Binding national floor wage may redefine states' minimum wage structures

India's new Labour Codes introduce a binding national floor wage, but experts warn the absence of a clear wage-setting formula could create uncertainty and uneven implementation

For the first time in India’s wage-setting framework, the idea of a national 'floor wage' is moving from a guiding benchmark to a binding legal threshold, marking a structural shift in how minimum wages are determined across states. Under the recently implemented labour laws, the Centre will now notify a national floor wage that states cannot go below while fixing their own minimum wages, replacing a long-standing advisory framework.

 

This represents a clearer division of roles under the new Labour Codes. The Centre will notify the national floor wage as a statutory baseline, while states will continue to set sector- and skill-specific minimum wages above it. Earlier, under the Minimum Wages Act, 1948, there was no binding national floor wage, and states independently determined most wage rates, while the Centre largely fixed wages only for establishments in the central sphere.

 

The earlier National Floor Level Minimum Wage framework, introduced in the mid-1990s, functioned only as an advisory reference point. It was last revised in June 2017 to Rs 176 per day and has remained unchanged since, with states free to set wages above or below it depending on local conditions, fiscal space, and labour market structures.

 

“The shift from an advisory floor wage to a legally binding national floor wage under Section 9 of the Code on Wages, 2019, is one of the most consequential structural changes in India’s wage jurisprudence," said Keyur D Gandhi, managing partner at Gandhi Law Associates. "Earlier, states had substantial discretion and could, in practice, notify wage rates that were influenced by local economic or political considerations even where they diverged from the Centre’s benchmark.”

How will a binding floor wage change India’s wage structure?

According to Gandhi, the immediate impact will be standardisation of wage structures and upward pressure on minimum wages in lower-paying states, with the binding floor reducing wage arbitrage and strengthening a baseline social protection threshold, particularly for migrant and contract workers.

 

Pooja Ramchandani, partner at Shardul Amarchand Mangaldas & Co, said the reform effectively creates a nationwide wage floor by preventing states from going below the centrally notified level.

 

"This will reduce disparities and the national floor wage forms a baseline across the country for fixing minimum wages. As a result, there is a likelihood of increased costs in industries like manufacturing, construction, and the cost of contract labour in regions where the wages were low," she said.

What are the loopholes in the new wage regulations?

However, some experts caution that states may recalibrate their approach once the floor wage becomes binding.

 

“The Central floor wage has historically been revised infrequently and has remained low relative to many states’ minimum wages. If a binding floor wage is introduced, there is a possibility that some states with higher minimum wages may adjust or moderate their wage increases, effectively aligning closer to the central floor to reduce pressure on industries, while still remaining compliant with the legal threshold,” said Archana Prasad, professor at the Centre for Informal Sector and Labour Studies, Jawaharlal Nehru University.

 

India’s minimum wages continue to vary widely across states. Higher-wage states such as Kerala and Haryana remain significantly above lower-wage states such as Bihar and Madhya Pradesh, reflecting differences in industrial development, cost structures, and revision cycles.

 

Gandhi added that the reform also carries fiscal and federal implications. “Labour-intensive sectors, MSMEs, and informal employers may face increased compliance costs or pressures to rationalise workforce structures if wage costs rise sharply. The legal reform is therefore worker-protective, but its economic absorption will vary across sectors and regions,” he said.

 

Ramchandani added that the extent of income gains will depend heavily on implementation, especially where existing minimum wages are below the new floor wage.

 

On broader wage outcomes, Amaresh Dubey, visiting senior fellow at the Centre for Social and Economic Progress (CSEP), said wage effects will continue to vary across states due to differences in development levels.

 

“The impact of the revised definition of ‘wages’ on employer costs will vary across states and there will be state-wise variations in other provisions of the code,” he said.

 

Although the Centre has notified final rules under all four Labour Codes, several states are yet to complete corresponding rules, leaving implementation uneven. The Codes came into effect in November 2025, followed by draft rules for consultation in December, with final rules notified earlier this month.

Why are experts concerned about the wage-fixation formula?

Another key issue flagged by experts is the absence of a detailed, standardised methodology for determining the national floor wage. The final rules do not prescribe a consumption-based framework such as calorie intake norms, housing requirements, or a defined consumption basket that was earlier referenced in wage norm discussions. While the Code empowers the Centre to notify the floor wage based on broad considerations of living standards and economic conditions, it does not lay down a formula or computational model.

 

Debjani Aich, partner at CMS INDUSLAW, said the removal of this structured approach marks a significant departure from the draft framework. “This change was a notable exclusion for me, as the criteria for wage fixation has been a legacy social practice over years in India. The draft rules were based on quantitative matrix including adult consumption units, which made it quite clear on how the minimum wage would be fixed. With the final Central Rules out and the lack of this defined criteria, it appears that determining future minimum wages is discretionary by the Central Government,” she said.

 

She added that while the Centre retains the authority to issue wage orders, the absence of a codified computation method shifts greater reliance to executive determination.

 

On a similar concern around discretion, Prasad said the lack of a defined standard makes the process less transparent. “There is no specific standard now in the final rules, which makes it vague and non-transparent. Now the floor wage will be set arbitrarily by whatever committee is formed to decide it,” she said.

 

“Suppose it is revised in later years, and if different committees are appointed over time, there may not be consistency in the methodologies they use,” she added.

 

On the policy design aspect, Dr V P Singh, PGPM director (Economics), Great Lakes Institute of Management, said the omission reflects a trade-off between transparency and flexibility.

 

He said a rigid formula improves transparency but reduces flexibility, while a flexible system allows adaptation in a federal structure. He added that absence of a formula does not mean absence of rational criteria, and does not prevent the Centre from revisiting or refining the framework in future.

 

“This certainly increases policy flexibility, but runs the risk of widening differences across the states in the country,” said Singh.

 

Rajashree Sarna, partner at Grant Thornton Bharat, said states were already revising minimum wages periodically and had initially awaited clarity on the Centre’s floor wage.

 

“A committee was always supposed to be formed and state governments have already been revising their minimum wages and they do so at regular intervals. States were waiting for the Centre to fix the floor wage, but since it does not look like it will happen anytime soon, states have started fixing it on their own based on local economic conditions,” she said.

 

Both the draft and final rules rely on a committee-based mechanism for recommending the national floor wage. However, the draft version had provided more explicit indicative guidance, including cost-of-living considerations, skill levels, and regional adjustments, which are not explicitly carried forward in the final framework.

 

Manoj Kumar Sharma, chairperson of the Assocham National Council for HR & IR Policies and Reforms, said the Centre is expected to revise the floor wage periodically in line with inflation, though unpredictability remains a concern.

 

“The concern is not variation per se, the concern is unpredictability,” he said, adding that sudden revisions have already created uncertainty for MSMEs.

 

He added that as India moves towards ‘living wages’, even small increases in the floor wage could have significant cost implications for labour-intensive sectors.

 

Haryana recently revised minimum wages in 2026, increasing unskilled monthly wages from about Rs 11,274 to around Rs 15,220, along with proportional hikes across skill categories, following worker protests over rising living costs. Uttar Pradesh also raised minimum wages in the same period, with unskilled workers in industrial hubs such as Noida seeing monthly wages increase from roughly Rs 12,000 to about Rs 14,700 amid protests and demands for higher pay.

 

Puneet Gupta, partner at EY India, said the lack of granular central guidance on wage-fixation methodology could increase divergence across states. He added that a periodically updated floor wage could serve as a benchmark to reduce wage disparities and improve baseline worker welfare.

 

“However, there has been no clarity from the authorities regarding the proposed quantum of the floor wage, the timeline for its notification, or the transition period that will be afforded to states to align their respective minimum wages with the prescribed floor wage. The ultimate impact will depend on the quantum of revision and the manner of its implementation,” he said.

 

The move to a binding national floor wage strengthens the statutory baseline for wages, but its real impact will depend on how it is set and revised in practice. With states still adjusting wages independently and no fixed calculation formula in place, the reform's effectiveness will rest on the consistency and clarity of future government notifications.