1. The New Wage
Code and It’s
Implications
Wage Code 2019
Introduced by the
Minister of Labour,
Mr. Santosh Gangwar
on July 23, 2019
Enacted by the
president of India on
8th August 2019.
3. Defining ‘Wages’ – What does Wages Comprise of ?
Remuneration
Remuneration
Wages Comprises of the following
3 components which equals 50%
of Tot. Remuneration
Basic
DA
Retaining
Allowance/Special
Allowance
Balance 50% of Remuneration
comprises of other components
which are excluded from
definition of Wages per Sec 2(y)
Other components – 50%
Sec 2(y) - “Wages" means all remuneration whether by way of salaries, allowances or otherwise, expressed in terms of money or capable of
being so expressed which would, if the terms of employment, express or implied, were fulfilled, be payable to a person employed in respect of his
employment or of work done in such employment. And includes,—(i) Basic pay; (ii) Dearness Allowance; and (iii) Retaining Allowance, if any,
Basic
Dearness
Allowance
Retaining
Allowance
Wages
4. Definition of Wages under- Code on Wages 2019 (Sec 2(y))
Covered Excluded
➢ Covers all Salary Components
expressed in terms of money
or capable of being so
expressed and includes:
✓ Basic Pay
✓ Dearness Allowance
✓ Retaining Allowance
✓ Bonus Payable under any law
✓ Conveyance allowance
✓ House rent allowance
✓ Overtime allowance
✓ Commission
✓ House-accommodation
✓ Light, water, medical attendance
✓ Value of travel concession
✓ Amenity/Service excluded by general or
special order of appropriate government
✓ Sum paid to defray (reimbursement) special
expenses
➢ Provident Fund/Pension Contribution
➢ Remuneration Payable under any award or settlement
➢ Gratuity
➢ Retrenchment Compensation
➢ Limit on exclusions: 50% of total remuneration (Except Gratuity and Retrenchment Compensation)
➢ Remuneration in kind to the extent it does not exceed 15% of total wages shall be included in wages
5. Basic Increase & its impact on restructured Remuneration (Remuneration must be same after Restructuring)
HRA Increase (Generally
expressed as % of Basic)
PF / ESIC / Gratuity
Contribution Increases
Bonus Payout Increases
Net take home reduces due to
increase in BASIC dependent
components of Remuneration
Let’s Assume, An organization currently pays Basic at the 40% of Remuneration (In such Scenario): New Changes
Basic needs to increase to 50% of
Remuneration for sufficing proviso Sec 2(y)
Any component which is a part of the
Remuneration would increase its outlay if it
is calculated as a % of Basic
Larger Contribution by Employers for
Social Security Provisions (Basic Increased)
Basic is Fixed at 50% of Remuneration (Assuming Dearness Allowance is not present & Retaining Allowance=0)
BASIC (to be mandatorily kept @50% of Total Remuneration)
Dearness Allowance (DA) and Retaining Allowance need not be
kept in the Salary Structure for ensuring simplicity of structure.
Modalities of Salary Restructuring : Code on Wages (Implementation)
Note: These modalities are applicable to an organization which doesn’t pay a Dearness Allowance
6. Financial Impact of Increase in Basic :- PF, ESI, Bonus & Gratuity
Social Security
Provision
Erstwhile
Contribution (%)
New
Contribution (%)
Additional Remarks
Provident Fund (PF)
12% of Basic and 1%
Administrative Charges
10% of Basic and 1%
Administrative Charges
• Sec 164 (2) (b) states that PF &ESI shall remain in
force to the extent they are not inconsistent with the
provisions of the code for a period of 1 year from date
of commencement of the code
• Needs to be seen whether INR 15,000 limit on
monthly pay will continue?
Employee State
Insurance Fund (ESI)
Employer contribution is
3.25% of wages
paid/payable
To Remain Same unless
revised rates are notified
Overall Contribution get impacted as ESI is calculated on
Gross Pay which includes an increase in Base Pay to
meet Sec 2(y) requirements
Statutory Bonus 8.33% of Basic
To Remain Same unless
revised rates are notified
Overall, the Statutory Bonus Payout would increase as
the Basic component would have increase to meet
requirements of Sec 2(y)
Gratuity
15 days of wages for
every completed year of
Service
To Remain Same unless
revised rates are notified
• Eligible after 5 years of service
• Fixed Term Employment: 5-year service condition is
not applicable. To be paid on Pro-Rata Basis
• Gratuity Payout would increase as the Basic
component would have increase to meet
requirements of Sec 2(y)
Note: These modalities are applicable to an organization which doesn’t pay a Dearness Allowance
7. S.No
Basic (as a % of
Remuneration)
Provident Fund ESI Bonus Gratuity
1
Basic is Less than 50% of
Remuneration.
PF Contribution
Increases as Basic
Increase to 50% of
CTC.
ESIC Contribution
Increases as Basic
Increase to 50% of
CTC.
Statutory Bonus Payout
Increases as Basic
Increase to 50% of CTC.
Gratuity Payout
Increases as Basic
Increase to 50% of
CTC.
2
Basic is greater than or
equal to 50% of
Remuneration
• As per Sec-124 of SS Code, Employer cannot reduce the Wages or make any charges to the
contribution made under the provision of SS Code. This also includes the total quantum of benefits
to which such employee is entitled under the terms of his employment, express or implied.
• Wherever an employer tries to reduce the PF/ESIC Contribution to restructure the salary, it would
ultimately amount to an automatic ultra vires of Sec 124 of SS Code.
Financial Impact of Increase in Base Pay- PF, ESI, Bonus & Gratuity
Note: These modalities are applicable to an organization which doesn’t pay a Dearness Allowance
8. Illustrations !
Component Amount
Basic 6000
HRA 4000
Conveyance 4000
Commission 4000
Total 18000
• Deemed portion is only 6000 ( 33.3%)
• Excluded portion is 12000 ( 66.6%)
• 50% of all remuneration 9000
• Therefore, deemed wage would be
9000
10. Change in Basic
Salary this can’t be
less that 50%
Changes in PF
Contribution as it
will increase
Changes for
Gratuity as the
code will bring
change in current
rule of Gratuity
Changes in
Allowances as
they will shrink
due to % change
in basic
May result in less
take home salary
due to increased
SS component
Implications of Wage Code :
Conclusion
New wage code is
attempt to secure the
future by increasing
contribution towards
safety and retirement
benefits… and may
likely to be a
reduction in the take-
home salary.
11. Offences and Penalties_ Graded Penalty System :
Non-Maintenance
or Improper
maintenance of
Documents
• Fine up to Rs. 10,000
Contravenes with
any other
Provision
• Fine up to Rs.20,000
• Repetitive offence within Five years, may lead to
imprisonment up to one month and fine may
extend up to Forty thousand rupees or both.
Less Payment as
defined in Code
on Wage,2019
• First offence – Penalty of Rs. 50,000
• Repetitive offence within Five years, may lead to
imprisonment up to three months and fine may
extend up to one lakh rupees or both.
