Dear members
We would like to raise our concern as under.
The new Labour Code 2025 has indeed brought about a significant shift in the wage structure, and it's crucial for HR professionals to communicate these changes effectively to employees.
Let us go through the definition of wage as under as provided at Code of Wages, 2019
Sec. 2(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, 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, —
(a) basic pay;
(b) dearness allowance; and
(c) 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, under any law for the time
being in force:
Provided that for calculating the wages under this clause, if payments made by the employer to the employee under sub-clauses (a) to (i) exceeds one-half, or such other per cent. as may be notified by the Central Government, of the all remuneration calculated under this clause, the amount which exceeds such one-half, or the per cent. so notified, shall be deemed as remuneration and shall be accordingly added in wages under this clause:
Provided further that for the purpose of equal wages to all genders and for the purpose of payment of wages, the emoluments specified in sub-clauses (d), (f), (g) and (h) shall be taken for computation of wage.
Explanation. —Where an employee is given in lieu of the whole or part of the wages payable to him, any remuneration in kind by his employer, the value of such remuneration in kind which does not exceed fifteen per cent. of the total wages payable to him, shall be deemed to form part of the wages of such employee;
After going through this definition following queries are showing their attention for clarification.
Wages - means Basic, DA & Retaining allowance
Now from a to i we are not to consider them as wages i.e. these has been excluded from the concept of wages.
Now the question arises how we are to consider Bonus amount in monthly pattern as we have not heard of any monthly payment of bonus in any of the law.
We have also not heard of any OT allowance.
For restructuring the wages under these Codes we are to consider the items as shown at a to i but question arises when the employer also has other allowances in the total wages e.g. washing allowances etc. then what will happen?
Now question arises whether we are to consider this amount with a to i for determining the wages or we are not allowed to have such bifurcation in wage structure leaving behind a to i?
Now if d, f, g, h, are consider for computation of wage then what will be the fate of other items shown at a to i if not paid by the employer?
In ESI contribution whether we are to consider the wages as restructured or we are also to consider all other allowances with whatever name given to the employees.
Under EPF Act what will be the definition of wages for international workers for deduction of PF contribution.
Submitted for views from Ld. Members.
Thanks in advance for the contributing members.
R N KHOLA
From India, Delhi
We would like to raise our concern as under.
The new Labour Code 2025 has indeed brought about a significant shift in the wage structure, and it's crucial for HR professionals to communicate these changes effectively to employees.
Let us go through the definition of wage as under as provided at Code of Wages, 2019
Sec. 2(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, 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, —
(a) basic pay;
(b) dearness allowance; and
(c) 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, under any law for the time
being in force:
Provided that for calculating the wages under this clause, if payments made by the employer to the employee under sub-clauses (a) to (i) exceeds one-half, or such other per cent. as may be notified by the Central Government, of the all remuneration calculated under this clause, the amount which exceeds such one-half, or the per cent. so notified, shall be deemed as remuneration and shall be accordingly added in wages under this clause:
Provided further that for the purpose of equal wages to all genders and for the purpose of payment of wages, the emoluments specified in sub-clauses (d), (f), (g) and (h) shall be taken for computation of wage.
Explanation. —Where an employee is given in lieu of the whole or part of the wages payable to him, any remuneration in kind by his employer, the value of such remuneration in kind which does not exceed fifteen per cent. of the total wages payable to him, shall be deemed to form part of the wages of such employee;
After going through this definition following queries are showing their attention for clarification.
Wages - means Basic, DA & Retaining allowance
Now from a to i we are not to consider them as wages i.e. these has been excluded from the concept of wages.
Now the question arises how we are to consider Bonus amount in monthly pattern as we have not heard of any monthly payment of bonus in any of the law.
We have also not heard of any OT allowance.
For restructuring the wages under these Codes we are to consider the items as shown at a to i but question arises when the employer also has other allowances in the total wages e.g. washing allowances etc. then what will happen?
Now question arises whether we are to consider this amount with a to i for determining the wages or we are not allowed to have such bifurcation in wage structure leaving behind a to i?
Now if d, f, g, h, are consider for computation of wage then what will be the fate of other items shown at a to i if not paid by the employer?
In ESI contribution whether we are to consider the wages as restructured or we are also to consider all other allowances with whatever name given to the employees.
Under EPF Act what will be the definition of wages for international workers for deduction of PF contribution.
Submitted for views from Ld. Members.
Thanks in advance for the contributing members.
R N KHOLA
From India, Delhi
The major shortcoming in the definition of wages under the New Codes is that it lacks common sense. There are so many other allowances, like washing allowance, medical allowance, city allowance, shift allowance, meals allowance etc which are either part of agreement or long term settlement. Normally there will be an extension to the excluded allowances like 'any other allowance'. That is absent under the new definition. So we can exclude only allowances marked as items (a) to (k) from the scope of wages. This will create a lot of disputes. When these allowances are paid universally to all employees of an establishment any of these allowance can qualify to be an item under (e), ie, special allowance paid for special skill put in for the work.
Therefore, you should continue to use the same structure because under the existing arrangements also the items of (a) to (i) are not part of wages. Of these, the only allowances which used to be part of salary are Conveyance allowance and HRA. These are not considered as part of salary for PF, Bonus, gratuity etc. In the case of PF, for an establishment which pays PF on actuals, nothing will change. But for establishments which pay it on less than Rs 15000, may have to take the 50% of the total remuneration and pay PF on it. The ESI has also come up with a circular directing the employers to pay it as per new Code. But the ESIC failed to understand overtime, bonus and employer's share to PF are not wages for coverage.
There is no need to restructure salary. But when you take the wages for payment of gratuity, leave encashment etc, you have to take the 50% theory. But in majority of good companies and companies where Unions exist, the basic and DA part is higher than 50& and in most of the cases it is almost 70% of the total salary. In such cases this principle will not work.
From India, Kannur
Therefore, you should continue to use the same structure because under the existing arrangements also the items of (a) to (i) are not part of wages. Of these, the only allowances which used to be part of salary are Conveyance allowance and HRA. These are not considered as part of salary for PF, Bonus, gratuity etc. In the case of PF, for an establishment which pays PF on actuals, nothing will change. But for establishments which pay it on less than Rs 15000, may have to take the 50% of the total remuneration and pay PF on it. The ESI has also come up with a circular directing the employers to pay it as per new Code. But the ESIC failed to understand overtime, bonus and employer's share to PF are not wages for coverage.
There is no need to restructure salary. But when you take the wages for payment of gratuity, leave encashment etc, you have to take the 50% theory. But in majority of good companies and companies where Unions exist, the basic and DA part is higher than 50& and in most of the cases it is almost 70% of the total salary. In such cases this principle will not work.
From India, Kannur
To calculate wages as per new labour codes are as follows:
Monthly gross + yearly items + retirement benefits+ Perks minus gratuity minus ESI contribution of Employer minus any contribution to insurances - mediclaim, GPA, Insurance in lieu of EC Act, etc. not payable to employees. 50 percent of that will be wages.
S K Bandyopadhyay
CEO
USD HR Solutions
98310 81631
Monthly gross + yearly items + retirement benefits+ Perks minus gratuity minus ESI contribution of Employer minus any contribution to insurances - mediclaim, GPA, Insurance in lieu of EC Act, etc. not payable to employees. 50 percent of that will be wages.
S K Bandyopadhyay
CEO
USD HR Solutions
98310 81631
If the calculated Wages is less than minimum wages then minimum wages will be wages. If existing Basic and DA. is more than wages, the same will continue.
S K Bandyopadhyay
CEO
USD HR Solutions
98310 81531
S K Bandyopadhyay
CEO
USD HR Solutions
98310 81531
ESIC Sub Regional Office Marol, Mumbai has issued circular dated 11.12.2025 clarifying that we are to consider wages as per new labour Code wages as Basic, DA & RA only. Method of restructuring of wage as per these Codes still seems to be confusing because of non addition of other allowances in (a) to (i) list.
Regards,
R N KHOLA
From India, Delhi
Regards,
R N KHOLA
From India, Delhi
There is no confusion to determine Wages as per new codes. I have already explained the same. As on date before codes era ESI wages was gross monthly wages with one or two allowances exemption. PF gross as per apex court verdict was Basic plus all allowances except HRA. Now everything will be based on new wages definition. Now the question is how to determine Wages as per definition which I have been clarified.
S K Bandyopadhyay
CEO
USD HR Solutions
98310 81531
S K Bandyopadhyay
CEO
USD HR Solutions
98310 81531
ESIC Gujarat has recently issued a circular with example calculations of ESI (attached)
As Madhu sir rightly stated, "it lacks common sense".
There are so many allowances that are not specifically listed in CoW (a) to (k), so how do we treat them? Do they automatically become part of "Wage" as they are not specifically excluded in (a) to (k)? or do we re-name such allowances in line with (a) to (k)?
ESI: How does one account for variable components like OT? one month employee might be eligible for ESI and next month he might be "out of cover" because of OT. What will happen if employee becomes "out of cover" in Sep and Oct due to OT, do we exit him from ESI as "out of cover". Then what will happen if in Dec there is no OT and the same employee again becomes eligible for ESI?
With so much confusion, ESI is pushing aggressively for establishments to enroll employees in ESI (few circulars attached)
Warm Regards
Arun
From India, Kochi
As Madhu sir rightly stated, "it lacks common sense".
There are so many allowances that are not specifically listed in CoW (a) to (k), so how do we treat them? Do they automatically become part of "Wage" as they are not specifically excluded in (a) to (k)? or do we re-name such allowances in line with (a) to (k)?
ESI: How does one account for variable components like OT? one month employee might be eligible for ESI and next month he might be "out of cover" because of OT. What will happen if employee becomes "out of cover" in Sep and Oct due to OT, do we exit him from ESI as "out of cover". Then what will happen if in Dec there is no OT and the same employee again becomes eligible for ESI?
With so much confusion, ESI is pushing aggressively for establishments to enroll employees in ESI (few circulars attached)
Warm Regards
Arun
From India, Kochi
OT for ESI coverage is not applicable. But OT is considered for ESI deduction as employee may meet accident while in OT duty.
Point number (e) of exclusion list under the definition of Wages includes all other allowances as applicable case to case basis.
S K Bandyopadhyay
CEO
USD HR Solutions
98310 81631
Point number (e) of exclusion list under the definition of Wages includes all other allowances as applicable case to case basis.
S K Bandyopadhyay
CEO
USD HR Solutions
98310 81631
Dear Arun,
It seems that any extra ordinary intelligent person of the Govt. of India has made this definition of wages. We are of our own considering OT allowance as OT payment. We have also not heard of any monthly bonus then which of bonus they are mentioning at (a) of the excluded list. At least ESIC has clearly pointed out wages to considered as Basic, DA & RA if any only & for restructuring the wages we are to consider 2(y) ( a) to (i) but at the same time this exclusion items are not understandable by a no. HR & LL compliance community. While on the other hand some of our members are also saying that this very simple.
We hope that Labour wing of the Central Govt. will come out with some clarification otherwise Govt. is allowing us to have free consultation/guidance from area Inspector -Cum- Facilitator.
Regards,
R N KHOLA
From India, Delhi
It seems that any extra ordinary intelligent person of the Govt. of India has made this definition of wages. We are of our own considering OT allowance as OT payment. We have also not heard of any monthly bonus then which of bonus they are mentioning at (a) of the excluded list. At least ESIC has clearly pointed out wages to considered as Basic, DA & RA if any only & for restructuring the wages we are to consider 2(y) ( a) to (i) but at the same time this exclusion items are not understandable by a no. HR & LL compliance community. While on the other hand some of our members are also saying that this very simple.
We hope that Labour wing of the Central Govt. will come out with some clarification otherwise Govt. is allowing us to have free consultation/guidance from area Inspector -Cum- Facilitator.
Regards,
R N KHOLA
From India, Delhi
Dear Arun,
After going through your 2nd attachment it seems that allowance should Rs 40000/- before restructuring & Rs. 30000/- after restructuring as Rs.10000/- has gone to Basic for balancing the wage & allowances. I may be wrong.
R N KHOLA
From India, Delhi
After going through your 2nd attachment it seems that allowance should Rs 40000/- before restructuring & Rs. 30000/- after restructuring as Rs.10000/- has gone to Basic for balancing the wage & allowances. I may be wrong.
R N KHOLA
From India, Delhi
If we consider allowance as Rs. 40000/- at both the places before and after restructuring then balance would have gone out of order while this is shown as same Rs. 56400/- as take home salary at both the situation & because of this I am saying that allowance after the restructuring the wages should be Rs. 30000/- in place of Rs. 40000/-
R N KHOLA
From India, Delhi
R N KHOLA
From India, Delhi
Thank you Mr. Khona for your replies.
Continuing this interesting discussion on CoW.
Reproduced below is the salary details that we provide in our offer & appointment letters
ANNEXURE – I
DESIGNATION & GROSS EMOLUMENTS
Mr./Ms. GRADE: Designation:
Earning
Basic Salary:
HRA:
Special Allowance:
GROSS
Less PT:
Less Income Tax:
Less PF Employee Contribution:
Less ESI Employee Contribution:
Total Deduction:
TAKE HOME:
Notes:
• Profession Tax will be deducted as applicable
• Income Tax will be deducted at source as applicable
• You will be mandatorily enrolled in PF. Your contribution and company contribution will be limited to the statutory limit prescribed by the govt., (presently 12% of INR 15,000), and will change as per any amends issued by the govt. from time to time.
• Gratuity will be paid as per Gratuity Act
• You will be covered under Group Medical Cover for INR #####/-.
• Bonus will be paid as per statutory regulations
• Group Personal Accident Insurance of INR ####/- will be provided as per policy
• You will be required to do overtime if the project so demands. OT requirement will be determined by your Project Manager. OT payments will be over & above the gross indicated above and will be taxable.
As seen, we do not specify any CTC, CTC for us is an internal metrics, just as the name suggests.
Now coming to the specifics of CoW
a) As I understand, while re-structuring the salary as per CoW will be beneficial, does the code explicitly state that compensation structure has to be re-structured? Only thing that the code specifies is that allowances exceeding 50% of total renumeration shall be "deemed" as "wages"; and hence all statutory remittances / benefits that flow to the employee (PF, ESI, Bonus, Gratuity, OT etc) will be calculated at the "deemed wages"
"Provided that, for calculating the wages under this clause, if payments made by the employer to the employee under clauses (a) to (i) exceeds one-half, or such other per cent. as may be notified by the Central Government, of the all remuneration calculated under this clause, the amount which exceeds such one-half, or the per cent. so notified, shall be deemed as remuneration and shall be accordingly added in wages under this clause"
b) Bonus: Sec 2(y) (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
What is the implication of the words "[/I]which does not form part of the remuneration payable under the terms of employment[/I]?
c) Sec 2(y)(h) OT: In the absence of any further amplification of the term "any overtime allowance", we will have to assume that it means "OT Wages".
d) ESI Coverage: The "Standard" for determining ESI eligibility is "Wage Sec 2(y) = B + DA + RA". So essentially, we set this figure to 50% of total renumeration [B+DA + RA + Sec (2)(y)(a) to (i)] to determine ESI eligibility as per current limit of 21,000/- and remit ESI on the calculated 50%.
e) The Problem: As brought out in various posts, the whole problem in the calculation is that excluded components like OT, Commissions, Defray Special Expenses are variable and total monthly renumeration will vary on a month-to-month basis. And this makes the calculations circular!!! Bonus is also variable and paid usually paid annually and that too only by 30 Nov of the subsequent FY!
f) A Solution: Can we just add up all monies paid to an employee on an upper ceiling basis and set 50%-60% as the "wage (B+DA)" and the balance 50%-40% as total of all "excluded allowances". This should hopefully take care of variable components. Of course, it will have to be explained to the employee that allowances indicated are on "upper ceiling basis" and actuals may vary.
Sorry for this rambling post, but I am just putting my doubts and thoughts to the forum to have a fruitful discussion.
Warm Regards
From India, Kochi
Continuing this interesting discussion on CoW.
Reproduced below is the salary details that we provide in our offer & appointment letters
ANNEXURE – I
DESIGNATION & GROSS EMOLUMENTS
Mr./Ms. GRADE: Designation:
Earning
Basic Salary:
HRA:
Special Allowance:
GROSS
Less PT:
Less Income Tax:
Less PF Employee Contribution:
Less ESI Employee Contribution:
Total Deduction:
TAKE HOME:
Notes:
• Profession Tax will be deducted as applicable
• Income Tax will be deducted at source as applicable
• You will be mandatorily enrolled in PF. Your contribution and company contribution will be limited to the statutory limit prescribed by the govt., (presently 12% of INR 15,000), and will change as per any amends issued by the govt. from time to time.
• Gratuity will be paid as per Gratuity Act
• You will be covered under Group Medical Cover for INR #####/-.
• Bonus will be paid as per statutory regulations
• Group Personal Accident Insurance of INR ####/- will be provided as per policy
• You will be required to do overtime if the project so demands. OT requirement will be determined by your Project Manager. OT payments will be over & above the gross indicated above and will be taxable.
As seen, we do not specify any CTC, CTC for us is an internal metrics, just as the name suggests.
Now coming to the specifics of CoW
a) As I understand, while re-structuring the salary as per CoW will be beneficial, does the code explicitly state that compensation structure has to be re-structured? Only thing that the code specifies is that allowances exceeding 50% of total renumeration shall be "deemed" as "wages"; and hence all statutory remittances / benefits that flow to the employee (PF, ESI, Bonus, Gratuity, OT etc) will be calculated at the "deemed wages"
"Provided that, for calculating the wages under this clause, if payments made by the employer to the employee under clauses (a) to (i) exceeds one-half, or such other per cent. as may be notified by the Central Government, of the all remuneration calculated under this clause, the amount which exceeds such one-half, or the per cent. so notified, shall be deemed as remuneration and shall be accordingly added in wages under this clause"
b) Bonus: Sec 2(y) (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
What is the implication of the words "[/I]which does not form part of the remuneration payable under the terms of employment[/I]?
c) Sec 2(y)(h) OT: In the absence of any further amplification of the term "any overtime allowance", we will have to assume that it means "OT Wages".
d) ESI Coverage: The "Standard" for determining ESI eligibility is "Wage Sec 2(y) = B + DA + RA". So essentially, we set this figure to 50% of total renumeration [B+DA + RA + Sec (2)(y)(a) to (i)] to determine ESI eligibility as per current limit of 21,000/- and remit ESI on the calculated 50%.
e) The Problem: As brought out in various posts, the whole problem in the calculation is that excluded components like OT, Commissions, Defray Special Expenses are variable and total monthly renumeration will vary on a month-to-month basis. And this makes the calculations circular!!! Bonus is also variable and paid usually paid annually and that too only by 30 Nov of the subsequent FY!
f) A Solution: Can we just add up all monies paid to an employee on an upper ceiling basis and set 50%-60% as the "wage (B+DA)" and the balance 50%-40% as total of all "excluded allowances". This should hopefully take care of variable components. Of course, it will have to be explained to the employee that allowances indicated are on "upper ceiling basis" and actuals may vary.
Sorry for this rambling post, but I am just putting my doubts and thoughts to the forum to have a fruitful discussion.
Warm Regards
From India, Kochi
CiteHR.AI
(Fact Checked)-Your understanding of the Code of Wages, 2019 is correct. It's true that allowances exceeding 50% of total remuneration are deemed as 'wages'. Also, your interpretation of OT, ESI Coverage, and Bonus aligns with the law. Your solution seems practical, but it's advisable to consult a legal expert for personalized advice. (1 Acknowledge point)
Further to above post, ESIC, on 18 Dec 25, have issued a clarification that earlier circular dated 11 Dec 25 (see my post dated 15 Dec 25) was issued to create awareness during SPREE and that further action regarding compliance need to be done ONLY after rules are notified.
So we have some time to think & act regarding ESI re-enrolments and remittance i.a.w SS Code, 202o.
Circular attached.
From India, Kochi
So we have some time to think & act regarding ESI re-enrolments and remittance i.a.w SS Code, 202o.
Circular attached.
From India, Kochi
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CiteHR.AI
(Fact Checked)-Your understanding of the new Labour Codes is largely correct. However, it's important to note that the definition of 'wages' under the new codes is more comprehensive and inclusive than before. The exclusion of certain allowances is meant to prevent misuse of the wage structure by employers. The aim is to ensure a fair and equitable wage structure for all employees. Keep up the good work! (1 Acknowledge point)