CODE ON WAGES: CHANGES MADE, WHAT SHOULD THE EMPLOYERS REVIEW
VKC 2026 | Vol.2 | LU | Issue 03 | 21 Oct 2026 | Author: Adv. Nayan Hule, Contributors: Adv: Siddhi Nadgir, Adv. Harish Kumbhar
The Code on Wages, 2019 (“Code”) which came into force on 21st November 2025 is one of the four Labour Codes enacted to consolidate and simplify India's wage related laws. It1 subsumes the Payment of Wages Act, 1936; Minimum Wages Act, 1948; Payment of Bonus Act, 1965; and Equal Remuneration Act, 1976. The Code aims to establish a uniform framework for wages, minimum wages, and payment of wages, bonus and equal remuneration, while expanding wage protection and strengthening employer compliance requirements.
The changes introduced under the Code have a significant impact on employers and their existing employment and payroll practices. Therefore, the employers should take necessary steps in light of these changes and assess their current salary structures, wage calculations and HR processes to identify areas requiring revision and ensure compliance with the applicable provisions. The Wages (Central) Rules, 2026 (“Rules”) were notified by the Ministry of Labour and Employment on 8 May 2026, vide G.S.R. 343(E) and came into force upon publication in the Official Gazette. The said Rules have been formulated to facilitate the implementation of the Code and provide greater clarity on various compliance requirements. The Rules provide clarity on various matters such as wage calculation, minimum wages, registers, records and other procedural requirements, thereby assisting employers in aligning their existing HR and payroll practices with the new framework.
THE KEY CHANGES INTRODUCED UNDER THE CODE: WHAT IS NEW UNDER THE CENTRAL RULES, 2026?
Revised Definition of “Wages”: The Code has introduced a uniform definition of “wages”, primarily consisting of Basic Pay, Dearness Allowance (DA) and Retaining Allowance, if any. However certain components such as HRA, bonus, commission, overtime allowance and conveyance allowance may be excluded. However the aggregate amount cannot exceed 50% of the total remuneration and any amount exceeding this limit shall be added back to wages for statutory calculations. Employers should review salary structures to ensure compliance with the 50% rule and assess its impact on statutory contributions and benefits2.
Universal Minimum Wage Coverage: The Code extends minimum wage protection to all employees, regardless of whether their employment is covered under a scheduled employment. Employers must ensure that employees are paid at least the applicable minimum wage prescribed by the appropriate Government3.
National Floor Wage: The Code empowers the Central Government to prescribe a National Floor Wage as a minimum benchmark for wage fixation. The appropriate Government cannot fix minimum wages below the National Floor Wage prescribed by the Central Government. Employers should monitor applicable minimum wage notifications and ensure that wage structures remain compliant4.
Timely Payment of Wages on Separation: The Code requires wages payable to an employee upon resignation, dismissal, retrenchment or removal to be paid within two working days. The Employer are therefore required to align their HR and payroll processes to ensure timely payment upon separation5.
Overtime and Deductions: Employees working beyond the prescribed working hours are entitled to overtime wages at not less than twice the normal rate of wages, subject to applicable provisions. The Code also regulates permissible deductions from wages and prescribes a ceiling on total deductions. Employers should ensure proper recording and payment of overtime and verify that all wage deductions are legally permissible and within the prescribed limits6.
KEY COMPLIANCE REQUIREMENT FOR EMPLOYERS UNDE THE RULE:
Standardised Employee and Wage Records – Rule 51, Forms I, IV and IX: Employers are required to maintain prescribed records relating to employees, attendance, wages, overtime, advances, fines and deductions in the specified forms. The records may be maintained electronically or physically and are required to be preserved for the prescribed period.
Wage Slips – Rule 52 and Form V: Employers are required to issue wage slips to employees, electronically or physically, in Form V, on or before payment of wages.
Working Hours and Overtime – Rule 5 to 8 and Section 14 of the Code: The Rules set out requirements relating to the standard working hours, weekly rest and the payment of overtime wages for work performed beyond the working hours.
Minimum Wages and Floor Wages-Rules 3 and 10: Under the Rules the floor wage is determined by the Central Government based on minimum living standards, while minimum wages are fixed by the appropriate state Government. Further the minimum wage cannot be lower than the floor wage.
Deductions and Wage Related Records – Rule 13 to 20, Rule 51 and Form IV: The Rules prescribe procedures relating to deductions for fines, absence from duty, damage or loss, advances and loans. Such deductions and realisations are required to be recorded in Form IV.
KEY TAKE AWAY
The Code of Wages, 2019, read with the Wages (Central) Rules, 2026, requires employers to look beyond revising the method of wage calculation. The changes made in the Wage Code necessitate a broader review of the Company’s compensation, payroll and wage related compliance framework. In particular, the revised definition of “wages” and the 50% rule may have implications for existing salary structures and the calculations of statutory benefits. Employers must also assess their existing processes regarding minimum wages, overtime, permissible deductions and the settlement of wages upon separation. The compliance should be consistently seen across employment agreements, Employee Handbooks, salary structures, payroll systems and day-to-day HR practices. The Central Rules also has introduced procedural requirements concerning wage slip, maintenance of employee and wage records, attendance, overtime and deductions, making proper documentation an important aspect of compliance. The Employer should therefore undertake a comprehensive review of their compensation structures, HR policies, payroll processes and statutory records to identify areas requiring modification. The objective should be to create a uniform, transparent and properly documented wage-compliance framework rather than merely restructuring individual salary components. Accordingly, employers should focus on reviewing the wage structure, aligning HR and payroll processes, updating relevant documentation and ensuring that actual workplace practices remain consistent with the applicable statutory requirements.
Sources & Footnotes
1. The Code on Wages, No. 29 of 2019, Gazette of India, Extraordinary, Part II, sec. 1 (Nov. 21, 2025) (India).↩
2.The Code on Wages, No. 29 of 2019, s. 2(y). ↩
3.Code on Wages, 2019, ss 5-6 ↩
4.Code on Wages, 2019, s. 9; Wages (Central) Rules, 2026, r. 10.↩
5.Code on Wages, 2019, s. 17(2)↩ 6. Code on Wages, 2019, §§ 14, 18; Wages (Central) Rules, 2026, rr. 13–20↩
