India: The Code Of Wages Bill, 2019 - A Bird's Eye View

Last Updated: 21 August 2019
Article by Mini Raman

The Code on Wages, Bill 2019 ("the Code") seeks to regulate the payment of wages and bonuses in all establishments where industry, trade, business, manufacture or occupation is carried on including government establishments. Clause 69 of the Code proposes to repeal the following laws: (i) the Payment of Wages Act, 1936, (ii) the Minimum Wages Act, 1948, (iii) the Payment of Bonus Act, 1965, and (iv) the Equal Remuneration Act, 1976 and further seeks to consolidate the provisions of the aforesaid legislation under the Code. The Code was passed by the Rajya Sabha on the 2nd of August 2019 and has to now receive the assent of the President for the Code to become law. This article seeks to provide a brief summary of some of the important provisions of the Code.

Clause 3 of the Code prohibits any employer from discriminating between employees on the basis of gender in matters relating to wages by the same employer, in respect of the same work or work of a similar nature done by any employee.

Chapter 2 of the Code provides for the payment of minimum wages. Under Clause 5 of the Code an employer is prohibited from paying to any of its employees any wages less than the minimum wage rate of wages notified by the appropriate Government. An "employer" has been inter alia defined under Clause 2 (l) of the Code to mean a person who employs, whether directly or through any person, or on his behalf or on behalf of any person, one or more employees in his establishment. It is pertinent to note that the definition of the term "employer" includes a "contractor" even though the Code does not repeal the Contract Labour Act, 1970.

Clause 6 of the Code empowers the "appropriate Government" to fix the minimum rate of wages payable to employees. The "appropriate Government" is the "Central Government" in case of establishments carried on by or under the authority of the Central Government or the establishment of railways, mines, oil field, major ports, air transport service, telecommunication, banking and insurance company or a corporation or other authority established by a Central Act or a central public sector undertaking or subsidiary companies set up by central public sector undertakings or autonomous bodies owned or controlled by the Central Government, including establishment of contractors for the purposes of such establishment, corporation or other authority, central public sector undertakings, subsidiary companies or autonomous bodies, as the case may be. In relation to any other establishment, the "appropriate Government" is the State Government.

Such fixation of minimum wages by the appropriate Government shall be subject to the powers of the Central Government to fix floor wage. The minimum wages shall be for time work, piece work, and for the period by hours or day or month. Clause 9 of the Code provides that the Central Government may fix floor wages for different geographical areas so as to ensure that no State Government may fixes a minimum wage below the floor wage, notified for that area by the Central Government. Clause 7 of the Code seeks to provide components of the minimum wages. Any minimum rate of wages fixed or revised by the appropriate Government may, inter alia, consist of basic rate, cost of living allowance and value of the concessions, if any. Clause 8 of the Code seeks to provide the procedure for fixing and revising minimum wages. The appropriate Government is bound to review or revise the minimum rate of wages every 5 years. Under Clause 14 of the Code an employer is bound to pay an employee twice the amount of his wages when such employee works overtime.

Chapter 3 of the Code deals with the provisions pertaining to the payment of wages. Clause 16 provides that the wage periods may be daily, weekly, fortnightly or monthly and no wage period shall exceed a month. Clause 18 provides for authorised deductions under the Code which may be made by employers from the wages of the employees. Such authorised deductions include deductions from the absence of an employee from duty and deductions by reason of any fines imposed on the employee. Clause 19 to Clause 24 specifies the manner in which the authorised deductions may be made. The provisions of Chapter 3 are not applicable to Central Government establishments unless specifically notified to this effect. The rationale behind this exclusion is unclear.

Chapter 4 deals with provisions pertaining to the payment of bonus by employers to employees.

Clause 26 of the Bill seeks to make provisions for the eligibility for bonus. Clause 26 provides for the mandatory payment of the bonus by employers in the event the employee concerned is drawing a minimum notified amount of wages and has worked for a period of 30 days in an accounting year. The annual minimum bonus is to be calculated at the rate of 8.33% of the wages drawn by the employee or Rs. 100 whichever is higher. The employer has to pay such bonus irrespective of whether it has any allocable surplus during the previous accounting year. In the event the employer has allocable surplus, the employees will be entitled to receive bonus upto a maximum of 20% of their annual wages.

Clause 27 of the Bill seeks to provide for proportionate reduction in bonus in case where an employee has not worked for all the working days in an accounting year, etc. Clause 28 of the Bill seeks to provide for computation of the number of working days for the purposes where an employee has not worked for all the working days in an accounting year. Provisions have been made in this clause to cover certain days as working days as specified therein. Clause 29 of the Bill specifies instances for disqualification of the employee from receiving bonus, such dismissal from service for fraud, etc. Clause 31 of the Code provides that the bonus shall be paid out of the allocable surplus of the establishment which allocable surplus shall be an amount equal to 60% in case of a banking company and 67% in case of any other company. Clause 41 sets out the exclusions to the applicability of chapter 4 which includes the employees of any establishment under the authority of the Central Government, State Governments or any local authority.

Chapter 5 deals with provisions pertaining to the setting up of central and state advisory boards by the central government and state governments respectively. Chapter 6 deals with provisions pertaining to claims by employees of the amounts due to them under the Code from their employers and the manner of disposal of such claims and debts.

Chapter 7 of the Code provides for the appointment of an inspector cum facilitator and sets out their powers. Under Clause 51(1) of the Code the appropriate government may appoint an inspector cum facilitator to (a) provide advice to employers and workers relating to compliance with the provisions of the Code and (b) inspect the establishments as assigned to him by the appropriate Government, subject to the instructions or guidelines issued by the appropriate Government from time to time. By virtue of Clause 51 (4), an inspector cum facilitator so appointed is a public servant within the meaning assigned to the term under the Indian Penal Code.

Chapter 8 of the Code deals with offences and penalties. Clause 54 of the Code specifies penalties for offences committed by an employer, such as (i) paying less than the due amount payable under the Code, or (ii) for contravening any provision of the Code. Penalties vary depending on the nature of offence, with the maximum penalty being imprisonment for three months along with a fine of up to one lakh rupees.

Chapter 9 of the Code contains miscellaneous provisions. Under Clause 59 where a claim has been filed on account of non-payment of remuneration or bonus or less payment of wages or bonus or on account of making deductions not authorised by this Code from the wages of an employee, the burden to prove that the said dues have been paid shall be on the employer. Under Clause 60 any contract or agreement whereby an employee relinquishes the right to any amount or the right to bonus due to him under the Code shall be null and void in so far as it purports to remove or reduce the liability of any person to pay such amount under the Code. Under Clause 61 the provisions of the Code shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the terms of any award, agreement, settlement or contract of service.

Conclusion: The Code is definitely a positive step towards labour reform and a long awaited one at that. The Code's provisions appear to be exhaustive, however, only the test of time will tell whether the changes introduced by the Code will achieve the objectives that it aims to achieve and solve the concerns that it purports to address.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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