Salient features of the Code on Wages, 2019

Indian labour legislations are very old and complex to understand. Although several efforts have been made in the past to simplify them, the wage code which received the assent of President of India on 8th August 2019 is the significant one. It is estimated that the new wage code would benefit around 50 crore workers working in organized and unorganized sectors as 60% of total workers are said to be paid less than the minimum wages currently.

The Second National Commission on Labour, in April 2012 had recommended that the existing set of Labour laws should be broadly amalgamated into five groups such as Industrial Relations, Wages, Social Security, Safety, Welfare, Working Conditions. After many discussions with interested parties now the Labour Laws will be codified into four groups and they are 1) Industrial Relations 2) Wages 3) Social Security and 4) Occupations Safety, Health, Working Conditions.

The new Act is called, The Code on Wages, 2019. The objective of the Code is to amend and consolidate the laws related to Wages, Bonus, and matters connected with them. It amalgamates the four major Acts known as The Payment of Wages Act 1936, The payment of Bonus Act 1965, The Minimum Wages Act 1948 and The Equal remuneration Act 1976. New Code on wages has 9 chapters and 69 sections.

1.    Application of the code:

The Act applies to the whole of India and it comes into effect from the date notified by the Central government. The code applies to all Factories and Establishments unless exempted specifically in the code. That means it applies to all employees and workers employed in organized and unorganized sectors. But so far, the case was different. For example, The Payment of Wages Act was applicable only to the employees drawing Rs.24000/- or lower wages per month. The Minimum wages Act of 1948 was applicable only to scheduled employments. Now, with the implementation of the new code, such limits and conditions are removed. Further, all employees and workers now can seek protection under this Act against non-payment, delayed payment and unauthorized deduction of wages. If any difficulty arises in the implementation of this Act central government will publish official gazette to remove such difficulties.

2.    Worker & Employee:

Code has given different definitions for Worker and Employee. The Employee definition includes Manager, Supervisor and those who do administrative, technical and clerical works. The worker definition does not include supervisors drawing wages exceeding Rs. 15000/- per month and Managers and administrative employees. Also, any person employed in Airforce, police service or employed in Prison is not a worker. Interestingly the working Journalists and sales promotion employees are considered as workers. Apprentices as per the Apprentice Act 1961 are excluded from the worker definition. But Act is silent on company trainees and NEEM Students which may be a confusing factor for HR professionals and Employers.

3.    Wages:

Wages definition includes all remuneration payable to a person employed in respect of his employment or work including Basic, dearness allowance and retaining allowance if any. But excludes bonus, HRA, Conveyance, OT and few more components. But such excluded components are if more than 50% of total wages the difference should be added back to the total wages. The Code directs all employers to pay wages on or before the 7th day of the month. Further, if any employee is terminated from the employment for whatsoever the reason including resignation, the balance wages must be paid within 2 working days.

4.    Wage deductions:

The code has listed the authorized deductions and restricts the total authorized deductions to 50% of the total wages in a wage period. if any deductions are more than 50% of the wages, such deductions may be made only as per the manner prescribed by the code. Also, the code specifies that no fines can be imposed on any employee until such employee has been given an opportunity of showing cause against the fine. and the total fine amount cannot exceed 3% of total wages. For the purpose of imposing the penalty, the central government can also appoint an officer at the rank of undersecretary to the government of India or equivalent rank in the state government for holding an enquiry and to impose penalties.

5.    Contractor labour:

The code provides a clear definition of “contract labour”. We must note that this definition includes interstate migration workers which were earlier dealt by The interstate migration of workers Act 1979. Further, it is interesting to note that any employee is regularly employed by the contractor for any activity of his establishment and his employment is governed by mutually accepted terms, gets periodical increments and covered for social security and other welfare benefits is not contract labour.

6.     Employer:

Employer definition includes the legal representative of a deceased employer. Surprisingly the definition includes “Contractor” also, hence the question arises who is responsible for the payment of bonuses to contract employees. It is worth to note that certain exemptions are provided to the employer. When an employer is charged under this code but the employer has any other person who is an actual offender and proves that the other person has committed the offense without an employer’s knowledge, such person will be punished, and the employer is discharged from his liability.

7.    Industrial disputes:

The new wage code defines the industrial disputes as “any dispute or difference between employers and employers, employers and workers or workers and workers”. But any difference or dispute between employers and employees is an industrial dispute? The Act is silent on this question. Further, an authority established under this code can resolve the industrial disputes? Or its responsibilities are limited to protect the rights of workers is still unclear.

8.    Minimum wages:

So far, the minimum wages for scheduled employments were fixed by the Minimum wages Act. But in the future, the Central government will be responsible for fixing the National minimum wages. For the purpose of fixing the minimum wages, Central governments may take into account primarily the skill of workers, Geographical area and minimum living standards. No state government is allowed to fix minimum wages less than the national minimum wages.

9.    Equal pay for equal work:

The wage code prohibits wage discrimination based on gender. It directs all employers to pay equal wages to equal work. Employers may have to keep proper records in case of any differential wage payment for the same work. It also prohibits discrimination on gender during recruitment. the disputes related to wages discrimination will be decided by authority notified by the appropriate government.

10. Inspector cum facilitator (ICF)

Chapter 7 of the Wage code discusses the appointment and responsibilities of the Inspector cum facilitator. The responsibility of the Inspector cum Facilitator is to advise employers and workers related to compliance of provisions of the code. The act intends to change the role of Inspector for the implementation of the provisions of the code.

11. Bonus calculation and payment:

Wage code has retained almost all provisions of Payment of Bonus Act 1936 like a minimum bonus, maximum bonus percentage and set on and set off method for calculation of the bonus. But the payment of a bonus must be made only by a credit to the bank account of an employee. In addition to earlier reasons, it is also included that, If any employee is dismissed for conviction of sexual harassment, such an employee shall be disqualified from receiving the bonus.

12. Offenses and penalties:

The code has prescribed different fines for different offenses. The important fact to be noted is, Inspector cum Facilitator must give an opportunity to the employer to comply with the provisions of this Code by way of a written direction and provide time for such compliance and, if the employer complies with the direction, Inspector cum Facilitator must not initiate the prosecution proceedings.  Further, any employer repeats the same nature of violation within a period of five years prosecution shall be initiated. Code has increased the limits of fines and punishment. For example, if any worker is paid less than prescribed minimum wages employer shall be fined with Rupees 50000 and if the same violation is repeated, he shall be fined with Rupees one lakh or 3 months imprisonment or both.

Likewise, the code has described several provisions in detail to implement from the date notified by Central Government by its gazette after which the state governments have to frame rules or adopt model/central rules for implementation.

 To sum up we can say that the efforts of the central government in reforming the complex labour legislation are very welcome demarche. It benefits many employees who are paid less than the minimum wages. It also benefits employers in terms of reduced compliance work and some specific exemptions provided therein. 

Prepared by

Nagaraja DB,

Head of Human Resources

Weir Minerals India Private Limited.

E-Mail: [email protected]

DISCLAIMER: This article is prepared and furnished for information and knowledge enhancement of all interested. You may choose to reproduce or redistribute this report for non-commercial purposes in part or in full to any other person with due acknowledgment of the Author. The opinions and analysis expressed herein are entirely those of the author. Even though the author has used his experience and knowledge in analyzing the Code, it is not to be taken as complete and accurate in all respects. This document has been prepared without regard to the objectives or opinions of those who may receive it.