What Counts as Wages Under the New Labour Code?

The Code on Wages, 2019 defines wages in clause (y) of section 2, its definitions section:

"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

After those words, clause (y) includes basic pay, dearness allowance and retaining allowance by name. A retaining allowance, common in seasonal operations, is paid to keep an employee on the rolls through a period when there is no work; where an employer pays one, it is wages because section 2(y) names it and no clause excludes it. After the words "but does not include", clause (y) lists eleven exclusions, clauses (a) to (k). Section 2(y) contains no exclusion beyond those clauses, and nothing in it lets an employer exclude a payment because it is called an allowance. Each payslip line is therefore classified by naming the exclusion clause it answers; if that clause cannot be named, the line is wages.

Remuneration does not have to be paid in money to be wages, because the words "capable of being so expressed" include anything given for the job that can be valued in money. A benefit paid in goods or services therefore has to be classified like a cash component.

This definition has been law since 21 November 2025, and other duties under India's four Labour Codes commenced on the same day. The commencement orders set the commencement dates, and the Central Rules are made under each Code.

The Code on Wages applies to an employee, defined in section 2(k) as any person employed on wages to do skilled, semi-skilled, unskilled, manual, operational, supervisory, managerial, administrative, technical or clerical work, other than an apprentice engaged under the Apprentices Act, 1961. Section 2(k) sets no wage ceiling. Other Codes use “worker” for a narrower population, so apply the relevant employee, worker or workman definition. People engaged through an app as gig and platform workers fall outside all of these definitions, and their social security is covered by a separate Code on a separate contribution base.

Section 2(y) excludes eleven categories of payment from wages, in clauses (a) to (k), and these clauses determine how allowances are treated under the new Labour Code. They cover four groups: amenities and allowances, employer contributions to funds, genuine expense reimbursements, and payments made because the employment ends. Under the first proviso, the total of payments excluded under clauses (a) to (i) is still compared with one-half of all remuneration (the one-half comparison); one-half is the figure for the time being because the Central Government has notified no other percentage. Where that total exceeds one-half, the excess is deemed to be remuneration and is added to wages. Payments under clauses (j) and (k), gratuity and termination payments, are not counted in that total.

Classify each payslip line by asking four questions in order.

1. Does the payment answer the description in one of clauses (a) to (k)? If not, it is wages, and the classification ends there.
2. Which clause, and what document proves it? If nothing on file matches the clause's description, it is wages.
3. Is the clause one of (a) to (i)? If so, the payment is excluded from wages and counted in the one-half comparison.
4. Is it clause (d), (f), (g) or (h)? If so, it is counted in full for equal wages to all genders and for payment of wages, under the second proviso.

Clause (a) excludes a bonus payable under any law only where that bonus "does not form part of the remuneration payable under the terms of employment", so a statutory bonus that the contract of employment promises is not excluded at all, and is wages. Clause (b) names house accommodation, light, water and medical attendance, and then extends to "other amenity or ... any service excluded from the computation of wages by a general or special order of the appropriate Government". So the four named items are excluded by the clause itself, and anything beyond them needs such an order before its value is excluded from wages. House rent allowance, by contrast, is clause (f), which contains no condition.

Arjun is an engineer at Ritu Deshpande's 140-person Pune software firm, on monthly remuneration of ₹80,000. His basic pay and dearness allowance of ₹28,000 are wages outright, as named inclusions, his house rent allowance of ₹24,000 is excluded under clause (f), and his conveyance allowance of ₹8,000 under clause (d). His special allowance of ₹20,000 is not house rent, conveyance or a commission and defrays no identified expense, so no clause in the section excludes it from wages. After classifying his components, apply the one-half comparison to his salary, counting the excluded house rent and conveyance allowances, and record the result in a worked salary ledger.

The Ministry of Labour and Employment has answered questions on several components the clause list does not name, in two sets of FAQs. Its Additional FAQs on the Labour Codes, as on 16 March 2026, state that overtime allowance counts towards the one-half comparison, and its earlier FAQs of 30 December 2025 answer questions on leave encashment, incentives, employee stock option plans or ESOPs, variable pay and reimbursements. In the answers the Ministry only explains section 2(y), so the answers are the Ministry’s classifications and do not add to the section; where an answer and a clause differ, the section governs the classification, because an inspector, a tribunal and a court apply the section.

The Additional FAQs state that "only statutory components such as employer PF and pension contributions and statutory bonus are included for arriving at 50% of wages", although the same FAQ answer states the test as the "total of (a) to (i)". The first proviso compares the total of the nine clauses (a) to (i), and house rent allowance, conveyance, overtime and commission are four of them, so the Ministry's answer states its own scope too narrowly and differs from the statutory classification.

The Ministry's FAQ states that leave encashment is not part of allowances "as mentioned in Section 2(y) of Code on Wages, 2019", but none of clauses (a) to (k) names a leave payment. On the section as enacted, a leave payment answering no clause is wages, and an employer excluding it is relying on the Ministry's answer rather than on the section.

The Ministry's answers classify components on the basis that each payment is what it is called, and they do not address documentation. A payment is "variable" because its amount varies with an outcome, and a "reimbursement" because a bill supports it. Where the FAQs do not address a component, apply the clause list and the rule that remuneration is wages unless excluded, rather than custom or what the payroll master has recorded for years. Where a Ministry answer and a clause differ, record the answer and its date in the classification review as well, because the answer records the position the department has taken and when, and note the difference there, so that the reviewer who signs the classification knows they are choosing the section and has recorded why.

Under the Explanation to section 2(y), remuneration in kind counts as wages only up to fifteen per cent of total wages payable. The Explanation applies where an employee is given remuneration in kind "in lieu of the whole or part of the wages payable to him", so substitution for pay brings an item within it, and an amenity the establishment provides without substitution falls under clause (b) instead. Where part of the wages is lawfully paid in kind, the Explanation limits the value counted as wages; it does not itself permit payment in kind.

Where an employer lawfully gives goods, food, accommodation or fuel in place of part of the pay and total wages payable are ₹20,000, the limit is ₹3,000, so an in-kind item valued at ₹5,000 adds ₹3,000 to wages and the remaining ₹2,000 falls outside the wage figure. The Ministry's examples of remuneration in kind, at Sl. 18 of the Additional FAQs, are food coupons, ration items and mobile recharge given as benefits under the terms of employment.

In an all-cash office payroll, the Explanation applies where a company-leased flat is given in place of a housing component the employee would otherwise be paid, rather than provided to everyone in the grade regardless of pay; where a subsidised canteen's charge is deducted from pay, rather than absorbed by the company; or where a car or fuel card is provided in place of a conveyance component, rather than in addition to one. Record the outcome for each benefit either way. Where there is remuneration in kind, the record is a monthly valuation entry per item in the wage register, with the basis of valuation written down once and applied consistently, and never a year-end estimate. Ritu's firm pays its Pune staff entirely in money, so her salary template needs one dated line stating "no remuneration in kind" in the classification review.

Yes. The second proviso to section 2(y) counts conveyance, house rent allowance, award or settlement pay and overtime, clauses (d), (f), (g) and (h), in full for two purposes: equal wages to all genders, and the payment of wages. One employee can therefore have two different wage figures in the same month: the section 2(y) figure for statutory calculations, and the second-proviso figure for those two purposes.

Provident fund, State insurance and gratuity are calculated on section 2(88) of the Code on Social Security, 2020, not on section 2(y). Section 2(88) is worded very like section 2(y), but the Code on Social Security has its own instruments and its own ceilings. Where one wage figure is used for all five purposes, that figure is wrong for some of them.

Store the section 2(y) figure and the second-proviso figure as two fields with two labels, and show on the payroll report which figure each calculation was made on. Clauses (d), (f), (g) and (h) are counted in full for equal wages and payment of wages whether or not the one-half comparison added anything to wages, so the two figures can differ in a salary structure where nothing was added back.

Equal wages to all genders is a duty owed to every employee the Code covers, and the payment-of-wages provisions govern when and how the whole of the wages must be paid. An employer who compares two employees' pay for equal-wages purposes on the section 2(y) figure alone is comparing the wrong numbers.

A payment is excluded only where it answers the description in its clause, because section 2(y) excludes payments by their description and not by their payslip label. Conveyance excluded under clause (d) has to relate to travel. A special-expense payment under clause (e) has to defray an expense the job creates, and a document has to show it. A fixed monthly amount labelled "special allowance" that everyone receives regardless of role, travel or spend matches no clause's description, so it is wages. Run the review component by component, write down the clause and the evidence for each, and date it. The reviewer's signature against each component records who accepted that the evidence matches the clause, which is the judgement an inspector will test, and it allows a successor to understand why the payroll masters are classified as they are.

Do not carry a classification forward from the old Acts without re-testing it, because the exclusion lists differ between the repealed Acts and this Code, and a payment excluded from wages before can count as wages now. Re-test a rate in the same way, because current minimum wage rates are set by their own instruments, and which States have notified determines which forms apply. Do not change a payroll master before the reviewer has signed the classification.

Where a component answers a clause but the evidence is incomplete, the safe position is to treat it as wages until the evidence exists. The payslip effect of a corrected classification depends on payroll structure and payslip design. Once the review is signed, record the classification with the other one-time tasks in the transition checklist.