The Biggest Change
The 50% Wage Rule New
- The Code introduces a uniform definition of wages across all four Labour Codes — basic pay, dearness allowance, and retaining allowance.
- All other components (HRA, conveyance, special allowance, overtime, bonus, commission) are excluded from wages — but only up to 50% of total CTC.
- If excluded allowances exceed 50% of total remuneration, the excess is added back to wages for PF, gratuity, and bonus computation.
- This directly addresses the widespread practice of suppressing basic pay to reduce statutory liability. An employee with 30% basic on ₹1L CTC previously had PF computed on ₹30,000. Now it is computed on ₹50,000 minimum.
Before — Old Law
Wages for PF and gratuity = Basic + DA only. Employers kept basic at 20–30% of CTC. No cap on allowances. Statutory liabilities suppressed legally.
Now — Code on Wages
Wages = MAX(Basic+DA, 50% of CTC). Allowances exceeding 50% of total remuneration are reclassified as wages. PF, gratuity and bonus computed on the higher base.
Financial ImpactCompanies with allowance-heavy salary structures face PF and gratuity cost increases of 5–15%. Finance teams must model the impact across all pay bands and restate gratuity provisions accordingly.
Key Change
Full & Final Settlement — 2 Working Days New
- When an employee leaves — resignation, dismissal, or termination — all dues must be paid within two working days of the date of exit.
- This replaces the common practice of processing F&F in the next month's payroll cycle.
- Applies to all establishments covered under the Code — regardless of size.
Before
F&F processed in the next monthly payroll cycle. No statutory deadline. Common to take 30–45 days.
Now
Mandatory within 2 working days of exit, dismissal, or retrenchment. Delay attracts penalty under the Code.
Operational ImpactMost payroll systems are built on monthly cycles and cannot execute F&F in 2 days without reconfiguration. This is a system and process change, not just a policy update.
Wages and Payment
Minimum Wages and Payment Timelines
- Every employer must pay the minimum wage notified by the appropriate government. A national floor wage is set by the Central Government — state minimum wages cannot fall below it.
- Wage periods must be fixed — daily, weekly, fortnightly, or monthly.
- Payment timelines: daily wages at end of day, weekly on the last working day, fortnightly before end of second day after fortnight, monthly before the 7th of the following month.
- Overtime must be paid at at least twice the normal wage rate for every hour beyond prescribed limits.
- Deductions from wages are restricted to authorised categories — absence, damage, loans, fines. Total deductions cannot exceed 50% of wages in a wage period.
Equal Pay
Gender Equality in Wages
- Employers must not discriminate on the basis of gender in wages for the same or similar work.
- Employers must not discriminate on the basis of sex while recruiting employees.
- Equal remuneration principle now applies universally — not just to specific scheduled employments as under the old Equal Remuneration Act.
Bonus
Annual Bonus Obligations
- Mandatory for every eligible employee who has worked at least 30 days in the accounting year (April to March) and draws wages up to the limit notified by the appropriate government.
- Minimum bonus: 8.33% of wages earned. Maximum: 20%.
- Bonus computation now uses the uniform wage definition — meaning the base may be higher than under the old Payment of Bonus Act for employees with allowance-heavy structures.
Registers and Records
What Must Be Maintained
- Attendance register cum muster roll, wage register, overtime register, register of fines and deductions. Physical or electronic. Preserved for 5 years.
- Wage slips must be issued to all employees on or before payment of wages.
- Notice board must display in English, Hindi and local language: minimum wages, working hours, wage period, payment date, name and address of Inspector-cum-Facilitator.