Chapter 1: What is a minimum wage

1.5 What is included in a minimum wage?

The term “wage” is generally understood to be the payment an employer makes to his or her employees – including to employees1 with regular, casual, short-term, intermittent or seasonal jobs, as well as to apprentices and trainees. This broad definition of “wages” is spelled out in Article 1 of the ILO Protection of Wages Convention, 1949 (No. 95): 

"…the term wages means remuneration or earnings, however designated or calculated, capable of being expressed in terms of money and fixed by mutual agreement or by national laws or regulations, which are payable in virtue of a written or unwritten contract of employment by an employer to an employed person for work done or to be done or for services rendered or to be rendered".

In this general sense, the term “wages” is often synonymous with terms such as “earnings” or “remuneration”. It does not include income from self-employment. 

The components of a wage

In many cases, total wages or earnings include different components, such as:
  • basic pay
  • annual bonuses
  • tips
  • in-kind benefits
  • productivity and performance pay
  • allowances and premiums for non-standard work hours or dangerous work.
The fact that total wages or earnings are made of different components raises the question of which components should count towards compliance with the minimum wage. Should the minimum wage apply to workers’ total earnings – or should it apply only to some of its components?

Convention No. 131 does not explicitly indicate the elements to be included in the minimum wage.2 But clarity is needed for a minimum wage policy to be operational.

In some countries, only basic wages are taken into account for the purpose of minimum wages. In other countries, most other wage components are also included. While both options are possible, a problem arises in cases where the basic wage constitutes only a very small part of total earnings (in which case a minimum wage that applies only to the basic wage is not very meaningful) or when the components of the minimum wage are left undefined. In some countries with no clear legal definition of what the minimum wage should include, this question tends to end up in court.

Gross wages and net wages

The broad definition of “wages” – and the same is true for “minimum wages” – generally refers to gross earnings or gross remuneration. This means total remuneration in cash and in kind paid to employees before any deductions are made by the employer in respect of taxes, contributions of employees to social security and pension schemes, life insurance premiums, union dues or other obligations of employees. Wages therefore differ from employees’ disposable take-home pay, which is what remains after taxes, pensions, social security contributions, or other deductions.

This should be taken into account when evaluating the ability of a minimum wage to cover the needs of workers and their families.

1 In some cases this can also apply to other groups of workers. See section 4.5.2.
2 ILO General Survey 2014 on minimum wage systems, p. 19.