Code of Wages 2019 - Whether Minimum Wages as notified by the Government amenable to splitting by authorities, or segregation by employers

 Opinion regarding Minimum Wages –

While the definition of Wages, inclusive and exclusive components have been crafted uniform across 
all the Labour Codes, the Industry is gripped with confusion and also concerned about the sustainability.
The core reason being clear cut codification of what consist of Minimum Wages and also the 50% cap of allowances.

The Hon'ble Supreme Court in its path-breaking judgements in Airfreight and Hindustan Satanitary Ware cases, has made crystal clear, as to whether Minimum Wages as notified are amenable to splitting into components by the Authorities and the limited prerogative of the Employers for segregation. Let us review the brief definitions of the relvant law viz. Minimum Wages Act, 1948 and the Code of Wages, 2019 (effective 21st November, 2025).

A) Definitions under the Minimum Wages Act, 1948 

2 (h) “wages” means all remuneration, capable of being expressed in terms of money which would if the terms of the contract 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 2[ and includes house rent allowance] but does not include- 

(i) the value of –

(a) any house-accommodation, supply of light, water, medical attendance; or 

(b) any other amenity or any service excluded by general or special order of the appropriate Government;

 (ii) any contribution paid by the employer to any Pension Fund or Provident Fund or under any scheme of social insurance; 

any travelling allowance or the value of any travelling concession; 

(iv) any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment; or 

(v) any gratuity payable on discharge. 

B) Supreme Court’s   Ruling on  whether it is amenable to splitting –

Hindustan Sanitaryware And Industries ... vs The State Of Haryana on 

29 April, 2019 

The Haryana Government had notified the Minimum Wages, splitting the wages in to

 certain components

Relevant Extract  - Para 9

The only point that remains to be considered is regarding the segregation of wages into components in the 5 Section 2(e), Minimum Wages Act, 1948 form of allowances. It is useful to refer to the judgment of this Court in Airfreight Ltd. v. State of Karnataka6 in which this Court observed:

C) “20. … … … Once rates of minimum wages are prescribed under the Act, whether as all-inclusive under Section 4(1)(iii) or by combining basic plus dearness allowance under Section 4(1)(i), are not amenable to split up. It is one pay package. Neither the scheme nor any provision of the Act provides that the rates of minimum wages are to be split up on the basis of the cost of each of the necessities taken into consideration for fixing the same.”

D) 16. “Wages” is defined in Section 2(h) to mean all remuneration, capable of being expressed in terms of money, which would, if the terms of the contract of the employment, express or implied were fulfilled, be payable to a person in respect of his employment or of work done in such employment and includes house rent allowance. There are four exclusions in the definition relating to travelling allowance, value of housing accommodation, supply of light, water, medical attendance, etc. If certain components of the remuneration are taken care of by the employer, he cannot be asked to pay twice over such allowance/payments which are part of the remuneration. Therefore, we are of the opinion that the prohibition on segregation of the wages into components under the notification is not a valid exercise of power.

Accordingly, the Minimum Wages as notified by different State Governments were permissible to be split into basic + dearness allowance (or only Basic) & HRA.

The Industry practice was to set the HRA component (either only HRA, or HRA+City Compensatory Allowance – CCA), up-to 40% or so, to minimize PF contribution, gratuity, etc.

B) Definitions under the Code of Wages, 2019.

WAGES

 (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 (42 of 2005), 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) (ii) dearness allowance; and 

(iii) (iii) retaining allowance, if any,  

but does not include— 

(a) any bonus payable under any law for the time being in force, which does not form part of the remuneration payable under the terms of employment; 

(b) the value of any house-accommodation, or of the supply of light, water, medical attendance or other amenity or of any service excluded from the computation of wages by a general or special order of the appropriate Government; (

c) any contribution paid by the employer to any pension or provident fund, and the interest which may have accrued thereon; 

(d) any conveyance allowance or the value of any travelling concession; (e) any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment; 

(f) house rent allowance; 

(g) remuneration payable under any award or settlement between the parties or order of a court or Tribunal; 

(h) any overtime allowance; 

(i) any commission payable to the employee; 

(j) any gratuity payable on the termination of employment; 

(k) any retrenchment compensation or other retirement benefit payable to the employee or any ex gratia payment made to him on the termination of employment: …(extract)

Sections 5 to 15 sets out the manner of fixing the minimum wages, components and the procedural aspects. 

The key difference in the provisions, post the Hon’ble Supreme Court’s judgement as cited above is the HRA which was included in the Minimum Wages Act is also now expressly excluded. 

Therefore, the Minimum Wages as notified by the Government are to be paid only can be segregated by the employer into two components, viz.  Basic & Dearness Allowance. 

Welcome to send me an email @viswanathanvasudevan159@gmail.com or message @9920780095for further queries/advisory.