Introduction
1.1 The Code on Wages, 2019 has fundamentally reshaped India’s wage regulation landscape by consolidating four separate labour enactments: the Payment of Wages Act, 1936; the Minimum Wages Act, 1948; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976. Among the various changes introduced, one provision has created particular concern for employers: Section 6(6) read with Section 2(y) of the Code, which excludes House Rent Allowance (HRA) from the definition of wages for minimum wage purposes.
1.2 A prevalent view in compliance circles is that this exclusion applies immediately to all minimum wage determinations, requiring employers to restructure wages so that basic wages alone (excluding HRA) meet the notified minimum wages. Many consultants and advisors are urging employers to increase basic wages immediately to avoid non-compliance and potential prosecution under Section 54 of the Code.
1.3 However, this interpretation may be premature and possibly incorrect when applied to the transitional period. Section 69 (2)of the Code provides that existing minimum wage notifications issued under the 1948 Act shall continue and be deemed to have been issued under the Code until superseded. This raises a critical question: does Section 6(6) read with Section 2(y)’s exclusion of HRA apply to these deemed notifications, or do they continue operating under their original compliance framework?
1.4 This article examines why employers who are currently compliant with pre-existing minimum wage notifications may not need to restructure wages immediately, and why awaiting clearer guidance from authorities or fresh notifications may be the prudent course.
The Statutory Framework
2.1 The Transition Mechanism
2.1.1 Section 69(2) of the Code states: “……any action taken under the enactments so repealed including any notification, nomination, appointment, order or direction made thereunder or any amount of wages provided in any provision of such enactments for any purpose shall be deemed to have been done or taken or provided for such purpose under the corresponding provisions of this Code and shall be in force to the extent they are not contrary to the provisions of this Code till they are repealed under the corresponding provisions of this Code or by the notification to that effect by the Central Government.”
2.1.2 This savings clause is designed to prevent a legal vacuum during the transition. Without it, all existing minimum wage notifications would have lapsed upon repeal of the 1948 Act, leaving employers and workers without any minimum wage standards until fresh notifications were issued.
2.2 The HRA Exclusion
2.2.1 Section 6(6) read with Section 2(y) of the Code provides that for the purpose of fixing minimum wages, wages shall not include house rent allowance and certain other allowances. This is a departure from the practice under the 1948 Act, where many States permitted HRA to be included when determining compliance with minimum wages.
2.2.2 The question is whether this new exclusion of HRA applies also to checking compliance with minimum wages against old notifications deemed to continue under Section 69(2), or whether it applies only to fresh notifications issued under the Code.
3. Why Immediate restructuring may be premature
3.1 Deemed Provisions Preserve Original Character
3.1.1 When Section 69(2) states that old notifications are “deemed to have been done” under the Code, it uses language that preserves validity while maintaining original character. In State of Punjab v. Mohar Singh, AIR 1955 SC 84, the Supreme Court held that deemed provisions give continued legal force to old instruments without transforming their substance.
3.1.2 The notifications under the 1948 Act were issued when HRA was includible for compliance purposes. The notifying authorities fixed wage rates with this framework in mind. The “deeming” under Section 69(2)preserves their legal validity but does not authorize retrospective reinterpretation through definitions that did not exist when they were issued.
3.1.3 If Parliament intended Section 6(6) and Section 2(y) to apply retrospectively to reinterpret old notifications, it could have easily stated this explicitly in Section 69(2), perhaps using language such as “shall be deemed to have been issued under this Code and shall be interpreted in accordance with the definitions herein.” No such language appears.
3.2 General Clauses Act Protections
3.2.1 The General Clauses Act, 1897 governs the effects of repeal. Section 6(b) provides that repeal does not affect the “previous operation” of the repealed enactment. The previous operation of the 1948 Act includes how notifications were framed and what components were includible for compliance.
3.2.2 More significantly, Section 6(c) protects “any right, privilege, obligation or liability acquired, accrued or incurred” under the repealed enactment. Minimum wage notifications created obligations on employers in a specific form: wages structured as Basic + VDA (Variable Dearness Allowance) with HRA potentially includible to meet the minimum. These accrued obligations are protected from alteration by the repeal.
3.2.3 In Hoosein Kasam Dada (India) Ltd v. State of Madhya Pradesh, AIR 1953 SC 221, the Supreme Court held that savings clauses preserve the legal effect of actions taken under old law, including the manner and context in which they were done. The minimum wage notifications should therefore be preserved with the compliance framework under which they were issued.
3.3 Prospective Operation of Substantive Changes
3.3.1 Section 6(6)’s [ read with Section 2(y)] exclusion of HRA is a substantive change affecting compliance calculations, wage structures, and potential criminal liability. The fundamental principle of statutory interpretation is that substantive changes operate prospectively unless the legislature explicitly provides otherwise.
3.3.2 Neither Section 6(6) [read with Section 2(y) nor Section 69(2) contains language indicating retrospective application. In the absence of express language, Section 6(6) [read with Section 2(y) should apply to fresh notifications issued under the Code but not to reinterpreting old notifications deemed to continue.
3.3.3 Reading Section 6(6) [read with Section 2(y)] as applying only prospectively gives full effect to both provisions: Section 69 (2) preserves old notifications in their original form, while Section 6(6) [read with Section 2(y)] governs future wage-fixing under the Code. This harmonious construction avoids rendering either provision meaningless.
3.4 The Consolidation Context
3.4.1 The Code consolidates four different Acts with different purposes and different wage definitions. This is materially different from simple repeal and re-enactment of a single statute. The unified definition of wages in Section 2(y) must serve diverse purposes previously served by four different definitions.
3.4.2 This unified definition cannot be retrospectively applied to reinterpret notifications and orders issued under four different statutory schemes without creating systemic incoherence. If Parliament intended such widespread retrospective reinterpretation, it would have stated this explicitly and provided transitional mechanisms for recalculation. The absence of such provision indicates prospective application only.
3.5 The Variable Dearness Allowance Problem
3.5.1 A compelling argument against immediate restructuring is the logical impossibility demonstrated by the treatment of Variable Dearness Allowance (VDA) in old notifications. This analysis shows that the Code’s definitions simply cannot be retrofitted to old notifications.
3.5.2 Notifications under the 1948 Act typically specified minimum wages as “Basic Wage + Variable Dearness Allowance.” For example: Minimum Wage = Rs. 10,000 (Basic) + Rs. 3,000 (VDA) = Rs. 13,000. Under Section 2(y) of the Code, “wages” includes dearness allowance. But the old notification specifies VDA separately as an additional component. Can VDA under the old notification be considered as “an allowance” with the meaning of S 7(1) of Wages Code even though DA is now specifically included in the definition of wages. This itself will be an incongruity. Another question will arise whether – this allowance will then need to be paid over and above “wages” to comply with minimum wages, and how will this allowance be treated for purposes of inclusions and exclusions from definition of wages and the 50% rule. S. 7(1) uses the word “allowance” and not “dearness allowance” and refers to it as cost of living allowance” – which is not mentioned in either of the three inclusions under (i), (ii) or (iii) of S.2 (y) the definition of wages under the Wages Code.
3.5.3 If the Code’s definition applies to old notifications, an impossible situation arises. Consider an employer paying Rs. 8,000 (Basic) + Rs. 3,000 (VDA) + Rs. 2,000 (HRA) = Rs. 13,000 total, exactly meeting the notified minimum of Rs. 13,000 under the 1948 Act framework.
3.5.4 If Section 6(6) applies using the Code’s definition: wages includes DA but excludes HRA. Where does the separately notified VDA fit? If we ignore it because wages already includes DA, then the minimum wages under law must be taken as only Rs 10,000 – an absurd conclusion. But if this Rs 10,000 is accepted as minimum wage then the employer is considered paying Rs. 8,000 basic +Rs 3000 = Rs 11,000, the employer will be compliant with Rs 10,000 min wage (now determined) but far below Rs. 13,000 erstwhile min wage. If we include the notified VDA of Rs. 3,000, we reach Rs. 11,000, still below Rs. 13,000. Likewise, if we count VDA separately while treating DA as included in wages, we are double-counting. The erstwhile Basic of Rs 10,000 was fixed keeping in view a factor for housing expenses (though not separately quantified), so ignoring HRA now is clearly an inconsistency. Hence none of these interpretations is workable.
3.5.5 This demonstrates mathematical impossibility of comparisons and computations. The Code’s unified wage definition cannot be coherently applied to notifications that separately specify VDA. Just as the new treatment of VDA cannot apply to old notifications, neither can the new treatment of HRA. The only coherent interpretation is that old notifications retain their entire original compliance framework.
3.6 The Composite Minimum Standard Interpretation
3.6.1 Even if one assumes Section 6(6) [read with Section 2(y)] applies to old notifications, there is an alternative interpretation that preserves employer compliance. The notification can be read as the Government fixing a composite minimum standard: wages (as defined under Section 2(y) read with Section 6(6)) plus HRA plus VDA. Nothing in Section 6(6) prohibits the Government from fixing minimum wages in this manner.
3.6.2 Housing is a basic necessity. In Reptakos Brett and Co. Ltd v. Workmen, AIR 1992 SC 504, the Supreme Court held that minimum wages must take into account the housing needs of workers and their families. If minimum wage fixation must account for housing costs, then HRA must be considered in addition to wages as defined under Section 2(y) read with Section 6(6).
3.6.3 This interpretation is supported by Draft Rule 3 under the Code on Wages, which specifically provides for consideration of housing-related expenses when fixing minimum wages. If housing expenses form part of minimum wage fixation under the Code’s own rules, it would be inconsistent to ignore HRA paid by an employer for compliance purposes, simply because it is excluded from wages.
3.6.4 Under the 1948 Act, the definition of wages was broad enough to include HRA, and notifications were issued with that understanding. Reading deemed notifications under the Code, they can be understood as the Government fixing a minimum standard comprising wages plus necessary allowances including housing costs, which is permissible and consistent with ensuring adequate living standards.
4. The Risk Involved
4.1 Unnecessary Cost Increases
4.1.1 If employers rush to restructure by increasing basic wages to exclude HRA from minimum wage calculations, they may incur substantial and unnecessary costs. To maintain the same total compensation while meeting higher basic wage requirements, across-the-board salary increases may be necessary, particularly where current basic wages are relatively low with higher HRA components.
4.1.2 If the legal position ultimately clarifies that old notifications should be interpreted with their original compliance framework, these cost increases will have been unnecessary. Employers will have restructured in response to an incorrect interpretation, with no ability to reverse the increases once implemented.
4.2 Competitive Disadvantage
4.2.1 Employers who restructure immediately while others wait for clarity may place themselves at a competitive disadvantage. If the majority of employers in an industry await clarification and ultimately find that restructuring was not required, early movers will bear higher wage costs without corresponding benefit.
4.2.2 Industry associations and employer groups may develop collective positions on this issue. Individual employers acting precipitously may find themselves out of step with industry practice and bearing disproportionate costs.
4.3 Employee Relations Complications
4.3.1 Wage restructuring inevitably creates confusion and potential dissatisfaction among employees. Even if total compensation remains the same, changes to wage component breakdowns can be misunderstood. Some employees may perceive restructuring as reducing benefits, while others may expect increases in all components.
4.3.2 If restructuring proves unnecessary after clarification from authorities, employers may face difficult conversations about why changes were made and potentially about reversing them, creating unnecessary friction in employee relations.
4.4 Administrative Burden
4.3.3 Restructuring wages across an entire workforce involves substantial administrative effort: recalculating wage structures, updating payroll systems, revising employment contracts or appointment letters, communicating changes to employees, and updating statutory compliance records. If this effort proves unnecessary, it represents wasted organizational resources.
4.5 Computation of “wages” under the Code is in itself not clear
4.5 The meaning and computation of “wages” under the Code is in itself a matter of debate. While the popular view is that there is clarity on the 50:50 principle w.r.t excluded components the Author believes that the popular view itself is questionable. This is not a matter of this Article and the view in this article is on the assumption that computation of wages is certain and the issue is only about erstwhile HRA inclusion or not for minimum wages under the erstwhile notification which continue to apply.
5. The case of awaiting clarity
5.1 No Immediate Enforcement Risk
5.1.1 The legal position on whether Section 6(6) read with Section 2(y) applies to deemed notifications is genuinely ambiguous. Labour authorities themselves may not have settled interpretations. In such circumstances, employers acting in good faith based on a reasonable interpretation of Section 69(2) are unlikely to face immediate enforcement action.
5.1.2 Inspectors typically exercise discretion in ambiguous situations, particularly during transitional periods. If an employer can demonstrate that it is paying the total amount specified in the old notification (Basic + VDA + HRA meeting the minimum), and can articulate the legal basis for including HRA, immediate prosecution is unlikely.
5.1.3 Moreover, authorities are aware that this is a systemic issue affecting thousands of employers. The computation of wage under the Code is in itself an issue. Mass enforcement actions creating overnight non-compliance for previously compliant employers would be administratively unworkable and legally questionable.
5.2 Authorities May Issue Clarifications
5.2.1 State labour departments and the Ministry of Labour and Employment may issue circulars, guidance notes, or FAQs addressing this specific issue. Such clarifications could resolve the ambiguity without need for litigation or restructuring.
5.2.2 Employers who have restructured prematurely will be unable to benefit from such clarifications if they ultimately support the continuity interpretation. Waiting for official guidance is therefore the more prudent approach.
5.3 Fresh Notifications Will Resolve the Issue
5.3.1 States are required to issue fresh minimum wage notifications under the Code. Once issued, these notifications will clearly be subject to Section 6(6), and employers will know definitively what wage structures are required.
5.3.2 The transitional period under Section 69(2) is not indefinite. Fresh notifications will supersede old ones, at which point restructuring (if needed) can be undertaken with clarity and certainty. Waiting for this natural resolution avoids premature action based on ambiguous legal positions.
5.4 Legal Position is Defensible
5.4.1 As demonstrated in the preceding sections, the legal arguments for including HRA under deemed notifications are substantial. They are based on established principles of statutory interpretation, explicit General Clauses Act protections, the unique nature of the Code as consolidating legislation, and logical impossibility demonstrated by the VDA problem.
5.4.2 Employers maintaining their current compliant structures have a defensible legal position. If challenged, they can articulate a well-reasoned basis for their interpretation. This is materially different from wilful non-compliance or disregard of clear legal requirements.
5.4.3 Courts examining this issue will likely consider the arguments outlined in this article. The first judicial decisions on this question may well support the continuity interpretation, validating employers who waited rather than restructured prematurely.
6. Recommended Approach
6.1 Document the Legal Rationale
6.1.1 Employers should document their legal reasoning for continuing to include HRA in minimum wage compliance calculations under deemed notifications. This documentation should reference Section 69(2) of the Code, the General Clauses Act provisions, principles of statutory interpretation, and the VDA logical impossibility argument.
6.1.2 Having documented reasoning demonstrates good faith compliance efforts and provides a defence if enforcement questions arise. It shows that the employer has considered the issue carefully rather than simply ignoring the Code’s provisions.
6.2 Seek Written Clarification
6.2.1 Employers should consider seeking written clarification from their State Labour Department on how Section 69(2) and Section 6(6) [read with Section 2(2)] interact during the transitional period. A written query requesting guidance puts the question to the appropriate authority and may elicit helpful official interpretation.
6.2.2 If clarification is received supporting either position, it provides certainty for the employer’s compliance strategy. If no response is received, the attempt demonstrates the employer’s good faith effort to understand and comply with the law.
6.3 Monitor Developments
6.3.1 Employers should monitor for departmental circulars, guidance notes, and early judicial decisions on this issue. Industry associations may also develop collective positions or seek clarifications on behalf of their members. Staying informed allows employers to adjust their approach as the legal landscape clarifies.
6.3.2 Employers should track when their State intends to issue fresh notifications under the Code. This information may be available through labour department announcements or industry channels. Knowing the timeline for fresh notifications helps in planning any necessary restructuring.
6.4 Prepare for Future Restructuring
6.4.1 While awaiting clarity, employers should not be entirely passive. They should use this time to model wage restructuring scenarios, budget for potential increases, and prepare communication strategies for employees about possible upcoming changes.
6.4.2 When fresh notifications are issued under the Code or when official clarification definitively requires restructuring, employers who have prepared will be able to implement changes smoothly and efficiently. This preparation does not require committing to restructuring immediately, but ensures readiness if and when it becomes necessary.
6.5 Consider Industry Practice
6.5.1 Employers should be aware of what competitors and peers in their industry are doing. If there is broad industry consensus to wait for clarity, individual employers can take comfort in following that collective approach. If particular industries are restructuring proactively, employers may need to consider whether industry-specific factors justify different treatment, and if there are cogent reasons only then follow the approach of the industry.
6.5.2 Industry associations can play a valuable role in developing consensus positions, sharing information about authority interpretations, and potentially engaging with government on behalf of their members to seek clarity on transitional issues.
When Warranted?
7.1 While this article argues for caution in most circumstances, there may be few situations where restructuring now may be appropriate. These include cases where the employer has received specific written notices from labour authorities asserting non-compliance based on HRA exclusion (but this seems unlikely as of now), where the employer is in an industry under heightened regulatory scrutiny (again seems unlikely as of now), where the employer’s risk tolerance is extremely low and the cost of restructuring is manageable (if this be the case its best to evaluate whether definition and computation of wages is clear to the employer under the new Code), or where the employer is planning wage revisions anyway and can incorporate the changes as part of a broader compensation review without much impact.
7.2 Even in these situations, employers should carefully examine and document their reasons for restructuring and the legal uncertainty that existed at the time. This documentation may be relevant if the legal position later clarifies in favour of the continuity interpretation, particularly if employees raise questions about the basis for changes.
7.3 The Employers should be aware that if once the basic wages are increased its almost impossible to reduce them regardless of the reason for the increase, even if subsequent clarifications indicate that the increase was not warranted on account of the interpretation of the Code but was done under a wrong impression.
CONCLUSION
8.1 The implementation of the Code on Wages, 2019 has created understandable concern among employers about minimum wage compliance during the transitional period. The prevalent advice to immediately restructure wages by excluding HRA from minimum wage calculations is based on one interpretation of how Section 6(6) [ read with Section 2(2)] interacts with Section 69(2), but this interpretation is not the only plausible reading of the statute.
8.2 Strong legal arguments support the position that notifications deemed to continue under Section 69(2) retain their original compliance framework, including the includability of HRA, until superseded by fresh notifications under the Code. These arguments are grounded in established principles of statutory interpretation, explicit General Clauses Act protections, the unique nature of the Code as consolidating legislation, logical impossibility demonstrated by the VDA problem, and recognition that minimum wages must account for housing costs as a basic necessity.
8.3 Employers who rush to restructure based on an uncertain interpretation of the law may incur unnecessary costs, create competitive disadvantage, complicate employee relations, and burden their organizations with substantial administrative effort for changes that may prove unnecessary. The legal position is ambiguous, enforcement risk is low during this transitional period, and authorities may yet issue clarifications or fresh notifications that resolve the uncertainty.
8.4 The prudent course for most employers is to maintain their current compliant wage structures, document their legal reasoning, seek written clarification from authorities, monitor developments in guidance and judicial interpretation, and prepare for potential future restructuring without committing to it immediately. This approach balances legal compliance with prudent business judgment and avoids premature action based on an interpretation that may ultimately prove incorrect.
8.5 As with any complex legal question, employers should consult with qualified legal counsel about their specific circumstances. The analysis in this article provides a framework for understanding the issue but cannot substitute for individualized legal advice considering an employer’s particular facts, risk tolerance, and business context.
8.6 The transitional period under the Code on Wages will not last indefinitely. Fresh notifications will be issued, judicial decisions will provide clarity, and the ambiguities of this transitional moment will resolve. Until then, employers should resist the pressure to restructure immediately and instead await the fuller clarification that will inevitably come. Patience and careful legal analysis, rather than hasty action, are the appropriate responses to this particular compliance challenge.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Employers should consult qualified legal counsel for advice on their specific situations.
References:
Statutory Provisions:
Code on Wages, 2019: Sections 2(y), 6, 6(6), 69(2), 54
General Clauses Act, 1897: Sections 6, 8
Minimum Wages Act, 1948 (repealed): Sections 2(h), 3
Draft Rules under Code on Wages, 2019: Draft Rule 3
Case Law:
State of Punjab v. Mohar Singh, AIR 1955 SC 84
Hoosein Kasam Dada (India) Ltd v. State of Madhya Pradesh, AIR 1953 SC 221
Zile Singh v. State of Haryana, (2004) 8 SCC 1
P. Kasilingam v. PSG College of Technology, (1995) 2 SCC 348
Bharat Petroleum Corporation Ltd v. Mumbai Mazdoor Sabha, (1999) 5 SCC 123
Reptakos Brett and Co. Ltd v. Workmen, AIR 1992 SC 504
