A Review of the Code on Wages, 2019

Ashish M. Shaji

28 Mar, 2020

In India, labour laws have been governed by various legislations in the past at the central and state level. In order to integrate and harmonise the legislations concerning wages, the Ministry of Labour and Employment introduced the Code on Wages Act in Lok Sabha on July 23, 2019. It was passed in both Houses of the Parliament.

Overview

The code intends to bring uniformity to the provisions of the minimum wages and timely payment of wages to all the employees regardless of the sector and wage ceiling. The code is first among the four labour codes that have now become an Act. It has replaced or substituted four labour regulations, namely:

1. Payment of Wages Act, 1936
2. The Minimum Wages Act, 1948
3. The Payment of Bonus Act, 1965
4. The Equal Remuneration Act, 1976

The industries must understand the important aspects that the code offers. Under this code, many definitions have been simplified, unlike the earlier legislations where implementation was difficult. The applicability of the regulations of the code applies to both organised and unorganised sectors. Let us now discuss the key highlights of the Code on Wages, 2019.

Definition of Wages under Code on Wages, 2019

The code seeks to have a uniform definition of wages across all legislations, thereby minimising litigations.  The definition of Wages has been unified. The definition of Wages includes basic pay, dearness allowance, retaining allowance. It excludes components like overtime allowance, statutory bonus, employer contribution to provident fund/pension, conveyance allowance/travelling concession, retrenchment concession, gratuity etc.

These exclusions may not exceed 50% of all remuneration and in case it exceeds, such excess amount shall be deemed as remuneration and will be considered as wages.

Expansion of the definition of Employee under Code on Wages, 2019

The code defines that any person who is an employee under wages and who works for an establishment whether skilled, semi-skilled, unskilled, manual, operational, supervisory, administrative, managerial, technical or clerical work will be considered as an employee. All workers, other than members of the armed forces, will be considered as an employee.

The Code of Wages, 2019 provides the definition of the employee covering all categories including supervisory, managerial and administrative. It extends legislative protection to all the employees. The code has expanded the definition of the employee as well as the employer. It has resulted in broad-based applicability of the regulations wherein the regulations are applicable to employees in both organised and unorganised sector.

Minimum Wages under Code on Wages 2019

To improve the compliance of the labour laws, the government made some notable decisions on fixation of the Minimum Wages. The Minimum wages shall be fixed, keeping in mind the temperature, humidity and hazard level of the work and not just the skill category and geographical location of workers. The central government shall set the national floor rate for wages after determining the minimum living standards of workers across geographical areas. Where the existing minimum wages are higher than the floor wages, the same shall be retained.

The state governments shall fix the minimum wages for their region, and it must not be lower than the national floor rate for wages. The code proposes that there shall be a review/ revision of the minimum wages at intervals, not exceeding five years. Also, the rate of wages for overtime work must not be less than twice the rate for normal wages.

Equality in Remuneration of the Wages

The code prescribes equal remuneration of the wages. Under the provisions, no discrimination shall be permitted based on the gender of the employees for the same work or work of a similar nature. Work of a similar nature means a work for which the skill, effort, experience, and responsibility required is the same. This is a bit broad provision than the earlier provision which mentioned no discrimination on the basis of Men and Women. The disputes related to the wages discrimination shall be decided by the authority notified by the appropriate government. It also prohibits discrimination on the basis of gender during recruitment. The wage code has taken a gender-neutral approach by prohibiting discrimination of gender in matters relating to the wages.

Payment of Bonus under Code on Wages 2019

Alike the provisions in the Payment of Bonus Act, 1965, the chapter related to bonus payments under the code shall apply to only such establishments that employ at least 20 employees on any day in that accounting year. All the employees whose wages do not exceed a specific monthly amount (to be notified by the central or the state government) shall be entitled to an annual bonus. The bonus shall be payable on higher of the minimum wage or the wage ceiling set by the appropriate government for the payment of Bonus. The minimum bonus prescribed under the code is 8.33 %, and the maximum payable bonus shall be 20 %. It may, however, be noted that the state governments may, through a notification, exempt employees of any establishment from the application of the said chapter relating to the payment of Bonus, having regard to overall benefits in any other profit-sharing scheme available in such establishments. In addition, if any employee has been dismissed on conviction of sexual harassment, such employee shall not be entitled to the payment of Bonus.

Payment of Wages under Code on Wages 2019

The code directs for provisions of payment of minimum wages and timely payment of the wages in order to ensure the right to sustenance for every employee. The wages settlement period for the payment of monthly wages has been specified as on the 7^th of the succeeding month, against the 10^th of the succeeding month. If an employee has been removed, retrenched, dismissed, resigns or becomes unemployed due to closure of an establishment, then, in that case, the wages must be paid within two working days. Specific timelines for resignation cases were not provided for in the earlier Act. The limitation period for filing claims for minimum wages, equal remuneration, bonus etc. by the workers has been raised to 3 years as against the earlier varying period between 6 months to 2 years.

Provision of Income cum Facilitator

The wage code provides for the appointment and lays down the responsibilities of the Inspector cum Facilitator. The appropriate government shall appoint Inspectors cum facilitators who shall carry out inspections. They may advise employers and employees for better compliance.

The principle objective behind this is to remove the arbitrariness and malpractices in the inspection. An essential point to note is that the Inspector cum facilitator must give an opportunity to the employer to comply with the provisions of the code through written direction and must give the employer time for compliance. If the employer complies with the provisions then the Inspector cum Facilitator shall not initiate the prosecution proceedings.

The inspector has the authority to search seize or make copies of such register, a record of wages or notices in respect of an offence under the wage code and can bring the defects or abuses of law to the notice of the appropriate government.

Penalties under Code on Wages 2019

The quantum of the penalties has been raised significantly under this code depending upon the nature of the offence. The highest punishment being imprisonment of three months and or fine of up to 1,00,000 Rs. Non-payment of the amount due to an employee under the code is punishable with a monetary fine. The code on wages criminalises repeat offences. When a similar offence is committed within five years of the commission of the first offence or subsequent offence, then imprisonment and higher fines may be imposed. The wage code also has the provision of compounding of offences for which imprisonment is not the penalty.

Conclusion

The Code on Wages, 2019, has simplified the implementation of labour legislation which was otherwise a bit complex. This could be a progressive step towards labour reforms. The code on wages intends to improve transparency and accountability in the implementation of its provisions. The employers must have a close look at its provisions and understand its impact on their operations.  The wages code also benefits many employees who are paid less than the minimum wages. It promises to improve the ease of doing business in India.

Also, Read : Industrial Relations Code Bill 2019: an overview.