Workforce · Provision
Basic pay, dearness allowance and retaining allowance are wages; HRA, conveyance, overtime and the rest are not, until they exceed half of total pay and the excess is added back. (Section 2(y), Code on Wages, 2019.) In force since 21 November 2025 · The same definition is used by the Code on Social Security, section 2(88) · Text checked against India Code on 25 October 2026.
Quick Statutory Answer
Section 2(y) of the Code on Wages, 2019 defines wages as basic pay, dearness allowance and retaining allowance, and excludes items such as statutory bonus, employer PF and pension contributions, conveyance allowance, house rent allowance, overtime, commission, gratuity and retrenchment compensation. The first proviso is the 50% rule: if the excluded payments in clauses (a) to (i) exceed half of total remuneration, the excess is added back to wages. The Code on Social Security uses the same definition, so PF and gratuity are computed on the higher figure. Remuneration in kind counts as wages up to 15% of total wages.
Enter your own figures in the calculator on this page: Labour code salary calculator, under Code on Social Security, 2020, s.2(88) and Code on Wages, 2019, s.2(y).
2. Definitions.— In this Code, unless the context otherwise requires,— ... (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,— (i) basic pay; (ii) dearness allowance; and (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: 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: Provided further that for the purpose of equal wages to all genders and for the purpose of payment of wages, the emoluments specified in 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;
| Item | In wages? | Clause |
|---|---|---|
| Basic pay, dearness allowance, retaining allowance | Yes | s.2(y)(i)-(iii) |
| House rent allowance | No, but counts toward the 50% test | s.2(y)(f) |
| Conveyance allowance, travel concession | No, but counts toward the 50% test | s.2(y)(d) |
| Overtime allowance, commission | No, but counts toward the 50% test | s.2(y)(h), (i) |
| Employer PF and pension contributions | No, but counts toward the 50% test | s.2(y)(c) |
| Gratuity, retrenchment compensation, ex gratia on exit | No, and not counted in the 50% test | s.2(y)(j), (k) |
| Exclusions (a) to (i) above half of total pay | The excess is added back to wages | First proviso |
| Equal pay and payment of wages | Conveyance, HRA, award remuneration and overtime are counted | Second proviso |
| Remuneration in kind | Counted up to 15% of total wages | Explanation |
Wages ≥ half of pay. Exclusions (a) to (i) above half of total remuneration are added back to wages, and PF and gratuity follow.
The first proviso to section 2(y) of the Code on Wages: if the allowances and other items excluded from wages in clauses (a) to (i) exceed half of total remuneration, the excess is added back to wages. With ₹1,00,000 total pay of which ₹40,000 is basic and DA, wages become ₹50,000.
No. House rent allowance is excluded by clause (f). It still counts toward the 50% test, and for equal pay and payment of wages the second proviso counts it as wages.
It can. The Code on Social Security uses the same definition of wages in section 2(88), so where allowances exceed half of pay, PF contributions and gratuity are computed on the higher wage figure.
The definition of wages that the Code on Wages and the other labour codes rely on: basic pay, dearness allowance and retaining allowance, with listed exclusions, the 50% rule, and remuneration in kind counted up to 15%.
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