India’s new labour codes, consolidating 29 complex central laws into four streamlined codes, represent a landmark reform in labour laws that govern the largest working population in the world.
These codes came into effect on 21 November 2025:
- Code on Wages 2019
- Industrial Relations Code 2020
- Code on Social Security 2020
- Occupational Safety, Health & Working Conditions Code 2020
India’s new labour codes aim to modernise the legal framework, extend social security to a wider workforce, and ensure universal wage protection.
Minimum wage in India (state-wise)
Before the new Code on Wages, 2019, minimum wages were highly fragmented and varied significantly across states and union territories. These wages were fixed by the respective state or central government based on specific ‘scheduled employments’ (industries/jobs listed under the Minimum Wages Act, 1948).
- Diversity in rates: Due to the old system, a worker doing the same job could earn vastly different minimum wages depending on the state and even the specific employment listed.
- Varying factors: India’s state governments historically fixed these rates considering factors like the cost of living, geographical area, and the nature of the work (unskilled, semi-skilled, skilled).
The minimum wage for a non-agricultural labourer in one state could be ₹350 per day, while for the exact same category of labour in a high-cost-of-living metro area of another state, it could be over ₹600 per day.
This patchwork system created significant regional disparities and left a large section of the unorganised workforce entirely outside the minimum wage protection net.
New Minimum Wage under Wage Code 2025
The Code on Wages, 2019, which is one of the four new codes, fundamentally restructures the minimum wage system to achieve universality and uniformity.
1. Universal Coverage: The new Code extends the statutory right to minimum wages to all employees, whether in the organised or unorganised sector. Earlier, coverage was limited to workers in a few select scheduled employments, covering only about 30% of the workforce. Now, every worker is covered.
2. National Floor Wage: The central government is mandated to set a National Floor Wage (NFW), which is a minimum wage benchmark for the entire country, based on the minimum living standards required for a family of three (a concept derived from the needs of a standard working-class family).
Key Rule: No state government can fix its minimum wage rate below this National Floor Wage. States are free to set their minimum wages higher than the National Floor Wage based on local economic factors and cost of living — for example, in metropolitan areas.
The National Floor Wage is designed to reduce disparity in minimum wages across states, ensuring a basic standard of living for all workers nationwide and preventing states from attracting investment by maintaining artificially low wages.
What is the law on Minimum Salary?
The new law introduces a uniform, strict definition of “wages” across all four labour codes. This change is one of the most significant structural shifts affecting an employee’s total salary structure.
The new definition of “wages” primarily includes:
- Basic Pay
- Dearness Allowance (DA)
- Retaining Allowance
The 50% rule: To prevent employers from suppressing statutory contributions (like provident fund, gratuity, and bonus) by inflating non-wage components, the new code mandates that allowances and other non-wage components cannot exceed 50% of the employee’s total remuneration (CTC).
- This means that the combined amount of Basic Pay, DA, and Retaining Allowance must constitute at least 50% of the total CTC.
Impact on salary: If an employer structures an employee’s salary with a Basic Pay component less than 50% of the CTC, the excess amount of allowances will be deemed part of the “Wages” for calculating statutory contributions. This effectively increases the base upon which statutory deductions (PF, Gratuity) and payments (Bonus) are calculated, potentially leading to higher long-term savings (PF/Gratuity) but possibly a lower monthly “take-home” salary if the employer chooses not to increase the total CTC.
Eligibility for bonus above ₹21,000 salary
The payment of statutory bonus is governed by the provisions of the Code on Wages, which replaces the erstwhile Payment of Bonus Act, 1965. The eligibility criteria largely remain the same, based on a salary threshold.
1. Eligibility Limit: A statutory bonus is payable to employees whose monthly “salary or wage” does not exceed ₹21,000 per month. This limit was earlier revised from ₹10,000 to ₹21,000, and the new Code retains this threshold.
- Who is eligible? An employee with a monthly salary of ₹21,000 or less is eligible for a statutory bonus, provided they have worked for at least 30 days in the accounting year.
- Who is not eligible? An employee whose salary or wage exceeds ₹21,000 per month is not eligible for the mandatory statutory bonus under the code.
2. Bonus Calculation: For those who are eligible, the actual bonus calculation is subject to a ceiling. The bonus is calculated either on the employee’s actual salary or the statutory ceiling (currently ₹7,000 per month or government’s fixed minimum wage for the lowest grade of employee, whichever is higher), whichever is lower.
- Minimum Bonus: 8.33% of the calculated amount.
- Maximum Bonus: 20% of the calculated amount.
The eligibility for statutory bonus is strictly capped at a monthly salary/wage of ₹21,000. An employee earning ₹21,001 or more per month is generally not entitled to the mandatory minimum bonus of 8.33% under the Code, although they may still be entitled to a company-discretionary or performance-linked bonus.