India: Wage Code - A Step In The Right Direction

Last Updated: 27 August 2019
Article by Vaishnavi Eshwar and Sawant Singh

It has been a long-standing agenda of the government to codify and consolidate labour laws in order to promote ease of doing business in the country. With over 40 central and state laws dealing in labour and employment aspects, it has been the need of the hour to compile and codify these laws. The Second National Commission on Labour (2002) had recommended that the existing labour laws should be classified into broader groups for easier compliance. Some of the draft codes were being discussed and deliberated upon for the last several years.

As a part of the labour reforms initiatives undertaken by the Ministry of Labour and Employment, steps are actively being taken to amalgamate, simplify and rationalize 38 labour legislations into 4 Codes, the laws under which have been broadly categorized on functional basis into (i) wages; (ii) industrial relations; (iii) social security and welfare; and (iv) safety and working conditions. Among these 38 legislations, at least 17 legislations are over 50 years old and a few even date back to the pre-independence era. The Code on Wages is the first among the 4 proposed Codes. Although, the Code on Occupation Health, Safety and Working Conditions, 2019 was also simultaneously introduced in the Parliament, it is yet to be passed.

The Wage Code Bill (Bill) was first introduced in the Lok Sabha on August 10, 2017, and was subsequently referred to the Parliamentary Standing Committee (Committee) on August 21, 2017, for its examination and their recommendations. The Committee, in the course of its examination of the Bill, invited comments/ suggestions on the Bill from Trade Unions/ Organizations/ Individuals. After due deliberations on the suggestions received, the Committee furnished its report on December 18, 2018, incorporated with its various recommendations. However, owing to the dissolution of the 16th Lok Sabha, the Bill could not be passed and consequently, lapsed.

The Code on Wages, 2019 (Code), enactment of which empowers the Centre to set a minimum statutory wage, expected to benefit over 500 million workers across the country, was re-introduced in Lok Sabha by the Minister of Labour, Mr. Santosh Gangwar, on July 23, 2019, and subsequently passed on July 30, 2019. Thereafter, it was passed by Rajya Sabha on August 2, 2019 and is currently awaiting the Presidential assent following which, it will become an Act of Parliament.

The Code seeks to regulate and streamline wage and bonus payments in all the employment sectors where any industry, trade, business, or manufacture is carried out. The central government will make wage related decisions for employment sectors, inter alia, railways, mines, oil fields, etc. and the state governments are to make similar decisions for all the other employment sectors. 4 existing labour legislations namely, (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, have been subsumed under this Code.

Presently, the provisions of both the Minimum Wages Act, 1948 and the Payment of Wages Act, 1936 are applicable only on workers falling below a particular wage ceiling, working in the Scheduled employment sectors. Many unorganized sector workers like agricultural workers, painters, persons working in restaurants and roadside food stalls, gatekeepers, etc., who previously did not fall under the cloak of the minimum wages, will get legislative protection of minimum wages after the Code becomes an Act.

The Code is likely to be an improved and a more efficient version of the 2017 Bill as it incorporates many of the recommendations provided by the Parliamentary Standing Committee in their December 2018 report.

The need for codifying and implementing a uniform labour legislation arose owing to the fact that currently, there are close to 12 different definitions for wages, which is one of the primary reasons for labour litigations in the country, and for inefficiency in the implementation of these legislations. The Code introduces a simplified definition for wages, which includes salary, allowance, or any other component expressed in monetary terms, but does not include, inter alia, bonus payable to employees or any travelling allowance. This new definition is expected to reduce litigation and enable easier and cheaper means of compliance for an employer. Establishments will further be benefitted as the number of registers, returns, forms, etc. can not only be filed and maintained electronically, but it is believed that by taking recourse to the applicable rules, all the statutory compliances can be comprised under a single template.

Article 43 of the Constitution of India states that, "The State shall endeavour to secure, by suitable legislation or economic organization or in any other way, to all workers, agricultural, industrial or otherwise, work, a living wage, conditions of work ensuring a decent standard of life and full enjoyment of leisure and social and cultural opportunities". Under the Constitution of India, 'Labour' falls under the Concurrent List under the Seventh Schedule, where both the central and the state governments are competent to enact legislations.

Presently, the state governments are empowered to set the standard for minimum wages, based on employment, in their respective states. With the introduction of the Code, the central government, to the exclusion of the state governments, will be empowered to fix a floor wage, keeping in mind the living standards of the workers. Moreover, different floor wages may be fixed for different geographical areas. The central government may consult the Central Advisory Board and the state governments to decide and set a favorable floor wage. Thereafter, the minimum wages set by the central and the state governments, in their respective states, have to mandatorily be higher than the floor wage fixed. In case the existing minimum wage fixed by the central or the state governments is higher than the floor wage fixed, they cannot be reduced.

The concept of a floor wage was brought about to ensure a uniform standard of living across the country. Presently, differences observed in the minimum wages set out across states and regions are primarily attributed to the fact that the central and state governments set, revise and enforce minimum wages for the employments covered by them. The advent of a floor wage may aid in reducing these differences and provide a basic standard of living for all employees across the country, as the floor wage fixed by the Centre will no longer be based on employment, but on geography and skills.

The process of fixing minimum wages has also been revisited while framing the Code. Under the Code, the employers are prohibited from paying wages less than the minimum wage fixed. This minimum wage will be fixed based on either the time consumed or the number of pieces produced i.e., the level of difficulty of the task undertaken or the skill of the workers involved, and will be notified by the central or state governments from time to time. This minimum wage rate fixed by the governments will be reviewed and revised periodically, at an interval of not more than 5 years in a stretch.

With reference to overtime wages, the Code provides for the central and state governments to fix the number of hours which would constitute a normal working day, and employees working in excess of a normal working day shall be entitled to overtime wages, which would be no less than twice the normal rate of wages payable to the respective employee. Payment of wages is to be made in coins, currency notes, by cheque, by crediting to the bank account, or through electronic mode, and the employer is responsible for fixing the wage period as daily, weekly, fortnightly, or monthly.

The Code also ensures that the employees be given their salary on a timely basis by stating that employees in receipt of monthly payment will receive the same by the 7th day of the next month. Further, those employees working on a weekly basis will receive their salary on the last day of the week, and daily wagers, on the same day.

The Code, in order to maintain harmony in the employer-employee relationship, has subjected an employee's wages for deductions, inter alia, on the grounds of fines, absence from duty, accommodation given by the employer, recovery of advances given to the employee, etc. Further, keeping in mind the beneficial nature of the labour legislations, the Code caps the maximum deductions to up to 50 percent of an employee's total wages.

In light of the Payment of Bonus Act, 1965 being subsumed under the Code, determination of bonus becomes an essential aspect. Under the Code, every employee whose wage does not exceed a specified monthly amount, as notified by the central and state governments, will be entitled to receive an annual bonus, aggregating to at least 8.33 percent of his/her wages or INR 100, whichever is higher. In addition to receiving bonus, the employer is mandated to distribute a portion of the gross profits amongst the employees, in proportion to the annual wages of the respective employee. An employee can receive a maximum bonus of up to 20 percent of his/her annual wages.

The Code also places strong emphasis on prohibition of gender discrimination in matters concerning wages and recruitment of employees for the same work or work of similar nature. "Work of similar nature" is defined as 'work for which the skill, effort, experience, and responsibility required are the same, when performed under similar working conditions'. The definition further extends to state that if there are any differences in skill sets with respect to gender, they are not of practical importance in relation to the terms and conditions of the employment.

Under the Code, the central and state governments are required to constitute advisory boards, who would advise the respective governments on various aspects including, but not limited to, fixing minimum wages, increasing gender-neutral employment opportunities, etc. The Central Advisory Board will consist of employers, employees (in equal number of employers), independent persons, and 5 representatives of state governments; and the State Advisory Board will consist of employers, employees (in equal number of employers), and independent persons; all the while keeping in mind that one-third of the total members in both the boards will be women.

As minimum wages is regarded to be an integral aspect in the life of an employee, stricter compliance of the provisions is envisioned under the Code. The Code now lays down penalties for offences committed by an employer, be it by way of paying less than the due wages, or for contravening any of the provisions under the Code. The extent of penalties differ according to the nature of the offence, with a maximum penalty set at imprisonment of up to 3 months and fine of up to INR 100,000. Further, with a view of providing appropriate and adequate relief to the claims of the employees, the limitation period for filing claims for minimum wages, bonus, and equal remuneration has been raised to 3 years.

It is a widely accepted notion that India has a serious wages problem. Today, regular workers in urban sectors earn an average of INR 449 per day, 49 percent more than their peers in rural sectors, who take home an average of INR 300. Casual workers in rural sectors earn the least, at INR 138.[1] Keeping in mind the glaring inequalities, a mandated minimum wage is a welcome step to streamline the employment sectors and reduce disparities.

According to the Periodic Labour Force Survey 2017-18[2], 45 percent of the regular workers (people who are employed in a relatively stable, formal sector) are paid less than the minimum wage. The Code mandates payment of a minimum floor wage for all workers, which will be universal across the country, and across all sectors. This would allow for wages to rise in the informal sector and would also serve as a stepping stone in addressing the gender based disparities. At present, women earn roughly 45 percent less than men in the same occupation. A universal floor wage would reduce the rural-urban gaps.

Although there is little doubt that the implementation of the Code would uplift the employment sector, we still have a far way to go in ensuring that these provisions are enforced in accordance with the true intent of the legislature.

[1] Tish Sanghera (2018), "Daily Wages in India Doubled in 18 Years, But Wage Inequalities Grow", IndiaSpend.

Available at: [Last accessed on August 23, 2019].

[2] Annual Report, PLFS 2017-18 (2019), Periodic Labour Force Survey (PLFS), National Statistical Office, Ministry of Statistics and Programme Implementation, Government of India.

Available at: Report, PLFS 2017-18_31052019.pdf [Last accessed on August 11, 2019].

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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