Code on Wages 2026: Salary Rules, Payroll Compliance & FAQs
The Code on Wages replaced four laws: the Payment of Wages Act, the Minimum Wages Act, the Payment of Bonus Act and the Equal Remuneration Act. For HR and payroll, it is the Code with the most day-to-day consequences.
1. The definition of "wages" and the 50% rule
Wages include basic pay, dearness allowance and retaining allowance. Certain components are excluded, such as bonus, HRA, conveyance, overtime, commission and employer contributions to PF or pension. The key rule: if excluded components exceed 50% of total remuneration, the excess is added back to wages. In practice, basic + DA should be at least 50% of CTC.
Why it matters
The same definition drives gratuity, PF (where computed on actual wages), leave encashment, bonus and retrenchment compensation. A change in structure changes five liabilities at once.
Illustration (₹1,00,000 monthly CTC)
| Component | Old | Compliant |
|---|---|---|
| Basic | ₹30,000 | ₹50,000 |
| HRA | ₹20,000 | ₹20,000 |
| Special allowance | ₹50,000 | ₹30,000 |
| Employee PF at 12% of basic | ₹3,600 | ₹6,000 |
A cost-neutral restructure means take-home falls when PF rises. Model it per band before you announce it.
2. When must wages be paid?
Under the Code's text, wages are due as follows. These timelines come from the statute rather than the rules I fetched, so confirm them against your state's rules [verify]:
- Monthly: by the 7th of the following month
- Weekly: on the last working day of the week
- Fortnightly: by the end of the second day after the fortnight
- Daily: at the end of the shift
- On exit (dismissal, retrenchment, resignation, closure): within 2 working days
3. Deductions: what the Central Rules say
- Total deductions in a month cannot exceed 50% of wages (Rule 13). The excess carries forward to the next wage period.
- Deducting for damage or loss requires giving the employee 7 days to submit an explanation (Rule 18).
- Employers give prior intimation to the employee only. The final rules dropped the draft requirement to inform the inspector-cum-facilitator.
- Keep a deduction register (Form IV).
Practical tip: if a leaving employee owes recoveries that exceed 50% of that month's wages, you cannot simply net everything in F&F without checking this cap and your state's treatment. Take advice before recovering large amounts.
4. Overtime
Overtime is payable at not less than twice the normal rate of wages. Under the OSH Rules it is paid at the end of the relevant wage period, and caps apply (see Blog 9).
Illustration
Monthly wage ₹40,000, divisor 26 days × 8 hours = 208 hours. Hourly rate ≈ ₹192.31. Overtime rate ≈ ₹384.62 per hour. Six overtime hours ≈ ₹2,307.69. Your divisor should follow your policy and state rules [verify].
5. Bonus
The Code retains the statutory range of 8.33% minimum to 20% maximum of wages. Eligibility limits and the wage ceiling for computation should be confirmed against the notified figures [verify]. Maintain a bonus register and pay within the prescribed time after the accounting year.
6. Equal remuneration and registers
Equal pay for equal work regardless of gender, and no discrimination in recruitment conditions. Maintain the registers in the prescribed forms: Employee Register (Form I), Wages Register (Form IV), Wage Slip (Form V), Attendance cum Muster Roll (Form IX). Digital maintenance is increasingly acceptable but must be retrievable and secure.
7. Minimum wages: the Karnataka example
Karnataka issued a final minimum wage notification on 22 May 2026 covering 81 scheduled employments, moving from four zones to three. One summary reports these monthly figures, which should be [verified against the official notification]:
| Skill | Zone 1 | Zone 2 | Zone 3 |
|---|---|---|---|
| Highly skilled | ₹34,225.42 | ₹31,114.02 | ₹28,285.47 |
| Skilled | ₹31,114.02 | ₹28,285.47 | ₹25,714.07 |
| Semi-skilled | ₹28,285.47 | ₹25,714.07 | ₹23,376.43 |
| Unskilled | ₹25,714.07 | ₹23,376.43 | ₹21,251.30 |
The variable dearness allowance is retained and revised annually on the CPI. If you use contractors for security, housekeeping or facilities, confirm they pay the revised rate, because the principal employer carries the risk.
An important interaction
With a minimum wage near or above ₹21,000, many employees cross the ESIC ceiling and fall inside the new PF coverage band. Check both.
8. Compliance checklist
- Restructure salary to the 50% rule.
- Audit every employee against the minimum wage for state, zone and skill.
- Set a pay calendar that meets the 7th-of-month rule.
- Cap deductions at 50%; build the 7-day explanation step into your recovery process.
- Move wage slips to Form V content.
- Redesign F&F to the 2-day exit rule.
Frequently Asked Questions (FAQs) About the Code on Wages
The Code on Wages, 2019, replaced the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976.
The 50% wage rule states that excluded salary components exceeding 50% of total remuneration must be added back to wages. This affects the calculation of statutory benefits and payroll contributions.
Monthly wages must generally be paid by the 7th day of the following month. In cases such as resignation, dismissal, or retrenchment, wages are generally payable within two working days, subject to applicable provisions and rules.
The maximum permitted deductions are generally 50% of an employee’s wages in a wage period. Any excess amount must be handled according to the applicable rules.
The Code establishes minimum wage protections, requires overtime wages at not less than twice the normal rate, and provides for statutory bonuses ranging from 8.33% to 20% for eligible employees, subject to applicable eligibility conditions and wage ceilings.
Conclusion
The Code on Wages turns the salary structure into a compliance document. Fix the definition first and most other numbers follow.