The implementation of the Code on Wages, 2019 brings a paradigm shift in how “Wages” are defined in India. This advisory note breaks down the financial implications for employers.

1. The New Definition of Wages

The Code introduces a unified definition of wages consisting of three parts:

• Inclusions: Basic Pay, Dearness Allowance (DA), and Retaining Allowance.
• Exclusions: HRA, Conveyance, Statutory Bonus, Overtime, etc.
• The Proviso: The total of “Exclusions” cannot exceed 50% of the Total Remuneration.

2. Impact Analysis

If your current salary structure has Basic Pay at 30% or 40% of CTC, you are non-compliant. The new rule forces a higher PF contribution base, which reduces take-home pay but increases retiral benefits.

3. Strategic Action Plan

Employers must audit their payroll immediately. Identify employees where (Basic + DA) < 50% of Gross and restructure accordingly.