In this ‘Leading Questions’ section, Sidhant Dhingra and Kajal Gupta break down the Labour Codes 2020 with a focus on corporate compliance and employee impact. As we approach the implementation deadline, here is the essential breakdown.
Question: How will the standardized definition of “wages” reshape corporate compensation structures?
Answer: The revised definition of “wages” represents a fundamental shift in how compensation is structured, moving away from fragmented salary slips toward a consolidated base. By including basic pay, dearness allowance, and retaining allowance while capping excluded components, such as HRA, travel, and medical, at 50% of total remuneration, the Code closes a long-standing loophole. Under the new mandate, any allowance value exceeding the 50% threshold is automatically added back to the wage base for social security calculations. For the employer, this translates into a higher “wage bill” and increased Cost to Company (CTC), particularly in the IT, ITeS, and retail sectors where high-allowance models were previously the industry standard.
