Code on Wages 2019: A Comprehensive Comparison with Old Laws

Introduction

The Code on Wages, 2019, is a landmark legislation in India that consolidates and modernizes the country’s labor laws related to wages and bonuses. Enacted on August 8, 2019, it replaces four older laws: the Payment of Wages Act, 1936; the Minimum Wages Act, 1948; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976. The new code aims to streamline compliance, ensure fair compensation, promote timely wage payments, and eliminate gender-based discrimination in remuneration. This blog provides a detailed comparison between the Code on Wages, 2019, and the repealed laws, focusing on three key pillars: minimum wage, timely payment, and equal remuneration. It also examines the legal accuracy, practical applications, and compliance requirements of the new framework.

Background: The Need for Consolidation

India’s labor laws, prior to 2019, were fragmented and complex, with over 44 statutes governing various aspects of employment. The Payment of Wages Act, 1936, regulated wage payments for certain workers; the Minimum Wages Act, 1948, set minimum wage standards for scheduled employments; the Payment of Bonus Act, 1965, mandated bonus payments; and the Equal Remuneration Act, 1976, addressed gender-based wage disparities. These laws applied to specific sectors, wage ceilings, or employee categories, leaving gaps in coverage, especially for unorganized sector workers. This patchwork system led to compliance challenges, inconsistent enforcement, and litigation due to varying definitions and interpretations.

The Code on Wages, 2019, was introduced as part of the Narendra Modi administration’s initiative to consolidate 44 labor laws into four codes to enhance ease of doing business while protecting workers’ rights. By unifying wage-related provisions, the code extends coverage to all employees, standardizes definitions, and strengthens enforcement mechanisms.

Key Features of the Code on Wages, 2019

The Code on Wages, 2019, introduces significant reforms to address the shortcomings of the older laws. Its primary objectives include:

• Universal Minimum Wage: Establishes a mandatory minimum wage across all sectors, ensuring fair compensation for all employees.
• Timely Payment: Mandates prompt and regular wage payments to prevent delays and exploitation.
• Equal Remuneration: Prohibits gender-based discrimination in wages and recruitment for similar work.

1. Minimum Wage: Universal Coverage and Fair Compensation

Old Laws: Minimum Wages Act, 1948

The Minimum Wages Act, 1948, applied only to scheduled employments, covering approximately 40% of India’s workforce. It mandated minimum wage rates for specific industries, such as agriculture, construction, and manufacturing, with rates varying by state, region, skill level, and industry. The central and state governments were responsible for fixing and revising minimum wages, considering factors like the cost of living and economic conditions. However, the act did not cover unorganized sector workers or those in non-scheduled employments, leaving millions vulnerable to exploitation. Non-compliance penalties included fines up to ₹500 or imprisonment for up to six months.

The act required periodic revisions, but enforcement was inconsistent, and many employers paid below the mandated rates. Workers could file complaints with labor inspectorates, but the process was slow, and awareness of rights was limited, especially in rural areas.

Code on Wages, 2019: Universal Minimum Wage

The Code on Wages, 2019, introduces a universal minimum wage applicable to all employees, regardless of sector, wage ceiling, or employment type. This is a significant departure from the Minimum Wages Act, which excluded unorganized and non-scheduled workers. The code empowers the central government to set a national floor wage, below which no state can fix minimum wages, ensuring a baseline standard across India.

Key Provisions:

• Coverage: Applies to all employees, including those in organized and unorganized sectors, gig workers, and platform workers.
• Fixation and Revision: Minimum wages are fixed based on factors such as skill level, arduousness of work, and cost of living. The code mandates revisions every five years, with adjustments for dearness allowance to account for inflation.
• National Floor Wage: The central government sets a floor wage based on minimum living standards for 3 adult consumption units, as per the Draft Wages Code Rules, 2020. States can set higher wages but not lower.
• Penalties: Non-compliance attracts stricter penalties, including fines up to ₹50,000 for first offenses and imprisonment up to three months or fines up to ₹1,00,000 for repeat offenses.

Comparison and Improvements:

• Wider Coverage: Unlike the 1948 Act, which covered only scheduled employments, the 2019 Code extends minimum wage protection to all workers, addressing gaps for unorganized sector employees.
• Standardized Floor Wage: The national floor wage ensures consistency, reducing disparities across states and industries. For example, as of October 2024, indicative minimum wages are ₹783/day for unskilled workers, ₹868/day for semi-skilled workers, and ₹1,035/day for highly skilled workers.
• Stricter Enforcement: Higher penalties and provisions for labor inspectors enhance compliance compared to the earlier act’s lenient fines.
• Challenges: The code does not explicitly define “minimum living standards,” leading to ambiguity in floor wage calculations. Critics argue that the 3-unit consumption model may be inadequate for modern household needs.

Practical Application:

• For Employers: Businesses must align wage structures with the national floor wage and state-specific minimum wages. This requires updating payroll systems, maintaining records, and displaying wage rates at workplaces. Non-compliance risks legal action and reputational damage.
• For Workers: The universal minimum wage empowers workers to demand fair pay, especially in low-wage sectors like agriculture and domestic work. Awareness campaigns and accessible complaint mechanisms are crucial for effective implementation.

2. Timely Payment: Ensuring Prompt Wage Disbursal

Old Laws: Payment of Wages Act, 1936

The Payment of Wages Act, 1936, applied to employees earning below a statutory wage ceiling (last revised to ₹24,000/month in 2017). It mandated wage payments within specific timeframes: by the 7th day of the following month for establishments with fewer than 1,000 workers and by the 10th day for others. Wages could be paid in cash, by cheque, or through bank transfers, with permissible deductions for fines, absences, or advances.

The act prohibited unauthorized deductions and required employers to maintain wage registers. However, it excluded workers above the wage ceiling and those in managerial roles, limiting its scope. Enforcement was weak, with delays in wage payments common, especially in the unorganized sector. Penalties for violations were nominal, ranging from ₹500 to ₹1,500.

Code on Wages, 2019: Mandatory Timely Payments

The Code on Wages, 2019, universalizes timely wage payment provisions, removing wage ceilings and sectoral restrictions. It mandates that wages be paid within two days of termination, dismissal, or resignation, and regularly for ongoing employment, typically within the 7th day of the wage period.

Key Provisions:

• Modes of Payment: Wages can be paid in coins, currency notes, cheques, bank transfers, or electronic modes, ensuring flexibility.
• Deductions: Permissible deductions include fines, absences, damage/loss caused by the employee, and contributions to provident funds, but total deductions cannot exceed 50% of wages.
• Records and Notices: Employers must maintain wage registers and display notices specifying wage rates, payment dates, and inspector details.
• Penalties: Violations attract fines up to ₹50,000, with repeat offenses leading to imprisonment up to three months or fines up to ₹1,00,000.

Comparison and Improvements:

• Universal Applicability: The code eliminates the wage ceiling, ensuring all employees, including high earners and managerial staff, are entitled to timely payments, unlike the 1936 Act.
• Stricter Timelines: The two-day payment rule for terminations is a significant improvement, addressing delays faced by workers leaving employment.
• Enhanced Penalties: Higher fines and imprisonment provisions deter non-compliance compared to the earlier act’s minimal penalties.
• Challenges: Small businesses may struggle with the administrative burden of maintaining records and ensuring prompt payments, particularly in cash-based economies.

Practical Application:

• For Employers: Companies must adopt digital payroll systems to ensure compliance with payment timelines and record-keeping requirements. Regular audits and training for HR teams are essential.
• For Workers: The code empowers workers to seek legal recourse through labor inspectors or authorities if payments are delayed. Awareness of rights and access to grievance mechanisms are critical.

3. Equal Remuneration: Promoting Gender-Neutral Pay

Old Laws: Equal Remuneration Act, 1976

The Equal Remuneration Act, 1976, mandated equal pay for men and women performing the same or similar work. It applied to all establishments and prohibited gender-based discrimination in wages, recruitment, and promotions. The act defined “same work or work of a similar nature” based on skill, effort, and responsibility but lacked clarity on implementation.

Enforcement was weak, with limited awareness among workers and inadequate monitoring by authorities. Penalties included fines up to ₹10,000 or imprisonment up to one month, which were insufficient to deter violations. The act also did not explicitly address non-binary genders or modern workplace dynamics.

Code on Wages, 2019: Gender-Neutral Equal Pay

The Code on Wages, 2019, strengthens equal remuneration provisions by adopting a gender-neutral approach, prohibiting discrimination based on gender in wages and recruitment for the same or similar work. It expands the definition of “same work or work of a similar nature” to include skill, effort, responsibility, and experience.

Key Provisions:

• Non-Discrimination: Employers cannot discriminate on gender grounds in wage payments or recruitment for similar roles.
• Advisory Boards: Central and state advisory boards, with one-third women representation, advise on wage fixation and employment opportunities for women.
• Penalties: Violations attract fines up to ₹50,000, with repeat offenses leading to imprisonment up to three months or fines up to ₹1,00,000.
• Compliance: Employers must maintain records of wage payments to demonstrate non­discrimination.

Comparison and Improvements:

• Gender-Neutral Approach: The code’s inclusive language covers all genders, unlike the 1976 Act’s binary focus on men and women.
• Broader Definition: Including experience as a factor for defining similar work provides clarity and reduces disputes over wage disparities.
• Stronger Enforcement: Higher penalties and advisory boards enhance compliance compared to the earlier act’s weak enforcement.
• Challenges: The code lacks specific guidelines for assessing “experience” in wage comparisons, which may lead to interpretive disputes.

Practical Application:

• For Employers: Companies must conduct wage audits to ensure equal pay for similar roles and train hiring managers to eliminate gender bias in recruitment. Transparent pay structures are essential.
• For Workers: Employees can approach labor authorities or advisory boards to address wage discrimination, supported by stronger legal recourse.

Legal Accuracy and Compliance

The Code on Wages, 2019, aligns with constitutional principles, such as Article 39(a), which mandates adequate means of livelihood for all, and Article 14, which ensures equality before the law. It also draws on international standards, such as the International Labour Organization’s Minimum Wage Fixing Convention, though India has not ratified it.

Compliance Requirements:

• Record-Keeping: Employers must maintain digital or physical records of wage payments, deductions, and employee details for inspection.
• Notices: Display minimum wage rates, payment schedules, and inspector contacts at workplaces.
• Audits: Regular wage audits ensure compliance with minimum wage and equal remuneration provisions.
• Grievance Redressal: Workers can file complaints with labor inspectors, supported by legal practitioners or trade unions.

Legal Accuracy:

The code’s definitions of “wages,” “employee,” and “worker” are standardized, reducing litigation risks from varying interpretations in older laws. The inclusion of a national floor wage and mandatory revisions ensures economic relevance, though clarity on “minimum living standards” is needed. Penalties are proportionate to violations, balancing deterrence with fairness for small businesses.

Practical Implications and Challenges
For Employers

• Cost Implications: Higher minimum wages and provident fund contributions (due to the 50% basic pay rule) increase labor costs, particularly for small businesses.
• Administrative Burden: Maintaining records, displaying notices, and adopting digital payment systems require investment in infrastructure and training.
• Compliance Risks: Non-compliance can lead to legal action, fines, and reputational damage, necessitating robust HR policies.

For Workers

• Improved Protections: Universal minimum wages and timely payments enhance economic security, especially for unorganized sector workers.
• Challenges: Limited awareness of rights and access to grievance mechanisms may hinder enforcement, particularly in rural areas.
• Take-Home Pay: Higher provident fund contributions reduce take-home salaries, though they enhance retirement benefits.

Systemic Challenges

• Implementation Delays: Despite notification in 2019, full implementation has been delayed due to the complexity of aligning state rules and post-pandemic economic constraints.
• Enforcement Gaps: Insufficient labor inspectors and reliance on manual processes hinder effective monitoring.
• Ambiguities: Lack of clarity on terms like “minimum living standards” and “experience” may lead to disputes and inconsistent application.

Recommendations for Effective Implementation

• Awareness Campaigns: Government and trade unions should conduct workshops and media campaigns to educate workers about their rights under the code.
• Digital Tools: Develop mobile apps for reporting violations and accessing wage information, enhancing transparency and enforcement.
• Capacity Building: Increase the number of labor inspectors and train them to handle complaints efficiently.
• Subsidies for SMEs: Offer tax breaks or subsidies to small businesses to offset compliance costs and encourage adherence.
• Clarification of Terms: Issue guidelines on “minimum living standards” and “experience” to ensure consistent interpretation.

Conclusion

The Code on Wages, 2019, marks a significant step toward modernizing India’s labor laws by consolidating four outdated statutes into a unified framework. Compared to the Minimum Wages Act, 1948, it offers universal minimum wage coverage; compared to the Payment of Wages Act, 1936, it ensures stricter payment timelines; and compared to the Equal Remuneration Act, 1976, it adopts a gender-neutral approach to equal pay. These reforms enhance worker protections, streamline compliance, and align with constitutional and international standards.

However, challenges such as implementation delays, enforcement gaps, and definitional ambiguities must be addressed to realize the code’s full potential. By investing in awareness, digital infrastructure, and capacity building, the government can ensure that the Code on Wages, 2019, delivers fair compensation, timely payments, and equal remuneration to India’s diverse workforce. As the country moves toward a living wage by 2025, the code lays a strong foundation for economic justice and inclusive growth.

Author: Avani Bhatia

BBA,LLB (4^TH Year)

Lovely Professional University