Definitions and Minimum Wages
Section 2. Definitions.
(a). Accounting Year
It simply means the financial year used for all calculations, reporting, and records.
It always runs from 1st April to 31st March of the next year.
All activities under code of wages are measured with reference to this period.
(b). Advisory Board
This is a body of experts/officials created under the law (Central or State) to:
Review matters referred to it.
Give recommendations,
Provide oversight or advice to the government.
(c). Agricultural Income Tax Law
This refers to any law currently in force that imposes tax on agricultural income.
Agricultural income is usually taxed by State Governments, not the Central Government.
So, this term covers all State-level laws that charge tax on farming-related income.
(d). Appropriate Government
The term “appropriate Government” decides which government (Central or State) is responsible for enforcing the law on a particular establishment.
(i). When the Central Government is the appropriate Government:
The Central Government is responsible for establishments that are:
Run directly by the Central Government
Run under the authority of the Central Government
Railways
Mines
Oil fields
Major ports
Air transport services (airlines, airports run by central authorities)
Telecommunication services
Banks (most banks fall under this)
Insurance companies
Any corporation or authority created by a Central Act
Central Public Sector Undertakings (PSUs), their subsidiaries, or contractors working for them
Autonomous bodies owned or controlled by the Central Government
If an organisation is basically Central Government-owned, controlled, or created by a Central law, then the Central Government is the authority.
(ii) When the State Government is the appropriate Government:
For all other establishments, the State Government is responsible.
This covers:
Private companies
Shops, commercial establishments
Factories not owned by the Centre
State PSUs
Local businesses
State government departments and institutions
(h). Co-operative society
A co-operative society is simply an organisation formed by a group of people who come together voluntarily to meet common economic or social needs.
Any society registered under the Co-operative Societies Act, 1912 or under any State co-operative law , then that entity is treated as a co-operative society.
(i). Corporation
A corporation in refers to a body corporate that is created by a Central or State law, such as:
LIC (created by a special Act)
Food Corporation of India
State Road Transport Corporations, and similar statutory bodies.
It does not include:
Companies registered under the Companies Act,
Co-operative societies.
(j). Direct Tax
(i).
Direct tax means tax that is directly charged on a person’s income or profit, not indirectly on goods/services.
Under this clause, direct tax includes:
(A). The Income-tax Act, 1961 - Any tax charged under the Income-tax Act, 1961 which mainly means income tax and related taxes.
(B). The Companies (Profits) Surtax Act, 1964 - Any surtax (additional tax) charged on the profits of companies under the Companies (Profits) Surtax Act is
considered a direct tax.(C). Any agricultural income tax law currently in force - Any tax on agricultural income under the agricultural income tax laws of any State.
(ii).
Any other tax that the Central Government declares, through a notification, to be treated as a direct tax based on the nature of the tax or how it is levied.
So the list is not closed and the government can add more taxes to the “direct tax” category.
(k). Employee
An employee means any person who works for wages in an establishment, regardless of the type of work:
Skilled work (electrician, carpenter, driver)
Semi-skilled
Unskilled
Manual labour
Operational work
Supervisory roles
Managerial work
Administrative work
Technical jobs
Clerical tasks
It includes:
People whose employment terms may be written (express) or unwritten (implied).
Anyone whom the appropriate government specifically declares as an employee
It excludes:
Apprentices under the Apprentices Act.
Members of the Armed Forces.
(l). Employer
It means any person who employs one or more employees in an establishment.
An employer can hire them directly, or through another person, or someone hiring on his behalf.
If the establishment is run by a Central or State Government department, then the Employer is:
The authority specified by the head of that department.
If no authority is specified, then the head of the department himself.
If the establishment is run by a local authority, the “employer” is the chief executive of that authority.
The term also includes:
(i).
In the case of a factory:
The occupier of the factory (as defined in section 2(n) of the Factories Act, 1948).
The manager named under section 7(1)(f) of the Factories Act.
So, Any person who legally runs or manages the factory is treated as the employer.
(ii).
In the case of any other type of establishment:
The person or authority who has ultimate control over the establishment’s operations.
If a manager or managing director has been given that control, then that manager or managing director is the employer.
(iii).
A contractor who supplies labour is also treated as an employer for those workers.
(iv).
If an employer dies, the person legally representing him becomes the employer until responsibilities are settled.
(m). Establishment
Establishment means any place where an industry, trade, business, manufacturing activity, or occupation is carried on.
It also includes Government establishments.
(n). Factory
Factory means a factory as defined in section 2(m) of the Factories Act, 1948.
(o). Government Establishment
Government establishment means any office or department of the Government or of a local authority.
(p). Income Tax Act
Income-tax Act refers to the Income-tax Act, 1961.
(q). Industrial Dispute
Industrial dispute includes:
(i). Any dispute between:
Employers and Employers.
Employers and workers.
Workers and Workers.
If the dispute relates to employment, non-employment, terms of employment, or working conditions of any person.
(ii). Any dispute between a single worker and an employer that arises because of the worker's discharge, dismissal, retrenchment, or termination.
(r). Inspector-cum-Facilitator
This is a person appointed by the appropriate Government under section 51.
They conduct inspections and also guide establishments on compliance.
(s). Minimum Wage
Minimum Wage means the minimum wage fixed under section 6.
(t). Notification
A notification means an official announcement published in:
The Gazette of India.
The Official Gazette of a State
If the notification is released by the Central Government then it would be published in the Gazette of India.
If the notification is published by the State Government then it would be published in the Official Gazette of India.
Whenever the law says notify, it means to publish such an official notification.
(u). Prescribed
Prescribed means specified in the rules made by the appropriate government.
So if the law says “in the prescribed manner,” it refers to the method laid down in the government’s rules.
(v). Same work or work of a Similar nature
This refers to work where the skill, effort, experience, and responsibility are:
The same and performed under similar working conditions.
If any difference in skill, effort, experience, or responsibility between employees of any gender is too minor to matter, the law treats the work as the same or similar.
This is used to ensure equal wages for equal work.
(w). State
State also includes a Union Territory.
So wherever the Code mentions State, it covers Union Territories as well.
(x). Tribunal
Tribunal has the same meaning as in section 2(r) of the Industrial Disputes Act, 1947.
(y). Wages
Wages refers to all monetary compensation that an employee is entitled to receive for the work performed.
The payment can be called salary, allowance, or anything else.
It covers amounts that:
Are paid in money.
Can be calculated in money.
Become payable if the employee fulfils the terms of employment (express or implied).
Wages includes everything paid in money for doing the job.
Wages specifically include the following three components:
Basic pay - The fixed core salary of the employee.
Dearness allowance (DA) - A cost-of-living adjustment to offset inflation.
Retaining allowance - An allowance paid to retain a worker during periods when work is not available.
Wages does not include the following:
(a) Any bonus that is payable under any law but is not part of the employee’s regular agreed remuneration.
(b) The value of benefits such as housing, electricity, water, medical facilities, amenities, or services if the Government has excluded them from the calculation of wages.
(c) Any employer’s contribution to a pension fund or provident fund, including the interest earned on it.
(d) Any conveyance allowance or the value of travel concessions given to the employee.
(e) Any amount paid to the employee to cover special expenses that arise due to the nature of his job.
(f) House Rent Allowance (HRA).
(g) Any remuneration payable under an award, settlement, or court/Tribunal order.
(h) Any overtime allowance.
(i) Any commission payable to the employee.
(j) Any gratuity that becomes payable when employment ends.
(k) Any retrenchment compensation, retirement benefits, or ex gratia payments given at the time of termination of employment.
Calculation of Wages
The 50% Rule
Certain payments like bonus, HRA, overtime, commission, travel allowance, etc. are excluded from the definition of wages.
These are listed in clauses (a) to (i) of the exclusions.
However, employers cannot reduce wages by increasing these excluded allowances artificially.
Therefore, the law sets a 50% limit:
If the total of excluded allowances (a–i) is more than 50% of total remuneration, the extra amount beyond 50% must be added back to wages.
This ensures that at least 50% of total remuneration always counts as “wages.”
The rule prevents employers from manipulating salary structure by lowering basic pay and increasing allowances.
Example:
A has a monthly renumeration of Rs. 1,00,000. (Including in-hand and Allowances)
A has the excluded allowances that are mentioned above amounting to Rs. 60,000.
A’ s 50% of total remuneration would be 50% of Rs. 1,00,000 = Rs. 50,000.
The difference between A’s allowances and 50% of A’s monthly renumeration is Rs.10,000.
Therefore , excluded allowances exceed the limit by Rs. 10,000.
Applying the 50% Rule: The excess amount (Rs. 10,000) must be added back into wages.
So A’s monthly renumeration should be Rs.60,000 excluding allowances.
Special Rule for Equal Wages and Payment of Wages
For the purpose of:
Equal wages to all genders.
Payment of wages the following emoluments will also be included while computing wages these four items:
Conveyance allowance or travel concession
House rent allowance (HRA)
Overtime allowance, commission, or incentive
Employer contributions to pension or PF, and interest
For these specific purposes, the law temporarily expands the meaning of wages by including these four additional components.
Wages in Kind (Non-cash benefits)
If the employer gives any part of wages in kind, such as:
Free food
Free accommodation
Goods or services provided instead of money then:
Up to 15% of total wages (their value) is treated as part of wages.
Example:
A’s Total wages is Rs. 40,000.
Employer gives free food valued at ₹8,000 (20%)
In this case , only ₹6,000 (15% of 40,000) will be considered part of wages.
Even if a person works in an industry, he will not be treated as a worker under this Code if he falls under any of the following four categories:
(a) Armed Forces Personnel:
Anyone who is governed by:
Air Force Act, 1950
Army Act, 1950
Navy Act, 1957
These individuals are expressly excluded.
(b) Police & Prison Staff
A person is not a worker if he is:
Employed in the police service.
An officer or employee of a prison.
(c) Managerial or Administrative Staff
Anyone whose main job duties are managerial or administrative is excluded.
This is based on the nature of duties, not just job title.
Examples:
HR manager handling recruitment and policy decisions
Factory manager overseeing operations with full authority
Head accountant who makes financial decisions
(d). Supervisory Staff Above Wage Limit
A person doing supervisory work is excluded if:
He draws wages exceeding ₹15,000 per month.
Such higher amount as the Central Government may notify.
If supervisory duties are performed but wages are below ₹15,000, the person is still a worker.
Section 3. Prohibition of discrimination on ground of gender.
3(1).
An employer must not pay different wages to employees because of gender.
This rule applies within the entire establishment and all its units.
If employees (men, women, or any gender) perform:
The same work, or
Work of a similar nature, then they must receive the same wages.
The comparison is always for employees working for the same employer.
Pay differences are allowed only when the work is truly different in skill, effort, responsibilities, or working conditions and not due to gender
3(2).
An employer cannot lower the wages of any employee in order to comply with the rule of equal wages
This rule states that to make wages equal, the employer must raise the lower wage and not reduce the higher one.
There should be no gender discrimination in recruitment.
An employer cannot discriminate on the basis of gender when:
Hiring employees for the same work, or
For work of a similar nature, or
Deciding employment conditions (e.g., promotions, training, transfers).
Exception:
Gender-based restrictions may apply only when a law specifically prohibits or restricts the employment of women in certain jobs.
Section 4. Decision as to disputes with regard to same or similar nature of work.
If any dispute arises about whether two kinds of work are the same or similar for the purposes of section 3, then:
That dispute shall be decided by the authority notified by the appropriate Government.
Section 5. Payment of minimum rate of wages.
An employer is not allowed to pay any worker less than the minimum wage fixed by the government.
So:
The government sets a minimum wage for different jobs.
The employer must pay at least that amount.
Paying anything lower is illegal.
Section 6. Fixation of minimum wages.
6(1).
The Government (State or Central, depending on the establishment) has the duty to fix minimum wages for employees.
But while fixing minimum wages, the Government must follow the the procedure laid down in Section 8.
The Government must first consider the floor wage fixed by the Central Government under section 9.
Minimum wages cannot be lower than the floor wage.
6(2).
For the purposes of sub-section (1), the appropriate Government shall fix a minimum rate of wages:
(a) For time work.
(b) For piece work.
6(3).
Where employees are employed on piece work, the appropriate Government shall fix a minimum rate of wages.
This is to ensure that such employees receive at least the minimum rate of wages on a time-work basis.
6(4).
The minimum rate of wages on a time-work basis may be fixed with reference to any one or more of the following wage periods:
(i) By the hour.
(ii) By the day.
(iii) By the month.
6(5).
Where the rates of wages are fixed by the hour, day, or month, the manner of calculating wages shall be as prescribed.
6(6).
For fixing minimum wages under this section, the appropriate Government:
(a) Shall primarily consider the skill levels required (unskilled, semi-skilled, skilled, highly-skilled), or the geographical area, or both.
(b) May also consider additional factors such as arduous work conditions like extreme temperature or humidity, hazardous occupations or processes, or underground work as prescribed.
(c) The Government shall follow such norms for fixation as may be prescribed.
6(7).
The appropriate Government shall, as far as possible, keep the number of minimum wage categories referred to in sub-section (6) to a minimum.
Section 7. Components of minimum wages.
7(1).
(a).
A minimum wage can be structured as a basic wage + a cost-of-living allowance (COLA).
The COLA is adjusted from time to time based on changes in the cost-of-living index (for example, price inflation).
How and when this adjustment happens is decided by the appropriate Government.
(b).
A minimum wage can also be structured as a basic wage, with or without a cost-of-living allowance, plus the cash value of concessions.
These concessions refer to essential items (like food grains) supplied by the employer at concessional rates, if allowed.
The value of those concessions is added to the wage.
(c).
A minimum wage may be fixed as one single all-inclusive wage rate, which includes:
The basic wage.
The cost-of-living allowance.
The cash value of concessional supplies.
7(2).
The cost-of-living allowance and the cash value of concessional essential supplies shall be calculated by an authority notified by the appropriate Government.
The calculation must follow the intervals and directions specified by that Government.
Section 8. Procedure for fixing and revising minimum wages.
8(1).
(a).
The Government may appoint one or more committees.
These committees will conduct inquiries (study the situation, collect data, consult stakeholders).
They will then give recommendations on what the minimum wage should be.
(b).
The Government may instead choose to publish its proposed minimum wage rates through a notification.
This is published publicly so that people who will be affected (employers, employees, etc.) can see it.
The Government must also set a specific date (at least 2 months after the notification date) on which these proposals will be considered after receiving feedback or objections.
8(2).
Every committee that the appropriate Government appoints under clause (a) of sub-section (1) must include the following types of members:
(a).
Persons who represent employers
These members speak on behalf of business owners or management.
(b).
Persons who represent employees, and their number must be equal to the number of employer representatives in clause (a).
(c).
Independent persons, who must not be more than one-third of the total committee members
These are neutral individuals (such as experts, academics, or officials) who are not directly tied to employers or employees.
8(3).
After the appropriate Government completes the process under section 8(1), it must do the following:
If clause (a) was used then it must consider the recommendations of the committee it appointed.
If clause (b) was used it must consider all representations (objections, suggestions, comments) received before the date specified in the notification.
After considering whichever applies, the Government must:
Issue a notification fixing or revising the minimum rates of wages.
Unless the notification specifically mentions a different date, the revised wages will automatically come into force after 3 months from the date the notification is issued.
If the Government chooses to revise minimum wages using the method in clause (b) of sub-section (1) (i.e., publishing proposals for public feedback), then:
It must also consult the concerned Advisory Board established under section 42 before finalizing the new minimum wage rates.
8(4).
The appropriate Government must review or revise minimum wages regularly, ordinarily at intervals not exceeding five years.
Section 9. Power of Central Government to fix floor wage.
9(1).
The Central Government shall fix the floor wage by considering the minimum living standards of a worker, in the manner prescribed.
Provided that, different floor wages may be set for different geographical areas.
9(2).
The minimum wages fixed by the appropriate Government under section 6 shall not be lower than the floor wage.
If the minimum wages already fixed are higher than the floor wage, the appropriate Government shall not reduce them.
9(3).
Before fixing the floor wage under sub-section (1), the Central Government may seek the advice of the Central Advisory Board constituted under section 42(1) and consult State Governments in the prescribed manner.
Section 10. Wages of employee who works for less than normal working day.
When minimum wages are fixed under the Code, an employee must normally be paid for a full normal working day even if they work less than the required hours on a given day.
But this right applies only when the reason for working fewer hours is not their fault.
Section 11. Wages for two or more classes of work.
An employee may perform two or more types of work.
Each type of work may have a different minimum wage rate.
The employer must pay the employee based on:
The time spent doing each type of work.
For each type of work, the employee must receive at least the minimum wage rate applicable to that specific class of work.
The employer cannot average the wage or pay a single blended rate that is below the required minimum for any class of work.
Section 12. Minimum time rate wages for piece work.
Some workers are paid per piece (example: per item stitched, per unit produced)
The Government may fix a minimum time rate (per hour/day/month) but not a minimum piece rate for that job.
In such cases, the employer cannot pay only based on pieces if that amount falls below the minimum time rate.
The worker must receive at least the minimum time rate even if their piece-based earnings are lower.
So, minimum guaranteed wage would be the minimum time rate, not the amount earned per piece.
Section 13. Fixing hours of work for normal working day.
13(1).
When minimum wages are fixed, the appropriate Government may also decide:
(a) Normal Working Day
It can set the number of hours that make up a normal working day.
These hours may include one or more breaks.
(b) Weekly Rest Day
It can mandate a weekly rest day for all or certain employees.
It can also require employers to pay wages for that rest day.
(c) Pay for Working on a Rest Day
If an employee works on the rest day, they must be paid at least overtime wages.
13(2).
The full rules (normal hours + rest day + overtime) do not apply in the same way to certain kinds of employees.
For these categories, the rules apply only to the extent and under the conditions prescribed.
These special categories are:
(a). Emergency Work
Employees working during unexpected or unavoidable emergencies.
(b). Preparatory / Complementary Work
Employees doing tasks that must be done outside normal working hours. (Example: Setting up machinery before others start working).
(c). Essentially Intermittent Employment
Employees whose work naturally involves long waiting periods or periods of inactivity. (Example: Night watchmen, pump operators waiting between tasks).
(d). Work Requiring Completion Before Ending Duty
Employees doing work that must be finished before the shift ends due to technical necessity. (Example: Furnace operations).
(e). Work Dependent on Natural Forces
Employees whose work depends on irregular natural events. (Example: Tide-based work, irrigation depending on water flow patterns).
13(3).
Intermittent employment is work that is irregular or does not have a continuous, pre-arranged schedule.
It involves working only when needed, often on an "on-call" basis, with compensation based on the hours actually worked
A job is classified as essentially intermittent when both of the following conditions are met:
Government Declaration
The appropriate Government officially declares that the nature of the job is intermittent.
Long Inactive Periods During Duty
The employee’s daily duty schedule includes long stretches where they:
Are on duty, but not required to work actively.
Do not need to make continuous physical effort.
Are not required to maintain constant attention.
Section 14. Wages for overtime work.
The Government fixes minimum wages for employees either per hour, per day, or per month.
The law also defines what counts as a normal working day (example: 8 hours).
If an employee works more than the normal working hours on any day:
This extra time is counted as overtime.
For every extra hour (or even part of an hour) of overtime:
The employer must pay at least 2 times the normal rate of wages.
This means overtime cannot be paid at a lower or equal rate.
It must be minimum 200% of normal wages.
