Hello, In the new wage code it has been mentioned that Basic Salary should be 50% of gross salary less allowances.

My questions are in lines of that

1) While calculating Gross salary is HRA as an allowance be reduced from Gross Salary (considering that the HRA is 50% of Basic in case of Metro).

2) Can Medical and Travel Allowance be reduced from Gross Salary for calculating the Basic salary.

3) Is performance-linked bonus to be considered as part of Gross salary. Further, if Performance linked Bonus(if is not considered to be part of Gross salary) can it be as high as 30% of CTC?

4) Finally what is the concept of Basic salary is it on Gross Salary or CTC (which takes into account gratuity, Group personal accident insurance policies, Performance linked bonus, Employer PF contribution)

Please clarify.

From India, Mumbai
Labour Law & Hr Consultant
Freelancer In Hr &indirect Taxes For
Ceo-usd Hr Solutions
+1 Other


Usually basic salary or wage is notified for all class of employment.
Similarly The DA or special allowances are also notified.
In general Basic wages are considered as Basic wage plus the DA.
As per new code.excluding HRA, any other allowances if given and croses more than the 50% of the basic wage then it is required to be merged with Basic to arrive at calculation of basic wage revised.
The concept of CTC has nothing to do with this.
Other heads like Bonus gratuity, leave with wages etc are calculated as per the applicability and entitlement towards employee fringe benefit.
For calculating CTC as a part of budgetary expenses all heads needs to be inculded which determines the cost incurred towards hiring an employee.
Hope this helps.

From India, Vadodara

Thanks for the response.
Can u further clear my these queries.
My questions are only specific to wage code
That is it mandatory to have a BASIC salary of upto 50%?
That as per the PF judgment of Supreme court all other allowances and specifically Special allowance will also be considered as BASIC. So is that applicable here too. BASIC + Special allowance = BASIC Salary for the 50% threshold?
Is performance linked bonus part of Gross Salary as per the new wage code>

From India, Mumbai

Explanation on Wages Definition under Wage Code and other Codes ( Same definition in all Codes)

There are 3 important steps in the definition of wages -

1. Wages means all remuneration by way of salaries, allowances or otherwise & includes Basic Pay, Dearness Allowance & Retaining Allowance if any.

2. Exclusion List –

(i) Statutory Bonus,( yearly component -part of CTC )

(ii) Value of any house accommodation or the supply of light, water, medical attendance or other amenity or of any service excluded from the computation of the wages.

(iii) Any contribution paid by the employer to any pension or provident fund,

(iv) Any conveyance allowance or the value of any travel concession (LTA, LTC etc.- Yearly component part of CTC),

(v) Any sum paid to the employed person to defray special expenses entitled on him by the nature of his employment,( May be Incentives- production, profit sharing etc.)

(vi) House Rent Allowance,

(vii) Remuneration payable any award or settlement between the parties or an order of a court or tribunal,

(viii) Overtime,

(ix) Commission Payable to the employee

3. If the payment made by the employer to the employee as per exclusion list exceeds 50% of the all remuneration (CTC) calculated under this clause, the amount which exceeds 50% shall be deemed as remuneration & shall be accordingly added in wages.

As the exclusion list is exhaustive & if any employer is interested to pay to any other pocket other than exclusion list (e.g. CCA, any kind of Incentive, Leave Encashment, Insurance etc. as a part of CTC) may or may not be considered as a part of the wages.( Not properly explained under wage code ). Some of the above items may be covered under exclusion clause 2(v) above.

To determine the wage structure for any employee let us consider the following examples :

Option - 1

Monthly CTC : 20000/-

Basic : 10000/-,

Employer PF : 1200/-,

Bonus : 833/- (Considering Minimum Wages is 10000/- @ 8.33% level).

Therefore, the other allowances will be (10000-1200-833) = Rs. 7967/- (Appx. 40% of 20000/-).

Hence, the Monthly Gross salary will be (10000+7967) = 17967/-

Therefore, as it appears that basic is becoming 60% appx. & other allowances are 40% at the monthly gross level

This % will again be changed ( more Basic % ) due effect of OT, LTA, Higher % of Bonus etc..

Option – 2:

Monthly CTC : 41667/-

Basic : 20833/-,

Employer PF : 2500/-,(Paid 12% of entire Basic)

Bonus : 833/- (Considering Minimum Wages is 10000/- @ 8.33% level).

Therefore, the other allowances will be (20833-2500-833) = Rs. 17500/- (Appx. 42% of 41667/-).

Hence, the Monthly Gross salary will be (20833+17500) = 38333/-

The equation will again be changed if there is LTA or other payments.

Option - 3

Monthly CTC : 41667/-

Basic : 20833/-,

Employer PF : 1800/- (PF Basic restricted to 15000/-),

Bonus : 833/- (Considering Minimum Wages is 10000/- @ 8.33% level).

Therefore, the other allowances will be (20833-1800-833) = Rs. 18200/- (Appx. 43% of 41667/-).

Hence, the Monthly Gross salary will be (20833+18200) = 39033/-

In all the cases, if we consider higher percentage of bonus & overtime, it will be safe side to make Basic 65% to 70% of the monthly gross salary & 35% to 30% is the other allowances within the exhaustive list of exclusion ( HRA, Conv. etc.)

For argument shake if we consider Basic is 50% of Monthly gross then in a monthly gross of 20,000/- basic will be 10,000/- and other exclusion allowances will be 50%. Employer contribution to PF is also in the exclusion list which is in this case 12% of 10,000/- = 1200/- per month. If that is add back to other allowances as per proviso, the other allowances will be 11,200/- which is more than 50% of monthly gross. Not complying the definition of wages.

Therefore the calculation of New Remuneration structure should start from CTC and CTC may be as per guideline of exclusion list provided in the definition of wages.

S K Bandyopadhyay ( Howrah,WB)

From India, New Delhi
Hello folks;
Don't be get upset by false news, there is no clarification of CTC 50% in section 2(y) of new wage code bill.
Every one have to consider gross salary's 50%.
And HRA is not part of salary. So, you can adjust allowance in to basic it is going to affect maximum by 2 to 5% (whose salary is at lower scale.)

From India, Ahmedabad

Attached Files (Download Requires Membership)
File Type: pdf Wages under Code of Wages Act.pdf (195.5 KB, 336 views)


In my opinion the confusion about the proportion between the included components and the excluded components of the wage structure as per the definition of the Code arises only because of the introduction of the hypothetical concept of CTC which is nothing but the projected cost of employment per employee per annum from the employer's accounting perspective only.

The term ' wages' under the Code has to be interpreted only with reference to the wage periods and not beyond them. Therefore, only the components of the gross wages payable at the end of the wage period as agreed in the contract of employment have to be taken into account for purposes of segregation and comparison to determine the classified proportionality. If and if only when such payments form part of the gross wages payable at the end of the wage period, they should be brought into the fold of wages; otherwise they are remuneration in the form of fringe benefits both statutory and contractual as well. Therefore, the comparision of proportionality and its adjustment for equation come into play ONLY when the items enumerated from (a) to (i) in the exclusion clause are shown by the employer as parts of the gross wages payable under the contract of employment.

If I were correct such an interpretation started because of the critical analysis of the Code by some experts with reference to CTC in some prominent websites.

Coming to the legal implications of the ratio decidendi of the previous case laws relating to minimum wages, basic wages etc., for the purpose of MW Act,1948, EPF Act,1952 and the like, an objective analysis is required strictly with reference to the definition of the term wages under the new Codes as of obtaining now.

From India, Salem

In the definition of Wages under Wage Code has three part. Part one it is mentioned Wages means all remuneration by way of salaries, allowances or otherwise - not mentioned monthly or yearly and all remuneration in general interpretation means whatever paid to employee weekly, monthly, quarterly, six monthly or yearly basis - not only monthly pay. It is also mentioned "be payable to a person " . Therefore, it is not the concept of CTC which has no legal status and many organization includes money value of different services within CTC - Canteen subsidy, If Co's car are providing , value of the same etc. etc. It is basically the payable amount to any employee as per definition.

Now in part two there is a big list of exclusions (a) to (k) where monthly as well as yearly component - Bonus, LTA/LTC etc. is also mentioned. Employees in terms total remuneration will receive all or some of those components of the exclusion list which will vary from organization to organization. Even contribution to PF/PENSION Fund are also in the list.

Now the third part is Proviso -1 wherein it is mentioned "50% of all the remuneration calculated under this clause ..... " which does not mean only the monthly gross amount but the amount paid as Basic, DA and the amounts in the exclusion list which one employee will receive or payable to him/her as total remuneration.

For the convenient of calculation and majority Indian organizations control employee cost as CTC , it will be better to subtract the items from CTC which are not payable to employee and not includes in all the remuneration under the clause - ESIC, Insurance Premium, Subsidy cost - canteen , car if any, Gratuity ( not considered under the definition of Wages from a to i ) etc. etc. and then 50% of that will be Wages( Basic & DA ) as per definition of Wages under Wage Code.

S K Bandyopadhyay ( WB, Howrah)

CEO-USD HR Solutions

From India, New Delhi

There are two school of thoughts. One Wages ( Basic & DA ) should be 50% of monthly gross and another 50% of Total remuneration calculated under the definition of Wages and payable to the employee consisting of monthly, bi-monthly, quarterly, half yearly and yearly components. Let us take one example to understand the same.

Basic - 20000/- per month i.e 2,40,000/- per year

HRA - 10000/- per month i.e 1,20,000/- per year

Monthly gross - 30,000/- per month i.e 3,60,000/- per year

Furnishing Allowance - 3, 00, 000/- per year paid bi-monthly i.e 50,00/- per bi-monthly

LTA - 3,00,000/- per year paid quarterly i.e. 75,000/- per quarter

Bonus - 2,00,000/- per year paid 6 monthly i.e 1,00,000/- every 6 months

PF Contribution - 2400/- per month i.e 28,800/- per year

Insurance premium - 20,000/- per year ( Mediclaim, Group LIC etc.)

Gratuity - 11,550/- (appx) per year

It has been agreed by everybody that due to implementation of wage code Employer's PF Contribution and Gratuity impact will increase.

In the above example the CTC of the employee is 12,20,350/- per year. As per 1st school of thought there is no issue for Wages ( Basic & DA ) which is 20,000/- per month and fulfilling conditions 50% as in the total monthly gross there are two components only with HRA is 10,000/- per month. There will also be no impact on Employer's PF contribution and Gratuity payment.

In the 2nd school of thought Wages i.e Basic & DA should be the 50% of Total remuneration calculated under the definition of Wages as per Wage Code. The total remuneration is 12,20,350 - 20,000 - 11,550 = 11,88,800/- per year . Therefore, Wages ( Basic & DA ) per year = 1188800/2 = 594400 i.e 49,533/- per month instead of 20,000/- per month.

Law makers knowing fully well that the experts of HR professionals will play intelligently and by pass law to exploit employees which is also happening today - 25 to 40% of monthly gross as wages ( Basic and DA).

Therefore, from the above explanation as well as my earlier post, it may be concluded that 2nd school of thought is trending towards the correctness.

S K Bandyopadhyay ( West Bengal, Howrah)

CEO - USD HR Solutions

From India, New Delhi

Bandyopadhyay ji,

Just for sake of more clarification-

In the example given by you with CTC considered is Rs. 12,20,350.

While considering Wages as per 2nd school of thought, you deducted Gratuity and Insurance Premium annual amount.

My question is, should we not deduct other excluded component also ie HRA, Bonus, PF also along with excluded component Gratuity and Insurance Premium ?

ie should not the Wages as per new code in this case be 12,20,350 - 20,000,-11,550 - 1,20,000 -2,00,000 - 28,800 = 840000 /2 = 4,20,000 per year ie Rs.35,000 per month?

Please suggest.


Rakesh Shinde


Dear Mr. Rakesh Sinde,

If we consider your proposal then Basic will be 4,20,000/- per annum and other allowances will be 11,88,800 - 4,20,000/- = 7,68,800/- per annum. Not fulfilling the 50% condition.

Now the question is why I have deducted Gratuity and Insurance premium from CTC to calculate Basic. I will request you to read the definition of "Wages" in details.

In the first part it is - Wages means all remuneration ......... by way of salaries, allowances expressed in terms of money............... be payable to a person ............ and includes - Basic Pay, DA & RA if any.

If we analyse the above, the key words are All Remunerations, By way of Salaries , allowances, Expressed in terms of money and Payable to a person. Therefore, in any CTC structure there are items which are not payable to employee e.g Insurance premium, Facility for Co's car, Canteen Subsidy etc. etc. random vary from organization to organization are not considered as part of wages. Only the payable portion expressed in terms of money are to be considered. As such Employer contribution to ESI is not the part of Wages definition as it is not payable to employee.

In second part there are exclusion list (a) to (k) wherein (j) gratuity is mentioned.

Now in part three - First proviso wherein it is mentioned that if payments made by the employer to the employee under sub-clauses (a) to (i) - (here (j)-gratuity is dropped) exceeds 50% of the all remuneration calculated under this clause, the amount which exceeds 50% , shall be deemed as remuneration and shall be accordingly added in wages under the clause.

If we analyse the above, no where it is mentioned monthly gross or CTC, rather mentioned The all remuneration calculated under this clause which is nothing but Payable amount expressed in terms of money. I have also used the term CTC for easy understanding of the members.

Therefore, to restructure the existing remuneration package at CTC level ( random vary from organization to organization) after implementation of Labour Codes - Every organization will be required judiciously to determine the payable portion of the CTC excluding Gratuity and then 50% of that will be Basic and rest 50% will be employer contribution to PF, Pension Fund if any (3 tier retirement benefit) , Statutory Bonus if any and all other monthly and annual pockets.

Even after doing all above, there may be cases where the basic may be less than 15,000/-. In case of PF contribution only and as per verdict of Apex Court in Feb ,2019 - the PF contribution has to be made adding other monthly allowances subject to maximum 15,000/ per month.

But in case of Gratuity, Bonus etc. where Basic or Basic & DA are very important factor, only the Basic portion as per Wages calculation to be considered.

Thanks & Regards,

S K Bandyopadhyay ( Howrah, WB)
CEO-USD HR Solutions
+91 98310 81531

USD HR Solutions – To Strive towards excellence with effort and integrity

From India, New Delhi

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