Guide
What counts as wages
The Code on Wages definition of wages, what is left out, and the 50% rule that adds excluded allowances back.
For employers and HR
In short
- “Wages” means all remuneration for the employment, and includes basic pay, dearness allowance and any retaining allowance s. 2(y).
- A list of payments is left out, including house rent allowance, conveyance allowance, overtime allowance, commission, and the employer’s pension or provident fund contribution s. 2(y).
- If the left-out items in clauses (a) to (i) come to more than one-half of total remuneration, the amount above one-half is added back to wages s. 2(y), first proviso.
- The Code on Social Security has its own definition of wages with the same one-half rule s. 2(88).
Does this apply to you?
- The definition applies wherever the Code on Wages uses the word “wages”, including minimum wages, payment of wages and bonus s. 2(y).
- The Industrial Relations Code and the OSH Code each define wages separately for their own purposes IR s. 2(zq) OSH s. 2(1)(zzj).
What the law requires
What is included
- Basic pay, dearness allowance, and retaining allowance if any s. 2(y)(i)–(iii).
- Remuneration in kind given instead of wages counts as wages, up to fifteen per cent of the total wages payable s. 2(y), Explanation.
What is left out
- A bonus payable under any law that is not part of the remuneration under the terms of employment s. 2(y)(a).
- The value of house accommodation, light, water, medical attendance or another amenity or service that the appropriate Government has excluded by order s. 2(y)(b).
- The employer’s contribution to a pension or provident fund, and interest on it s. 2(y)(c).
- Conveyance allowance or the value of a travelling concession s. 2(y)(d).
- A sum paid to meet special expenses that the nature of the job imposes s. 2(y)(e).
- House rent allowance s. 2(y)(f).
- Remuneration payable under an award or settlement, or an order of a court or Tribunal s. 2(y)(g).
- Overtime allowance and commission s. 2(y)(h)–(i).
- Gratuity, retrenchment compensation, other retirement benefits, and ex gratia payments on termination s. 2(y)(j)–(k).
The one-half rule
- Add up all remuneration. If the items in clauses (a) to (i) are more than one-half of it, the excess is treated as remuneration and added to wages s. 2(y), first proviso.
- Gratuity and termination payments in clauses (j) and (k) are not part of this test s. 2(y), first proviso.
- The Central Government may notify a different percentage in place of one-half s. 2(y), first proviso. This library has not found such a notification.
- For equal wages to all genders and for payment of wages, conveyance allowance, house rent allowance, award amounts and overtime allowance are counted as wages s. 2(y), second proviso.
Example Basic pay and dearness allowance are ₹20,000 a month. House rent allowance is ₹15,000, conveyance ₹5,000 and other excluded items ₹10,000. Total remuneration is ₹50,000 and half of it is ₹25,000. The excluded items (₹30,000) exceed half by ₹5,000, so wages are ₹25,000.
Numbers at a glance
| What | Figure | Where |
|---|---|---|
| Excluded items allowed before add-back | one-half of total remuneration | s. 2(y) |
| Remuneration in kind counted as wages | up to fifteen per cent of total wages | s. 2(y) |
Records and deadlines
- Record wages, overtime, advances, fines and deductions in the register in Form IV rule 51.
- Use the Code definition, including the one-half rule, when working out minimum wages, bonus and other amounts that the Code bases on wages s. 2(y).
Not covered here
- The detailed differences between the definitions in the different Codes.
- Any notified percentage other than one-half s. 2(y), until such a notification is added to this library.
- Income tax on salary components.
For workers
In short
- Your “wages” under the Code on Wages include your basic pay, dearness allowance and any retaining allowance s. 2(y).
- Some payments do not count, such as house rent allowance, conveyance allowance, overtime pay and commission s. 2(y).
- If those left-out payments are more than half of your total pay, the extra part counts as wages too s. 2(y), first proviso.
- This matters because many of your rights, such as bonus, are worked out on your wages s. 2(y).
Does this apply to you?
- Yes, wherever the Code on Wages talks about your wages, including minimum wages, payment of wages and bonus s. 2(y).
- The Social Security Code uses its own definition, with the same rule about half of your pay, for social security benefits such as gratuity s. 2(88).
What the law requires
What counts
- Basic pay, dearness allowance, and retaining allowance if you get it s. 2(y)(i)–(iii).
- If part of your pay is given in kind instead of money, its value counts as wages up to fifteen per cent of your total wages s. 2(y), Explanation.
What does not count
- House rent allowance, conveyance allowance or travel concessions s. 2(y)(d), (f).
- Overtime allowance and commission s. 2(y)(h)–(i).
- Your employer’s contribution to your provident fund or pension s. 2(y)(c).
- Money paid to cover special expenses of your job, and a bonus required by law that is not part of your agreed pay s. 2(y)(a), (e).
- Gratuity, retrenchment compensation and other payments when your job ends s. 2(y)(j)–(k).
The one-half rule
- Your employer cannot keep basic pay low by putting most of your pay into allowances: if the left-out items are more than half of your total pay, the part above half is added to your wages s. 2(y), first proviso.
- When it comes to equal pay for all genders and to paying your wages, your conveyance allowance, house rent allowance, overtime allowance and amounts under an award are counted as wages s. 2(y), second proviso.
Example Your basic pay and dearness allowance are ₹20,000 a month, and your allowances are ₹30,000. Your total pay is ₹50,000, so half is ₹25,000. Your allowances are ₹5,000 more than half, so your wages are ₹25,000, not ₹20,000. Try the wages calculator with your own payslip.
Numbers at a glance
| What | Figure | Where |
|---|---|---|
| Allowances above this share are added to wages | half of total pay | s. 2(y) |
| Pay in kind that counts as wages | up to fifteen per cent of total wages | s. 2(y) |
What to do if it isn’t followed
- If you think your wages have been worked out wrongly and you have been underpaid, you, a registered trade union you belong to, or an Inspector-cum-Facilitator can file a claim with the authority appointed under the Code s. 45.
Not covered here
- How the Industrial Relations Code and the OSH Code define wages for their own purposes.
- Income tax on your salary.