partner

Disclaimer: The content of this article is intended to provide a general guide to the subject matter and that the same shall not be treated as legal advice. For any queries, the author can be reached at

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