What is the new definition of wages under the Code on Wages?

Under the Code on Wages, 2019, excluded allowances (like HRA, conveyance, special allowance) cannot exceed 50% of the total remuneration. If they do, the excess amount is treated as basic wages for calculating terminal benefits like PF and Gratuity. This single uniform definition of "wages" applies across all 4 Labour Codes.

What is the timeline for Full and Final (F&F) settlement?

Section 17(2) mandates that employers must pay the full and final settlement to an employee within two working days of removal, dismissal, retrenchment, or resignation — a sharp reduction from the 30-45 day timelines common under the earlier regime.

Does the 50% wage rule affect EPF and ESI contributions immediately?

EPF and ESI contributions are calculated on "wages" as redefined by the Code, which will generally increase contribution amounts where allowances previously exceeded 50% of CTC. A transition period has been provided for EPF/pension scheme adjustments, running through November 2026, to let employers and schemes adjust systems and contribution structures.

Which older laws does the Code on Wages replace?

The Code on Wages, 2019 consolidates and repeals four laws: the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976.

Do employers need to restructure existing CTC breakups?

Yes. Any salary structure where non-included allowances (HRA, special allowance, etc.) exceed 50% of total remuneration will need to be restructured, since the excess is automatically reclassified as wages — directly increasing PF and Gratuity liability calculations going forward.

Pillar 1 of 4

Code on Wages, 2019

Q: What is the National Floor Wage?

The Central Government fixes a statutory National Floor Wage, and State Governments cannot set their minimum wages below this floor. Minimum wages now apply to all employees, irrespective of industry or wage ceiling, removing the earlier scheduled-employment restriction.

The Code on Wages, 2019 is the definitive compliance framework standardising minimum wages, salary restructuring, and prompt settlements across India — consolidating four legacy wage-related laws into a single code with a uniform definition of "wages" that now affects PF, gratuity, and bonus calculations.

Implementation Alert

Employers must urgently audit their existing CTC structures to ensure compliance with the 50% Basic Salary threshold to avoid backdated PF/Gratuity liabilities.

Acts Subsumed

This code repeals and consolidates four legacy acts:

The Payment of Wages Act, 1936
The Minimum Wages Act, 1948
The Payment of Bonus Act, 1965
The Equal Remuneration Act, 1976

Key HR Compliance Mandates

1. The "50% Basic Salary" Rule

Under Section 2(y), the total of all excluded allowances (HRA, conveyance, internet allowance, etc.) cannot exceed 50% of the total remuneration. If allowances exceed 50%, the excess amount is automatically added back to "wages." This shift directly inflates Gratuity and EPF liabilities.

➔ Run the Gratuity Calculator

2. Strict 2-Day Full & Final (F&F) Settlement

Section 17 drastically reduces the timeline for employee exits. Whether an employee resigns, is terminated, or is retrenched, the employer must settle all outstanding wages within two working days from their last date of employment.

3. National Floor Wage

The Central Government fixes a statutory "National Floor Wage." State Governments cannot set their minimum wages below this floor. Minimum wages now apply to all employees, irrespective of industry or wage limit.

4. EPF Transition Window

Because EPF and ESI contributions are calculated on the redefined "wages," a transition period has been provided — running through November 2026 — to let payroll systems and scheme administrators adjust to the new contribution base before full enforcement.

Official Resources & Rules

View State-wise Rules