Libertatem Magazine

Regulating Employee Wages: New Code of Wages Bill 2021

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Wage policy regulates the structure and level of wages. Wage policy is a set of legislation and government actions that determines the minimum and fair wages which eventually helps organizations to take decisions on wage-related matters. 

Policies/ legislations that govern the wage system in India are: 

  1. Payment of Wages Act, 1936 
  2. Industrial Dispute Act, 1947 
  3. Minimum Wages Act, 1948 
  4. Equal remuneration Act, 1976 
  5. Payment of Bonus Act, 1965 
  6. Factories Act, 1948 


This is an act to regulate the payment of wages to a certain class of employees. It protects the interests of the employees by ensuring they get paid timely and there shall be no unnecessary deductions from the wages. 

Regular Pay 

It provides that the age period should not exceed 1 month. Payment should be made before the 7th day of a month where the number of workers is less than 1000 and the 10th day when the numbers of workers are more than 1000. 

Mode of Payment 

It provides that payment has to be made in currency notes or coins. According to section 6 cheque payment or crediting to a bank account is allowed with consent in writing by the employee. 

Deduction from Wage 

There are authorized deductions specified in the act and the employer is allowed to deduct wages only in those certain cases. This includes fines in Section 8, absence from duty in Section 9, Damages or loss in Section 10, the deduction for services given to employer in Section 11, recovery of advances and loans in sections 12,13, and payment to cooperative society and insurance as provided in section 13.



This act extends to every industrial establishment irrespective of the number of employees employed therein. 

It provides a dispute settlement committee for disputes between industry and labor, aims to prevent unnecessary strikes, provides labor the right to collective bargaining. 

The act provides for the following authorities to settle the disputes- 

(i)Conciliation officer (ii) Boards of Conciliation (iii) Court of Inquiry (iv) Labour Court (v) Labour Tribunals (vi) National Tribunals



This act provides for the fixation of a minimum rate that every employee must get in certain employments. The state government through a notification in official gazettes prescribes the minimum rate of wages. 



This act was enacted to comply with the constitutional right of equal pay for equal work. It aims to prevent discrimination on the basis of sex. It applies to all workers and provides for advisory committees to promote equal opportunities for women.



The Act applies to all factories and every other establishment which has twenty or more employees. 

It provides for bonuses between 8.33% minimum and 20% maximum. 

The employees who have worked less than 30 days are not eligible for bonuses under this act. 



Basically, this act is for protecting the employees against industrial and occupational hazards. It has provisions that provide for a reasonable wage for overwork. 

Section 59 provides for the twice amount of wages for work done in overtime. Overtime is considered when a worker works for more than 9 hours a day and for more than 48 hours a week.


The code of wages bill passed in December 2019 was to be implemented from April 1, 2021, as confirmed by the Union Finance Minister. 

However, it has not been implemented so far taking into consideration the present covid-19 situation. 

It will be implemented along with other three codes- code on social security, code on industrial relations, and code on occupational safety, health, and working conditions. 

Through these laws, the government aims to reform labor laws and draw parity between employers and employees.


It will bring some major changes to the wage structure and have an impact on employee’s Cost to the Company (CTC) 

“CTC is the cost an employer bears to hire and sustain its employees. Formula: CTC = Gross Salary + Benefits.” 

In simpler terms, it is a term for the overall salary package of the employee. 

  1. Wages term 

Wages will include components like basic pay, dearness allowance, and other special allowances but exclude other items like House Rent Allowance, bonus, overtime allowance, conveyance, and commissions. 

  1. Basic pay 

Earlier the share of basic pay ranged from 30-40% of the CTC (gross salary) but now it has to be 50%. The remainder will be filled by the allowances leave to travel, conveyance, etc.

  1. Provident fund 

The provident fund is calculated on the basis of basic pay, which is increased to 50%, therefore provident fund contribution will rise. 


  • Employee’s salary 20000, out of which basic pay 8000 
  • The remaining will go into allowances. 
  • The provident fund contribution would be 12% of basic pay= 8000 * 12 % = 960 


  • Employee’s salary 20000, out of which basic pay will be 10000 (50%) 
  • The remaining will go into allowances 
  • The provident fund contribution would be 12% of basic pay, that is, 10000. 
  • Now PF contribution will be 1200. 

It can be said that with this law saving towards provident funds will increase but take-home salaries will decrease.

  1. Gratuity 

Similarly, gratuity was earlier calculated as a percentage of an employee’s basic salary but will also now be calculated on “wages”. Up until now, it was the rule that an employee who worked for five continuous years would be eligible for gratuity payment. Now, fixed-term employees who worked for one year will be eligible for gratuity payments. 

This legislation aims to bring security and assurance to the employees. It focuses on the increase in allowances and funds. It wants to secure the retirement plans of employees. 

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