Implementation of New Wage Definition under Social Security Code under the ESI Chapter

The Employees’ State Insurance Corporation (Big Employer Cell), vide its official communication dated 10 December 2025, has formally confirmed the implementation of the Code on Social Security, 2020 with effect from 21 November 2025, and has specifically directed employers to adopt the new wage definition under Section 2(88) for ESI purposes.

Key Highlights from ESIC Communication

1. The Code on Social Security, 2020 has come into force nationwide w.e.f. 21 November 2025.
2. The term “wages” has been redefined under Section 2(88) of the Code.
3. As per ESIC, due to the new wage definition, coverage under the ESI Scheme is expected to extend to many previously excluded employees.
4. Employers have been advised to:
   1. Register all eligible employees, including contractual employees through the contractors
   2. Ensure timely payment of contributions
   3. Facilitate immediate compliance for availing social security benefits

Extract of New Wage Definition (Section 2(88))

The most critical change is the redefinition of “wages” under Section 2(88) of CoSS 2020. This new definition is expected to extend ESI Scheme coverage to many previously excluded employees.

A. Components included in Wages: Wages means all remuneration, whether by way of salaries, allowances, or otherwise, and especially includes:

• Basic pay.
• Dearness allowance (DA).
• Retaining allowance, if any.
• Deemed wages, if any. (Refer Point C)

B. Components excluded from Wages: 11 Components

The following items that do not form part of wages:

1. Any bonus payable under any law.
2. Value of house accommodation, utilities, or medical attendance.
3. Employer’s contribution to any pension or provident fund, and accrued interest.
4. Conveyance allowance or value of any travelling concession.
5. Any sum paid to defray special expenses by the nature of employment.
6. Remuneration Award/settlement payments
7. House Rent Allowance.
8. Any overtime allowance.
9. Any commission payable.
10. Any gratuity payable on termination.
11. Retrenchment compensation or other retirement benefits.

C. The 50% Rule (Proviso to Section 2(88)):

• Condition: If the total of the first nine excluded payments (sub-clauses (a) to (i) which include bonus, HRA, conveyance, etc.) exceeds one-half (50%) of the all remuneration calculated under this clause.
• Result: The amount that exceeds the 50% threshold shall be deemed as remuneration and added back to the wages

Note – Volatility in the monthly Deemed Wages calculation is expected due to variable components (OT, Commission, Employer PF, interest, etc.) in the Excluded Wage bucket. Please consult your Legal team to ensure proper implementation of the wage structure.

D. For equal wages for all genders and for paying wages, the amounts mentioned in sub-clauses (d), (f), (g) and (h) must be taken for computation of wages.

This specific rule DOES NOT apply to calculating monthly social security contributions (like ESI/EPF). It applies only when checking:

1. Equal Pay: Are all genders being paid equally for the same work?
2. Payment of Wages: Is the employee being paid the correct amount of wages as per the law?

The CoSS 2020 has a wider definition of “wage” for compliance checks (Equal Pay, Payment of Wages) than it does for calculating contributions.

To avoid any discrimination on the excluded allowances (like HRA or conveyance) to show unequal pay between genders even when total compensation differs. The law closes this gap.

Critical Change in ESI Wage Base

1. Earlier: ESI contributions were calculated on “Gross Wages” as per Section 2(22) of the ESI Act, 1948.

2. Now (w.e.f. 21 November 2025): ESI contributions shall be calculated on “Core Wages” as per Section 2(88) of the Code on Social Security, 2020, including application of the 50% rule on excluded allowances

This change is expected to expand ESI coverage and increase the contribution base for many employees who were previously outside the ESI net.

Effective Date & Compliance Position

1. Old ESI wage definition applies up to: 20 November 2025
2. New Section 2(88) wage definition applies from: 21 November 2025 onwards
3. Immediate compliance has been mandated by ESIC

Action Required

In view of the above official ESIC directive, the following actions are required on priority:

1. Review and restructure salary components as per the new Wage Definition under Section 2(88)
2. Identify all newly coverable employees who become eligible due to the revised wage definition
3. If Establishment has Multi state presence & if there are coverable employees in the respective state, Sub code registrations to be completed.
4. Compute ESI contributions based on revised wages
5. Register / Map all newly eligible employees under ESIC
6. Still if there are no coverable employees, NIL filing to be continued.
7. Direct the vendors to initiate this action

This ESIC communication dated 10.12.2025 serves as a formal enforcement instruction for adoption of the new wage definition under Section 2(88) of the Code on Social Security, 2020 with effect from 21 November 2025.