Allowances / incetive paid 3-4 months interval does it fall under definition of wages under new wage code

Whether production incentive, variable payment, or any other incentive/allowance paid at an interval of three months or more, does it fall under the wage definition?

Dear Ramesh,

The Production Incentive is not a part of wages, therefore does not fall under the wage definition.

As per payment of wages Act, the wages defined in Section 2 (s); “Wages” means all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employments and which are paid or are payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance.
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It is in continuation of Mr. Prabath's reply as the question is based on the definition of wages under the Code on Wages, 2019, which is yet to be enforced.

As per sec. 2(y) of the CoW, 2019, only the components of basic pay, dearness allowance, and retaining allowance, if any, in the wage/salary structure have to be treated as the included components of wages, and all other allowances are excluded for the purpose of the Code. In the same breadth, however, the first proviso to the definition makes it mandatory to include the items narrated under clauses (a) to (i), if they exceed one half or such other percent, as may be notified by the Central Government, of all the remuneration calculated under this clause to the extent of the excess percentage.

Since the periodicity of payment of the items mentioned in the post exceeds the maximum wage period of one month as fixed under section 16 of the CoW, they cannot be deemed as wages for the purpose of the Code.

To my opinion, it will be part of the wages. Wage fixation is as per the definition of wages. Fixation of wage period (SEC-16 of COW), Time limit for payment of wages (SEC-17 of COW) has nothing to do to determine the wages as per COW.

In the fixation of wages, there are three parts:
Part - 1 - Wages mean all remuneration whether by way of salaries, allowances, or otherwise expressed in terms of money to be payable to a person and includes Basic, DA, & retaining allowance.

Part - 2 - But does not include (a) to (k) where yearly payments like Bonus, LTC/LTA have been included.

Part-3 - 1st proviso to be considered: the payment made under (a) to (i) if more than 50% of all the remuneration calculated under the definition of wages, the excess of 50% will be added back to wages.

Therefore, payments like production incentive, any variable pay, etc., if not paid on a monthly basis, will also be considered for the purpose of the calculation of wages as per COW.

Let us consider one example:

SR. Manager position.

Basic - 12000/- per month, HRA - 40% of Basic = 4800/- per month, Fuel Allowance (To run his car) - 6000/- per month. The total monthly gross = 22,800/- per month, and basic is 12,000/-, which is more than 50% of the monthly gross. Less liability for PF & Gratuity.

The employee has also paid 3,00,000/- per year as furnishing allowance payable every alternate month @ 25,000/-(6 times in a year), Retaining allowance - 4,00,000/- per year payable in each quarter 1,00,000/- per quarter (4 times in a year), Profit-sharing incentive - 3,00,000/- per year payable half-yearly @ 1,50,000/- (2 times in a year), and Bonus & ex-gratia - 3,00,000/- per year paid once a year.

Therefore, the total cash component in a year will be 22,800/- x 12 = 2,73,600/- + Furnishing - 3,00,000/- + Retaining Allowance - 4,00,000/- + Profit-sharing incentive - 3,00,000/- + Bonus & Ex-gratia - 3,00,000/- + Employer's PF Contribution - 12% of 12,000/- x 12 = 17,280/- = INR 15,90,880/-.

As per the definition of wages under COW, yearly Basic should be 50% of 15,90,880/- i.e., 66,290/- per month instead of 12,000/- per month.

Lawmakers are not fools to frame one definition where the employer will bypass as per the above calculation - this is my firm belief.

S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions