"We pay above minimum wage, so we're fine": what the Code on Wages 2019 actually requires in 2026

Almost every employer who gets a minimum wages notice was paying above the minimum wage. That is not a paradox — it is the single most common failure pattern in Indian wage compliance. The employer compares one number (total monthly salary) against another number (the state's notified rate) and concludes there is nothing to check. The inspector compares a different pair: the category and skill classification of each worker, against the currently notified rate including the latest Variable Dearness Allowance, for the correct scheduled employment, supported by statutory registers you probably do not maintain.

The gap between those two comparisons is where the arrears, the interest, and the prosecution live. And the ground shifted materially in the last twelve months.

What the law actually says

The Code on Wages, 2019 is now live. The Code was notified as enforceable from 21 November 2025, subsuming four statutes: the Minimum Wages Act 1948, the Payment of Wages Act 1936, the Payment of Bonus Act 1965, and the Equal Remuneration Act 1976. The Ministry of Labour and Employment then notified the Code on Wages (Central) Rules, 2026 on 8 May 2026, supplying the operative machinery — the method of fixing minimum rates, the norms for the VDA revision cycle, working hours, weekly rest, and the register and record obligations. Most states have notified their own rules; the rollout is phased, so your obligation is defined by the rules of the state in which the establishment is situated.

Universal application is the change most employers have not absorbed. Under the Minimum Wages Act 1948, minimum wage protection applied only to "scheduled employments" — occupations listed in the schedule by the appropriate government. Section 5 of the Code on Wages, 2019 removes that limitation. Minimum wages now apply to all employees in all employments, organised and unorganised, whether or not the occupation was ever scheduled. If you employ anyone, the floor applies. Businesses that previously concluded "our activity isn't a scheduled employment" no longer have that answer available.

The floor wage under Section 9 — and what it actually does. Section 9 empowers the Central Government to fix a national floor wage, below which no state may fix its minimum rates, and permits different floor wages for different geographical areas. Two points matter in practice. First, the statutory floor wage under Section 9 has not yet been notified; the Centre's pre-Code advisory National Floor Level Minimum Wage of ₹178 per day, set in 2019, continues as the practical reference. Second, and more importantly, this is irrelevant to your compliance position: every state's notified minimum rates already exceed ₹178 comfortably. You comply with your state's notified rate, not with the floor. Anyone benchmarking payroll against ₹178 per day is benchmarking against the wrong number.

Section 9(2) is the anti-reduction rule. Where the existing minimum rate fixed by a state is higher than the floor wage, the state cannot reduce it. The floor is a ceiling on downward revision, never an authorisation to pay less.

The VDA cycle is twice-yearly and automatic. Minimum wages comprise a basic rate plus Variable Dearness Allowance linked to the Consumer Price Index for Industrial Workers, revised half-yearly — conventionally with effect from 1 April and 1 October. The Ministry of Labour and Employment issued revised VDA orders on 30 March 2026 across seven scheduled sector groups, effective 1 April 2026. The revision does not require you to be notified individually, does not require your acknowledgement, and applies from the effective date regardless of when you discover it. The next central revision is due with effect from 1 October 2026.

Section 6 caps the revision interval. The appropriate government must review or revise minimum rates at intervals not exceeding five years. In practice, states revise far more frequently through the VDA mechanism.

Wage period and payment timelines under Section 17. Wages must be paid before the expiry of the seventh day after the last day of the wage period for establishments with fewer than one thousand workers, and before the expiry of the tenth day where a thousand or more are employed. For workers removed, dismissed, retrenched or resigning, wages must be paid within two working days.

The definition of "wages" in Section 2(y) is the sleeper provision. The Code defines wages to include basic pay, dearness allowance and retaining allowance, and excludes specified components such as HRA, conveyance, overtime and statutory bonus — but with a critical proviso: if the excluded components exceed fifty per cent of total remuneration, the excess is added back and deemed to be wages. Structures built to minimise PF and gratuity by pushing pay into allowances collapse under this proviso.

Penalties under Section 54. Paying less than the amount due attracts a fine which may extend to ₹50,000. A repeat offence within five years attracts imprisonment up to three months, or fine up to ₹1,00,000, or both. Other contraventions, including failure to maintain records, attract a fine up to ₹10,000 — but Section 54 also provides that an inspector-cum-facilitator shall give the employer an opportunity to comply before initiating prosecution for record-keeping defaults. That opportunity does not extend to underpayment of wages.

Practical implications for employers

Skill classification is where the money is lost. State notifications fix separate rates for unskilled, semi-skilled, skilled and highly skilled categories, and often by zone (metropolitan, urban, rural) and by scheduled employment. A helper reclassified over three years into a machine operator's duties but still paid at the unskilled rate creates arrears from the date the duties changed, not from the date anyone noticed. Audit the work actually performed, not the designation on the appointment letter.

Consolidated CTC does not automatically satisfy the minimum. The comparison the law requires is against the components that constitute wages under Section 2(y), for the applicable category, in the applicable zone. A ₹18,000 gross that is 60% allowances does not deliver a ₹18,000 wage for this test — and the 50% proviso will pull the excess back in.

Missing the 1 April 2026 VDA revision is a live exposure. If your payroll has not been re-benchmarked since the 30 March 2026 orders took effect on 1 April 2026, you have been accruing arrears for over five months. The arrears carry forward and compound at the next revision. Correcting prospectively does not extinguish the past liability.

Contract workers are your exposure, not only the contractor's. Where you engage workers through a contractor, the principal employer's fallback liability for wages continues to operate. Verifying that the contractor pays the correct notified minimum, category-wise, is part of your own compliance file — not the contractor's private matter.

Records are the defence, and they are usually absent. In a wage dispute the burden falls on the employer to produce the register showing what was due and what was paid. Where records are missing, the worker's claim is generally accepted. The register is not paperwork; it is the evidence.

Your tax filings should corroborate the payroll. Wages paid are deductible under the Income Tax Act, 2025 only where the corresponding TDS and statutory obligations are met. Employer-side salary TDS runs through Section 192 and appears in the employee's annual tax statement — Form 26AS, now Form 168 under ITA 2025. Where the payroll register, the PF ECR and the TDS return disclose three different wage figures for the same worker, each filing impeaches the others. Reconcile them before an inspector or an assessing officer does it for you.

Step-by-step: what to do now

• Identify the applicable notification. Establish the state, the district or zone, and the scheduled employment classification for each establishment. A company with offices in Karnataka and Maharashtra is governed by two different notification sets.
• Pull the current rates including the 1 April 2026 VDA. Take the basic plus current VDA figure, category-wise, from the state labour department notification or, for central-sphere establishments, from the Chief Labour Commissioner's order dated 30 March 2026.
• Reclassify every worker by actual duties. Map each worker to unskilled, semi-skilled, skilled or highly skilled based on the work performed, and record the reasoning. Where duties have evolved, date the change.
• Run the Section 2(y) wage test. For each worker, compute wages as basic plus DA plus retaining allowance, then check whether excluded components exceed 50% of total remuneration. Add back the excess. Compare the result against the notified rate.
• Quantify and clear arrears. Where the comparison shows a shortfall from 1 April 2026, compute arrears per worker per month and pay them as a separate, identified line item. A voluntary corrective payment made before inspection is materially better positioned than one made after.
• Restructure salaries that fail the 50% proviso. Rebalance basic upward so that excluded allowances sit below half of total remuneration. Model the PF, gratuity and bonus consequences before implementing, and apply the change prospectively with employee communication.
• Set up the statutory registers. Maintain the register of employees, the wage register showing rate, wages paid and deductions, the muster roll, and wage slips issued to each employee. Display the abstract of the Code and the minimum rates at the workplace.
• Calendar the revision dates. Diarise 1 April and 1 October each year to re-benchmark against the fresh VDA, and assign a named owner. The next revision cycle is 1 October 2026.

FAQ

We pay ₹20,000 a month, well above the notified rate. Do we still need to do anything?
Yes. Two things can still fail. First, the structure test under Section 2(y) — if HRA, conveyance and similar excluded components exceed 50% of the ₹20,000, the excess is deemed wages and your PF, gratuity and bonus computations are understated even though the gross clears the minimum. Second, the classification test — if the worker performs skilled duties in a zone with a higher notified rate, ₹20,000 may not clear it. Run both tests, not the headline comparison.

Has the national floor wage of ₹178 per day been notified under the Code?
No. The statutory floor wage under Section 9 has not been notified as of today; ₹178 remains the Centre's 2019 advisory figure. It is also not the number that governs you — state-notified minimum rates are substantially higher and are what you must pay. Treat the floor wage as a future backstop for states, not as a compliance benchmark for employers.

Our activity was never listed as a scheduled employment. Are we exempt?
No, and this is the most important change under the Code. Section 5 extends minimum wage protection to all employees in all employments. The scheduled-employment limitation from the Minimum Wages Act 1948 no longer restricts coverage. Whatever your activity, the applicable notified rate for the corresponding skill category applies.

We missed the 1 April 2026 VDA revision. What is the correct remedy?
Compute the shortfall for each affected worker from 1 April 2026 to the current month, pay it as identified arrears through payroll, revise the PF and ESI contributions on the corrected wage, and file the consequential corrections. Then correct the going-forward rate. Underpayment attracts a fine up to ₹50,000 under Section 54, with imprisonment exposure on repetition within five years — voluntary rectification before inspection is the materially stronger position.

For your specific situation, book a consultation at harunraaj.com

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See Also

• "They're the contractor's workers, not ours": what the CLRA Act 1970 actually says about principal employer liability
• "We're too small for POSH": what the Act actually requires from 10 employees onward
• "Leave encashment is fully tax-free": What ITA 2025 actually says

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