'Wages', and the Definitions That Decide Every Calculation

In one line

Wages means everything payable to a person for his employment, made up of basic pay, dearness allowance and retaining allowance, with eleven things excluded; but if those excluded things come to more than half of the total, the excess is put back in.

In exam wording: section 2(y) of the Code on Wages 2019 defines wages as 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 as including basic pay, dearness allowance and retaining allowance, but as not including the eleven items in clauses (a) to (k); with a first proviso that where payments under clauses (a) to (i) exceed one-half, or such other per cent. as the Central Government may notify, of all remuneration, the excess shall be deemed remuneration and added into wages; a second proviso that for the purpose of equal wages to all genders and for the purpose of payment of wages the emoluments in clauses (d), (f), (g) and (h) shall be taken for computation; and an Explanation that remuneration in kind not exceeding fifteen per cent. of total wages is deemed to form part of wages.

Why the law has this at all

Everything in this Code is a fraction or a multiple of wages. The minimum rate is a rate of wages. Bonus is a percentage of wages. Deductions are capped at a proportion of wages. Overtime is twice the normal rate of wages. So the definition of that one word decides the size of every entitlement in the Module.

That made the definition the natural place to attack, and it was attacked for decades.

The technique was simple. An employer would keep basic pay very small and pay most of the money as allowances: house rent allowance, conveyance allowance, special allowance, and a dozen others. Each of those was excluded from "wages" under the various Acts. So the employee's take-home pay looked respectable and his wages, for the purpose of every statutory calculation, were a fraction of it. Bonus, gratuity, provident fund contributions and overtime were all computed on the small figure.

Two answers were possible. Define wages to include everything, which would have upset legitimate arrangements where an allowance really does reimburse an expense. Or cap the proportion that may be excluded, which is what the Code does.

The first proviso to section 2(y) is that cap, and it is the single cleverest provision in the Code. The employer may structure the pay packet as he likes. But if the excluded items come to more than half of all remuneration, the excess is deemed to be remuneration and added back into wages. The definition polices itself arithmetically rather than by litigation.