Before 21 November 2025 each statute had its own idea of what wages meant, which is why an employer could keep a low basic and a long list of allowances and pay less into everything at once. The codes use a single definition, written in almost identical terms in the Code on Wages, 2019, the Code on Social Security, 2020 and the Industrial Relations Code, 2020. Learn it once and it answers the provident fund question, the gratuity question and the notice pay question together.
What the definition then takes out
- any bonus payable under any law which does not form part of the remuneration payable under the terms of employment;
- the value of house accommodation, or the supply of light, water, medical attendance or other amenity, or any service excluded by a general or special order of the appropriate Government;
- any contribution paid by the employer to a pension or provident fund, and interest accrued on it;
- conveyance allowance or the value of a travelling concession;
- any sum paid to defray special expenses entailed by the nature of the employment;
- house rent allowance;
- remuneration payable under an award or settlement or an order of a court or Tribunal;
- overtime allowance;
- any commission payable to the employee;
- gratuity payable on termination; and
- retrenchment compensation, other retirement benefit, or an ex gratia payment on termination.
If the payments made to you under the excluded heads, taken from the bonus item down to the commission item, exceed one half of all remuneration, or such other percentage as the Central Government notifies, then the amount exceeding that one half is deemed to be remuneration and is added back into wages. In plain terms, wages can never be less than half of your total remuneration. A salary structure that keeps basic at thirty per cent and loads the rest into allowances no longer produces a thirty per cent wage base; it produces a fifty per cent one.
Two more limbs that are easy to miss
- Remuneration in kind. Where you are given remuneration in kind in place of the whole or part of your wages, its value counts as wages up to fifteen per cent of your total wages. The Ministry's frequently asked questions give food coupons, ration items and mobile recharge as examples.
- A different rule for two purposes. For the purpose of equal wages to all genders and for the purpose of payment of wages, conveyance allowance, house rent allowance, remuneration under an award or settlement, and overtime allowance are taken into the computation. So the figure you compare against a colleague's, and the figure the employer must actually pay you on time, is the fuller one, not the stripped down one used for the contribution base.
How this feeds provident fund and gratuity
The gratuity chapter computes gratuity at fifteen days' wages for each completed year of service or part in excess of six months, based on the rate of wages last drawn, and for a monthly rated employee the Code itself explains that fifteen days' wages means the monthly rate last drawn divided by twenty six and multiplied by fifteen. Because the definition of wages is the one set out above, the base is not simply the line marked "basic" on your payslip whenever the fifty per cent proviso bites. Our note on gratuity under the Code on Social Security takes the chapter itself further, and our guide on gratuity rules, eligibility and calculation in India works through the arithmetic step by step.
The same definition sits in the provident fund chapter's parent Code, which is why the contribution base moved on the same date. The Ministry's frequently asked questions record the position that the revised definition of wages applies to gratuity calculation with effect from 21 November 2025, that overtime allowance forms part of the components counted when applying the fifty per cent test, and that annual performance based incentives do not form part of wages for computation under the codes. Those answers are stated to be for information rather than a legal document, so treat them as administrative practice rather than the last word.
Do not carry old numbers into a calculation. The maximum gratuity is not written into the statute; the Code says it shall not exceed such amount as the Central Government notifies. The wage limit for employees' state insurance coverage is likewise a notified figure, not a figure in the Code. Even the one half in the wages proviso can be moved by notification. Take each of those from the notification in force on the date you need it.
Run the test on your own payslip
Add up everything you are paid in a month. Add up separately the excluded heads listed above. If the second figure is more than half the first, the excess is added back and your wage base is half your total remuneration. Ask your employer in writing for its computation of wages under the definition, because an employer that cannot produce that working is usually still applying the pre 2025 structure. For where this definition sits in the wider reorganisation and what else moved on the same date, see our overview of what the four labour codes changed for employees.