Unit V — Wages, Bonus & Equal Remuneration

“There shall be no discrimination in an establishment among employees on the ground of gender in matters relating to wages.” — Section 3, Code on Wages, 2019

The Code on Wages 2019 — One Code, Four Acts

flowchart TD
    CW["Code on Wages 2019\n— First of the Four Labour Codes enacted"]:::root
    CW --> A1["Payment of Wages Act 1936\nTime and mode of payment, deductions"]:::old
    CW --> A2["Minimum Wages Act 1948\nFloor below which wages cannot go"]:::old
    CW --> A3["Payment of Bonus Act 1965\nAnnual bonus to eligible workers"]:::old
    CW --> A4["Equal Remuneration Act 1976\nEqual pay for men and women"]:::old

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Coverage: Universal — every worker, organised and unorganised sector. First time a single definition of “wages” applies across payment, minimum wages, bonus, and equal pay.

Definition of ‘Wages’ — Sec. 2(y) and the 50% Rule

Wages = Basic Pay + Dearness Allowance + Retaining Allowance

flowchart TD
    W["Wages — Sec. 2(y) Code on Wages 2019"]:::root
    W --> INC["INCLUDED\nBasic pay\nDearness allowance\nRetaining allowance"]:::yes
    W --> EXC["EXCLUDED\nBonus, HRA, PF contribution\nGratuity, Conveyance, Overtime\nCommission, Travel allowance"]:::no
    EXC --> RULE["50% RULE — The Anti-Avoidance Check\nIf excluded items exceed 50% of total pay\nThe excess is pulled BACK into wages"]:::rule

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    classDef yes fill:#D8F0D8,stroke:#2E7D32,color:#000;
    classDef no fill:#FFE4E1,stroke:#8B0000,color:#000;
    classDef rule fill:#FFD700,stroke:#8B6914,color:#000;
    linkStyle default stroke:#888,stroke-width:1px;

Why the 50% Rule? Employers used to keep “basic pay” tiny and pile allowances — keeping bonus, PF, and gratuity (all calculated on “wages”) artificially low. The 50% rule stops this.

Example: Total pay ₹10,000. Basic = ₹2,000, HRA = ₹5,000, conveyance = ₹3,000. Excluded items (HRA + conveyance) = ₹8,000 = 80% > 50%. Excess = ₹3,000 is added back to wages. Effective wages = ₹2,000 + ₹3,000 = ₹5,000.

Equal Remuneration — Sec. 3

Audrey D’Costa v. Mackinnon Mackenzie (1987) — Female stenographer paid less than male counterparts for the same work. SC held: equal pay for equal work is a constitutional mandate (Art. 39(d)) and statutory right.

Minimum Wages — Sec. 5–8

flowchart TD
    MW["Minimum Wages — Sec. 5-8 Code on Wages 2019"]:::root
    MW --> FIX["Fixing — Sec. 5\nAppropriate Government fixes minimum rates\nfor scheduled employments"]:::step
    MW --> REV["Revision — Sec. 8\nMust be revised at least every 5 years"]:::step
    MW --> COMP["Components\nBasic rate + Cost of Living Allowance\nOR all-inclusive rate"]:::step
    MW --> FLOOR["Floor Wage — Sec. 9\nNational minimum — set by Central Govt\nState cannot fix minimum BELOW floor wage"]:::key

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Floor Wage vs Minimum Wage

Payment of Wages — Sec. 15–17

Permissible Deductions — Sec. 18–25

flowchart TD
    DED["Deductions from Wages — Sec. 18 Code on Wages"]:::root
    DED --> D1["Fines — with prior notice, worker's consent\nnot exceeding 3% of wages in a month"]:::allow
    DED --> D2["Absence from duty\nproportionate deduction only"]:::allow
    DED --> D3["Damage or loss caused by worker\nafter due inquiry"]:::allow
    DED --> D4["House accommodation provided by employer"]:::allow
    DED --> D5["Advances / loans given by employer"]:::allow
    DED --> D6["PF, ESI, income tax, insurance\nstatutory deductions"]:::allow
    DED --> CAP["TOTAL DEDUCTIONS\ncannot exceed 50% of wages in any wage period"]:::rule

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Payment of Bonus — Sec. 26–36

Eligibility — Sec. 26

Minimum and Maximum Bonus

Disqualification from Bonus — Sec. 28

A worker is disqualified from receiving bonus for that accounting year if dismissed for:

• Fraud
• Riotous or violent behaviour on the premises
• Theft, misappropriation or sabotage of property

Set-On and Set-Off — Sec. 31 and 36

flowchart TD
    SA["Allocable Surplus"]:::root
    SA --> HIGH["Surplus EXCEEDS 20% ceiling\n— EXCESS is CARRIED FORWARD\n= SET-ON for future lean years\nUp to 4 subsequent years"]:::setOn
    SA --> LOW["Surplus is LESS than 8.33% minimum\n— DEFICIENCY carried forward\n= SET-OFF against future profits\nUp to 4 subsequent years"]:::setOff

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    linkStyle default stroke:#888,stroke-width:1px;

Allocable Surplus = 60% of Available Surplus (67% for banking companies). The bonus pool is the allocable surplus, not total profit.

✏️ Sample Solved Problem (IRAC Method)

Problem: Raju earns ₹12,000/month as basic pay and ₹10,000/month in HRA. His employer says his “wages” for bonus purposes are only ₹12,000. Raju argues HRA should also be counted. The employer also pays no bonus saying the company made no profit this year. Decide.

I — Issue

(a) Whether HRA forms part of “wages” under the Code on Wages 2019 for calculating bonus; (b) whether the employer can refuse to pay any bonus citing no-profit.

R — Rule

• Sec. 2(y) Code on Wages 2019 — Wages = basic + DA + retaining allowance; HRA is excluded. BUT if excluded items exceed 50% of total remuneration, the excess is pulled back into wages
• 50% Rule — Total pay = ₹22,000. HRA = ₹10,000 = 45.4% of total pay — does not cross 50%
• Bonus ceiling — Since wages exceed ₹7,000/month, bonus is calculated on ₹7,000 (or minimum wage if higher) — Sec. 26
• Minimum bonus — Sec. 26(3) — 8.33% must be paid even if no profit or inadequate surplus; only when there is no allocable surplus at all can the employer claim minimum bonus from future set-off

A — Analysis

Wages: HRA = ₹10,000 = 45.4% of total pay ₹22,000. The 50% threshold is not crossed — HRA remains excluded. Raju’s “wages” for bonus calculation = ₹12,000 basic only. However, since ₹12,000 > ₹7,000, bonus is calculated on ₹7,000/month (or minimum wage if higher), not on ₹12,000.

Bonus: “No profit” does not extinguish the bonus obligation. Sec. 26(3) mandates a minimum bonus of 8.33% even in loss years. The employer must pay minimum bonus. If no allocable surplus, the deficiency is set off against future profits — but the worker still receives the minimum.

C — Conclusion

HRA does not form part of wages here — the 50% threshold is not crossed. Bonus must however be calculated on ₹7,000/month (the statutory cap). The employer cannot refuse to pay bonus citing no profit — Sec. 26(3) mandates minimum 8.33% bonus regardless of profit. Raju is entitled to minimum bonus of 8.33% of (₹7,000 × 12) = ₹7,000 for the year.

📄 The full PDF bundle has 6 more problems for Unit V — Floor Wage vs minimum wage, equal remuneration enforcement, deductions exceeding 50%, set-on and set-off calculation, and the 30-working-days eligibility test. Get the bundle — ₹149