THE CODE ON WAGES, 2019

July 23, 2019

Introduced in Lok Sabha

July 30, 2019

Passed in Lok Sabha

July 30, 2019

Passed in Rajya Sabha

Whats’ the need of Wage Code?

62%

Of the workforce is made of up of casual workers who need a right to the minimum wages

1,709

scheduled employments rates fixed by states, 45 by centre; making it a complex wage system

33%

Of wage workers were paid less than the indicative minimum wages in 2009-10

Anjali Singh
Anjali Singh

Published on: Mar 27, 2020

Aparna Kashyap
Aparna Kashyap

Updated on: Jan 10, 2024

(69 Ratings)
14448

INTRODUCTION

It was expected to get the Code of Wages implemented from 1st July, 2022 for the financial year of 2022-23 but the status of it is still enigmatic.

As a large number of states have finalised draft rules on the code. The Centre has completed the process of finalising the draft rules on these code in February 2021. But since labour is a concurrent subject, the Centre wants the states to implement these as well in one go.

Following 4 laws has amalgamated into Code of Wages comprising 69 sections which intends to increase the legislative protection of minimum wages and to transform the old and obsolete labour laws into more accountable and transparent ones.

The Code on Wages, 2019 amalgamates, simplifies and rationalizes the relevant provisions of four central labour enactments relating to wages, namely:

  • The Payment of Wages Act 1936
  • The Minimum Wages Act 1948
  • The Payment of Bonus Act 1965
  • The Equal Remuneration Act 1976

SCOPE

  • The Code will apply to all employees; aims to universalise the provisions related to minimum wages, bonus payments and timely payment of wages in all employments where any industry, trade, business, or manufacture is carried out.
  • The Central Government will make wage-related decisions for employments such as railways, mines, and oil fields, among others State governments will make decisions for all other employments.

KEY HIGHLIGHTS

  • Seeks to regulate wages and bonus payments in all areas of employment where any trade, business, or manufacturing is carried out including organized and unorganized sectors
  • Wages include salary, allowance, or any other component expressed in monetary terms. This does not include bonus payable to employees or any travelling allowance, among others
  • It aims to ensure process of registration and filing of returns is standardised and streamlined. With various labour-related definitions getting standardised, it is expected that there shall be less dispute
  • Covers definition of wages, reducing categories for minimum wages, web-based randomized computerized inspection scheme, statutory protection for minimum wage and timely payment of wages
  • Many states had multiple minimum wages but by enactment of this Code, the methodology to fix the minimum wages has been simplified and rationalized by eradicating type of employment is one of the criteria for fixation of minimum wage
  • The minimum wage fixation would now primarily be based on geography and skills
  • It will substantially reduce the number of minimum wages in the country from existing more than 2000 rates of minimum wage
  • Definition of Wages
    The new definition of wages provides that the wage shall mean to include all remuneration whether by way of salaries, allowances or otherwise, expressed in terms of money or capable of being so expressed which would, if the terms of employment, express or implied, were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment, and includes
    • basic pay
    • dearness allowance (“DA”)
    • retaining allowance (“RA”), if any.
    The definition of wage excludes bonuses, overtime, house, house rent, conveyance allowance and allowance for other amenities, contribution paid by the employer, any gratuity payabale and also any retrenchment compensation or other retirement benefit payable to the employee or any ex gratia payment made to him on the termination of employment.
    The allowances provided should not exceed 50% of the total remuneration paid to the employee. In case such allowances exceed 50% of the total remuneration and if the amount exceeds it will be paid to the employee as part of wages.
    It will change the procedure to calculate the wages for the purpose of contribution towards certain benefits like EPF and Gratuity as now the same will have to be calculated on 50% of the total remuneration of an employee.
    The change will let employers to update the salary structure of the employees in such a way that the basic + DA + RA should construe 50 % of the total wages of the employees. As it may affect the contribution amounts.
  • Payment of Wages
    • Section 15 states that all wages to be paid in current coin or currency notes or by cheque or by crediting the wages in the bank account of the employee or by the electronic mode.
    • Section 17 states that in case of separation, including resignation, the settlement is to be made within the next 2 working days
    • Section 17 also states that employer shall pay wages as:
      • Daily wage shall be paid by the end of the day
      • Weekly wage shall be paid on the last working day of the week
      • Fortnightly wage shall be paid within 2days after the end of the period
      • Monthly wages shall be paid within 7 days after the month
    • Section 18(3) states that the total amount of deduction in any wage period from the wages of employed person shall not exceed 50% (Currently in case of co-operative Society – 75 %)
    • Section 23 says that the recovery of advance can be done without any stipulated time but
    The earlier Act had different provisions for termination cases in different states and did not provide any specific timelines for resignation cases.
  • Payment of Bonus
    • Section 26 states that the Wages ceiling for eligibility for Bonus and calculation of Bonus has to be fixed by the Appropriate Governments.
    • The minimum bonus shall be paid on an annual basis at the rate of 8.33% (eight and one-third percent) of the wages or Rs. 100 whichever is higher, irrespective of the employer having an allocable surplus of the previous accounting year.
    • Section 28 states that the employee shall be disqualified from receiving bonus under this Code, if he is dismissed from service for:
      • fraud
      • riotous or violent behaviour while on the premises of the establishment
      • theft, misappropriation or sabotage of any property of the establishment; or
      • conviction for sexual harassment.
    • Section 36 states that if the allocable surplus exceeds the minimum bonus payable to employees, the employee shall be entitled to receive the bonus in proportion to their wages, subject to a maximum of 20% of their wages.
    • Section 31 envisages that the allocable surplus shall be calculated in accordance with the provisions of the Code. It shall be equal to 60% in the case of a banking company and 67% in the case of other establishments, of the available surplus. The available surplus shall be the gross profits of that accounting year minus certain deductions i.e., depreciation admissible under income tax and direct tax that the employer is liable to pay.
  • Equal Remuneration
    Section 3 has included the word ‘gender’ so as to widen the duty of an employer to pay equal wages to its employees, thereby promoting gender equality.
    The amendment will ensure no discrimination in payment of wages amongst males, females and individuals falling within the definition of ‘transgender’.
  • Limitation period for claims
    The period of limitation for filing of claims for minimum wages, bonus, equal remuneration etc., by workers has been enhanced to 3 years as against existing time period varying from 6 months to 2 years, to provide more time to file their claims.
  • Advisory Boards
    Section 42 of the code states that The central and state governments will constitute advisory boards. The Central Advisory Board will consist of:
    • employers
    • employees (in equal number as employers)
    • independent persons, and
    • 5 representatives of state governments.
    State Advisory Boards will consist of employers, employees, and independent persons. Further, one-third of the total members on both the central and state Boards will be women. The Boards will advise the respective governments on various issues including:
    • fixation of minimum wages, and
    • increasing employment opportunities for women.
  • Other provisions
    • Pursuant to enactment of the Code, Section 8(2) will stipulates a procedure to fix minimum wages and it will become a right of every worker thereby providing legislative protection to workers in the unorganized sector as well.
    • Inclusion of workers in the committee will ensure appropriate representation of the workers in procedure for determination of wages and while considerations for fixing & revising minimum wages.
    • This Code seeks to provide a methodology to be followed by the Appropriate Government which is primarily based on the skills of the workers.
    • Arduousness of working conditions of workers such as temperature or humidity normally difficult to bear, hazardous occupations, processes or underground work are to be considered while determining and/or revising the wages by the Government
  • Duty of Inspectors & Penalties
    The code provides the appropriate government to appoint Inspectors-cum-Facilitators (in the place of Inspectors), to carry out inspections. Such Inspectors-cum-Facilitators may advise employers and employees for better compliance. This has been done with the objective of removing the arbitrariness and malpractices in inspection.
    The maximum penalty for any offence is limited to imprisonment for three months and/ or with a fine of up to INR 100,000.

POINTS TO WATCH OUT

  • Section 9 of the Code introduces the concept of ‘floor wage’ which is to be fixed by the Central Government for different geographical areas taking into account the minimum living standards and Section 9(2) of the Code prohibits the State Government from lowering their minimum wages below such floor wage as may be fixed by the Central Government.
  • This will increase the business labour cost and therefore the industries will hire less workers to keep the total labour costs same which will result in increase of unemployment rate.
  • The code shall bring social disparity as minimum wages are to be fixed at varying rate from states to states or zones to zones depending upon the geographical conditions as; North zone, South zone, East Zone, West zone and North East zone. This may lead to job outsourcing as industries/establishments can move their facilities to countries where labour costs are lower.
  • The new Code can also raise the cost of living as higher wages will allow the employees to pay more for housing and living.

CONCLUSION

31 States/Union Territories (UTs) have pre-published the draft rules under the Code on Wages which are yet to be notified and get implemented. Delay in the implementation of the Code has definitely obstructed the benefits of the employees. But it is expected that after its implementation, Wage Code will cover 50 crore+ employees and ensure “Right to Sustenance” for every worker by increasing the legislative protection of minimum wage; it’s a welcome move making India a more formal economy and fulfilling India's aim to become a $5 Trillion economy.

The HR, Legal, Finance and business users must familiarise themselves with the code and evaluate potential impact on their operations and make use of time in hand before states start rolling out their rules.

Disclaimer

The information provided in this article is intended for general informational purposes only and should not be construed as legal advice. The content of this article is not intended to create and receipt of it does not constitute any relationship. Readers should not act upon this information without seeking professional legal counsel.

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