India: Code on Wages, 2019 – Key Features And Highlights

Last Updated: 23 October 2019

Introduction

˃ The Ministry of Law and Justice, Government of India has notified the Code on Wages, 2019 (the "Code") on August 8, 2019, which seeks to amend and consolidate the laws relating to wages and bonus and matters connected therewith or incidental thereto, and subsumes the provisions of the Payment of Wages Act, 1936 ("Payment of Wages Act"), the Minimum Wages Act, 1948 ("Minimum Wages Act"), the Payment of Bonus Act, 1965 ("Payment of Bonus Act") and the Equal Remuneration Act, 1976 ("Equal Remuneration Act").

˃ Clause 1 of the Code provides that the Code shall come into force on such date as the Central Government may, by notification in the official gazette appoint and different dates may be appointed for different provisions under the Code.

˃ Unlike the Payment of Wages Act which is applicable to employees drawing salary below a statutory limit, and the Minimum Wages Act which is applicable to employees engaged in scheduled establishments, the Code envisages uniform applicability of the provisions of timely payment of wages and minimum wages to all employees irrespective of the wage ceiling and sector.

˃ It is relevant to note that as per the Code, any action taken under the repealed enactments including any notification, nomination, appointment, order or direction made thereunder or any amount of wages paid shall be deemed to have been done or taken or provided for such purpose under the corresponding provisions of the Code to the extent that they are not contrary to the provisions of the Code and until such time that they are repealed under the corresponding provisions of the Code or by the notification to that effect by the Central Government.1

Definition of wages under the Code:

As per the Code – (i) basic pay, (ii) dearness allowance and (iii) retaining allowance have been included as components of 'wages'.

Further, the Code excludes the following components from the definition of wages: (a) bonus payments;

(b) value of the house-accommodation, supply of light, water, medical attendance or other amenity or of any service excluded from the computation of wages by an order of the appropriate Government;

(c) employer contributions to any pension or provident fund;

(d) conveyance allowances;

(e) sums paid to the employee to defray special expenses on him by the nature of his employment;

(f) house rent allowance;

(g) remuneration payable under award or settlement between the parties or order of court or tribunal;

(h) overtime allowance;

(i) commission payable to employee;

(j) gratuity payments; and,

(k) retrenchment compensation or other retirement benefit payable to the employee or any ex-gratia payment made to the employee on the termination of his employment.

Highlights of the Code

˃ Definition of 'wages'

˃ The definition of 'wages' varies across labour legislations in India. The Code seeks to provide a single uniform definition of 'wages' as applicable to minimum wages, payment of wages and payment of bonus.2

˃ It is to be noted that for the purpose of equal wages to all genders and for the purpose of payment of wages, the emoluments specified in clauses (d), (f), (g) and (h) (specified above), should also be considered for computation of wages.3

˃ The Code prescribes that if the sum-total of the excluded components (apart from gratuity and retrenchment compensation) exceeds 50% (Fifty Percentage) (or such other percentage notified by the Central Government) of the total remuneration, then that portion of the amount exceeding 50% (Fifty percentage) (or such other percentage notified by the Central Government) is also to be calculated as 'wages' under the Code.4 Employers should be particularly wary of such a stipulation in devising salary structures for their employees.

˃ Separate definitions of 'worker' and 'employee'

˃ The Code provides for separate definitions of 'worker' and 'employee'.5 The definition of 'employee' is broader than that of 'worker' as it includes persons carrying out managerial and administrative work. The definition of 'worker,' however, expressly includes working journalists and sales promotion employees.

˃ Equal Remuneration

˃ Consistent with the Equal Remuneration Act, the Code, inter-alia, includes provisions prohibiting discrimination on grounds of gender (i) with respect to wages by employers, with respect to same work or work of a similar nature done by employees and (ii) with respect to recruitment of employees for same work or work of a similar nature6

˃ Further, it is relevant to note that under the Equal Remuneration Act, the definition of remuneration was vague, and included basic wage or salary and any additional emoluments whatsoever payable in cash or kind to a person employed in respect of employment or work done. However, as per the Code, the components that will constitute wages for the purpose of payment of equal remuneration irrespective of gender, leaving little room for confusion in this regard.

˃ Changes with respect to minimum wages

˃ The procedure for determination of minimum wages by the appropriate Government is in line with the provisions of the Minimum Wages Act. However, the Code introduces the concept of a floor wage, which is to be determined by the Central Government after taking into account the minimum living standards of workers in a manner to be prescribed, which may be different for different geographical areas. The appropriate Government can, under no circumstance, fix a minimum wage rate which is lower than the floor rate determined by the Central Government. However, if the existing minimum wages fixed by the appropriate Government is higher than the floor wage, they cannot reduce the minimum wages.7 Further, the Code prescribes that the minimum rate of wages are to be reviewed and revised by the appropriate Government in intervals not exceeding five years.

˃ The Code provides that in case an employee works on any day in excess of the number of hours constituting a normal working day, the employer is to pay him for every hour or for part of an hour so worked in excess, at the overtime rate which should not be less than twice the normal rate of wages.8

˃ Removal of threshold limit for triggering the application of payment of wages provisions

˃ Previously, the Payment of Wages Act read with Notification No. S.O. 2806 (E) dated August 29, 2017 issued by the Ministry of Labour and Employment, was applicable only to employees drawing wages below INR 24,000/- (Indian Rupees Twenty-Four Thousand only) per month. However, the Code makes no mention of any such threshold and it appears that the payment of wages provisions in the Code will be applicable to all employees across the board.

˃ The Code is applicable to all employees across the board. Accordingly, the Code has raised the responsibility of an employer to ensure proper wage structuring and timely payment of such wages to all its employees.

˃ Definitions of 'contractor' and 'contract labour'

˃ Clause 2(f) of the Code defines 'contractor', along the lines of the Contract Labour (Regulation and Abolition) Act, 1970. The Code has also defined 'contract labour'. Workers (other than part-time employees) who are regularly employed by the contractor for any activity of his establishment, where their employment is governed by mutually accepted standards of the conditions of employment and who get periodical increment in the pay, social security coverage and other welfare benefits as per the law would not be considered as contract labour. Interestingly, despite the definition, the Code does not contain any references to 'contract labour' in the Code. However, the Code on Occupational Safety, Health and Working Conditions, which is yet to be passed, contains a nearly similar definition of 'contract labour' and detailed provisions to regulate it. Once the Code on Occupational Safety, Health and Working Conditions is passed, better clarity on the regulation of contract labours can be expected.

˃ Provisions relating to period and payment of wages

˃ The Code has provided express provisions for the employer to fix the wage period for the employees on a daily, weekly, fortnightly or monthly basis, and stipulates the time limits for payments by the employer under each of such wage periods.9 In this era of the gig-economy where monthly basis payments are less relevant and increasingly more number of employees are migrating out of the formal sector, this is a welcome inclusion. This scheme departs from the one under the Payment of Wages Act which merely mentions that a wage period shall not exceed one month, and prescribes two different time limits for payment of wages based on the number of employees in an establishment.

˃ Changes with respect to payment of bonus

˃ While the threshold to determine the payment of bonus to employees is required to be notified by the appropriate government, it is to be noted that the provisions relating to the computation of bonus are consistent with the terms of the Payment of Bonus Act.

˃ The Code lists disqualifications for receiving bonus along the lines of the Payment of Bonus Act. However, it is to be noted that the Code additionally provides that dismissal from service due to conviction for sexual harassment would also be considered as a ground for disqualification for receipt of bonus under the Code.10

˃ Increase in period of limitation for filing claims and filing of claims by trade unions

˃ The Code prescribes a limitation period of three years (calculated from the date on which claims arose) for filing of claims by an employee as against the existing time period varying from six months to two years, to provide a worker more time to settle his claims. The Code now allows the trade union of which the employee is a member to file claims. Additionally, the Code places the burden of proof on an employer to prove that the amounts claimed by the employee have been paid.11

˃ Provision for inspectors-cum-facilitators

˃ The Code provides for appointment of inspectors-cum-facilitators and their powers.12 These authorities would have a dual function – providing compliance advisory to employers and workers and conducting inspections. Further, as per the Code, the appropriate Government may lay down an inspection scheme, which may also contain web-based inspection processes.

˃ Revamped provisions for offences and penalties

˃ The Code has provided an impetus for trade unionism by allowing a registered trade union to make complaints for offences under the Code.13 The Code provides for a graded penalty system for contraventions under the provisions of the Code.14 Unlike the provisions under the Minimum Wages Act and the Payment of Bonus Act which provide for punishment of imprisonment up to six months, the penal consequences under the Code are relatively lenient and only entail punishment with fine. However, the Code penalises a second conviction within a span of five years from the first conviction with imprisonment. The quantum of fines for contraventions under the Code has seen a significant increase. Additionally, it is to be noted that the offences of non-maintenance or improper maintenance of records and registers in the establishment are punishable only with a fine.

˃ Under the Code, the inspector-cum-facilitator is required to afford an opportunity to the employer before initiating prosecution proceedings in cases of first contraventions. This window will benefit contraventions which are non-intentional or due to genuine lack of information on the part of the employer. Exhaustive procedures in relation to compounding of offences have been provided under the Code.

Analysis

˃ The Code attempts to unify the definition of 'wages', which is a step towards providing better clarity. However, the provision of separate definitions for 'worker' and 'employee' and their usage within the Code leaves room for confusion. Further, the Code seeks to change the 'Inspector Raj' perception in relation to the Government's regulation of labour by introducing inspectors-cum-facilitators instead of merely inspectors.

˃ The Code has created a pivotal transformation with respect to offences and penalties. Substantial rationalisation and proportionality, with an intent to support rather than hamper the conduct of business is evident from the penal provisions. The Code encourages technology adoption in matters such as mode of payment of wages, inspection procedures, which are aimed at achieving its digitalisation goals in governance.


Conclusion

The Code is a well-intentioned piece of legislation which aims to balance the interests of the employer and the employee. Though the Code contains substantial portions of the repealed legislations, it makes a decent attempt to replace their obsolete provisions. The provisions of the Code inspire confidence in the business community, and further clarity can be realised once the subordinate legislations and rules under the Code are in place. It would also be interesting to gauge how the other codes relating to social security, industrial safety and welfare, and industrial relations will interact with the Code of Wages once they are passed.

Footnotes

1 Clause 69(2) of the Code on Wages, 2019

2 Clause 2(y) of the Code on Wages, 2019

3 Second Proviso to Clause 2(y) of the Code on Wages, 2019

4 First Proviso to Clause 2(y) of the Code on Wages, 2019

5 The term 'worker' has been defined under Clause 2(z) and the term 'employee' has been defined under Clause 2(k) of the Code on Wages, 2019

6 Clause 3 of Code on Wages, 2019

7 Clause 9 of the Code on Wages, 2019

8 Clause 14 of the Code on Wages, 2019

9 Clause 17 of the Code on Wages, 2019

10 Clause 29(d) of the Code on Wages, 2019

11 Clause 59 of the Code on Wages, 2019

12 Clause 51 of the Code on Wages, 2019

13 Clause 52(1) of the Code on Wages, 2019

14 Clause 54 of the Code on Wages, 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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