Computation of Wage - Code on Wages 2019
The Code proposes a common definition of the term "wages" as opposed to the separate definitions of "wages" provided under each of PWA, MWA and PBA. This will enable employers to take a consistent and uniform approach and avoid multiple interpretations.
The Code introduces a special methodology for computation of "wages" and in certain circumstances, various components of wages that are ordinarily understood to be excluded from the definition of "wages" will be considered as forming part thereof.
For instance, components like employer's contribution towards pension or provident fund, house rent allowance, overtime allowance, conveyance allowance, commission payable to employee etc. are not conventionally considered as "wages".
However, the Code provides that in the event payments made to employees under these identified components exceed 50% of all remuneration payable as "wages" under the Code, such excess amount shall be deemed as remuneration and will be considered as "wages".
This is a unique provision and is seemingly aimed at compensation structures where wages are less than 50% of the total remuneration of the employee. This provision could result in situations where the "wage" of an employee has to be recalculated. For e.g., if the aggregate of commission / sales incentive, house rent allowance and overtime exceeds 50% of the monthly salary for that particular month, there could be a possibility of re-computation of "wages".
In these situations where the "wage" could fluctuate, computation of bonus under the Code or payment of "wages" for overtime work, would also fluctuate and get impacted.
Additionally, this could potentially have a knock-on impact if the proposed labour code on social security relies on the given definition of "wages" under this Code; in which case any pay-outs / contributions (like gratuity, provident fund, retrenchment compensation) that are linked to "wages" would also fluctuate/vary.
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