With a view to simplify the labour law structure in India, the parliament enacted the Code on Wages, 2019 (Code) on August 08, 2019. The Code is one of the 4 labour codes that were proposed by the government in order to consolidate around 40 above labour law legislations in India. The other codes are The Occupational Safety, Health & Working Conditions Code; the Code on Social Security and the Code on Industrial Legislations. The Code has repealed 4 existing laws on wages and bonus in India which are Payment of Wages Act, 1936 (“PWA”), Minimum Wages Act, 1948 (“MWA”), Payment of Bonus Act, 1965 (“PBA”) and Equal Remuneration Act, 1976 (“ERA”). Below are the key highlights of the Code which may become the game changer for the labour law structure on wages and bonus in India:

Applicability:

Unlike old legislations the Code has been enacted with an intention to cover all establishments including organized as well as un-organized sectors in India. Earlier PWA governed only those employees which were drawing wages up to INR 24,000 while MWA was applicable to those employments which were mentioned in First Schedule of MWA. Now these conditions have been removed by the Code and all employees whether contractual, managerial, administrative, skilled, unskilled, supervisory personnel etc., are covered under the Code. However, the provisions of chapter relating to payment of bonus under the Code will continue to be applicable to establishments which have 20 or more employees working on any day during an accounting year. The ERA was already applicable to all establishments and it’s the same in the Code. Government establishments are exempted from the provisions of payment of wages under the Code.

Employee v/s Worker:

The Code has introduced two terms for the working personnel i.e. ‘employee’ and ‘worker’. Employee covers person employed by any establishment for performing any skilled, semi-skilled, un-skilled, managerial, administrative, supervisory, manual work etc. However, it excludes member of the armed forces of the Union and apprentice engaged under the Apprentices Act, 1961 from its purview. On the other hand the term ‘worker’ includes every working personnel except members of the armed forces, police officers, person employed in a managerial or administrative capacity or employed in a supervisory capacity and drawing wages exceeding INR 15,000 per month. The term ‘worker’ has been used under the Code for the purpose of fixing the minimum wages by the appropriate government. Apart from this for all other purposes the term ‘employee’ has been used. Earlier, there used to be a separate definition of ‘employee’ or ‘worker’, as the case may be, in PWA, MWA, PBA, and ERA which resulted into difficulty for the employers to understand. But now the Code has come up with a single definition of ‘employee’ and ‘worker’ which is an aim towards simplifying the labour law structure in India.

Definition of Wages:

The Code has also simplified the definition of ‘wages’ as opposed to that contained under PWA, MWA, PBA and ERA. The ‘wages’ has been defined as all remuneration, whether in the name of salary, allowances or otherwise, payable to an employee by his employer and includes basic pay, dearness allowances and retaining allowances (if any). But it excludes all other sum payable to an employee like bonus, travelling allowance, overtime allowance, house rent allowance, gratuity, retrenchment or other retirement benefits, sum payable under any settlement between the parties or order of court or tribunal, gratuity etc. The said definition comes with a proviso which says that if in case the payment of such excluded sum (except the gratuity, retrenchment or retirement benefits) exceeds the 50% of the total remuneration payable to employee and then the excess amount shall be included under ‘wages’. For e.g. a person ‘A’ gets Rs 10,000 as total remuneration which is broke up into basic pay (Rs. 4000), house rent allowance (Rs. 4000) and travel allowance (Rs. 2000). Now in this situation, the total of his other sums is Rs. 6000 (house rent allowance + travel allowance) which is exceeding the 50% of his total remuneration by Rs. 1000. This excess amount i.e. Rs. 1000 shall be added to the basic pay and the wages of ‘A’ would be Rs. 5000.

Floor Wage v/s Minimum Wages:

The Code has introduced a concept of ‘floor wage’ with respect to fixing the ‘minimum rates of wage’. Floor wage is a bare minimum wage which is to be fixed by the central government taking into account the minimum living standards of a ‘worker’. It can vary depending upon the geographical area and the ‘minimum rates of wage’ which is to be fixed by the appropriate government cannot be below the ‘floor wage’. If in case the current ‘minimum rates of wage’ are higher than the ‘floor wage’ then the appropriate government cannot reduce such ‘minimum rates of wage’. Appropriate government is the central government for the establishments which are under its control and for other establishments, it’s the state government.

Time Limit for Paying Wages:

Earlier, the PWA mandated employer, having less than 1000 employees, to pay wages within 7 days of the wage period while for other employers the time limit was 10 days. This has now been changed and the Code has proposed the following timelines for paying wages to employees:

  • At the end of the shift if in case the employee is working on daily basis;
  • On the last working day of the week if the employee is working on weekly basis;
  • Before the end of second day after the end of fortnight if the employee is working on fortnightly basis;
  • Before the end of seventh day of succeeding month if in the case the employee is working on monthly basis;
  • In case of removal, resignation, dismissal, retrenchment etc. of employee then the wages shall be given within two working days of such event.

Payment & Disqualification for Bonus:

The Code has mandated employer, having minimum of 20 employees on any day during an accounting year, to pay bonus to its employees. However, Life Insurance Corporation of India, government establishments, Indian Red Cross Society, educational institution, hospitals, RBI, public sector financial institutions etc. are exempted from the provisions of the chapter related to payment of bonus. For claiming bonus an employer has to work for minimum of 30 days in an accounting year in the establishment.

Earlier, the PBA provided for only 3 grounds for disqualifying any employee from claiming bonus which are fraud; or riotous or violent behavior on the premises of the establishment; or theft, misappropriation or sabotage of any property of the establishment. Now the Code has also included another ground i.e. conviction for sexual harassment along with other grounds as provided in PBA.

Prohibition of Gender Discrimination:

The Code has prohibited discrimination among employees, on the basis of gender, in matters relating to wages for same work or work of a similar nature in an establishment. Further, the Code has also prohibited employer to reduce the rate of wages of any employee and makes any discrimination on the ground of sex during recruitment for complying with the said provision. Unlike the earlier provision as contained in ERA, the Code has used the term ‘gender’ which manifests the intention of the legislator to include third gender as well i.e. transgender. The repealing statue i.e. ERA only contained the prohibition of discrimination between men and women which has now been changed in the Code.     

Inspector-cum-Facilitator

The Code provides for appointment of Inspector-cum-Facilitators by the appropriate government for carrying out inspections of the establishments. In addition to it, the Inspector-cum-Facilitator, may, advice to the employers and workers for complying with the Code, examine the worker of the establishment, search, seize or take copies of such documents which evidence the proof of non-compliance of the Code etc. These powers shall be exercised by the Inspector-cum-Facilitator throughout the state or such geographical limits as may be assigned to him by the appropriate government.

Maintenance of Register:

The Code mandates every employer, covered under its purview, to maintain a register containing details of employees, muster roll, wages and such other details as may be prescribed. Earlier, the PWA, MWA, PBA and ERA had separate requirement for maintaining the said register which resulted into maintaining 4 different registers. But now the employer has to maintain only a single register containing the above details.     

Recovery of Claim:

The Code contains a comprehensive procedure for recovery of claim by the employee. For this purpose, the appropriate government shall appoint an authority which will deal with all these cases. An application can be filed before such authority by the employee concerned or trade union or Inspector cum Facilitator within 3 years from the date of arising of the claim. The authority has the power to grant compensation, in addition to the claim, which may extend upto 10 times of the claim determined. The Code has also provided for the establishment of an appellate authority which will deal with all the appeals against the order of the authority. The limitation period for filing such appeal is 90 days from the date of order of the authority.

Establishment of Advisory Boards:

The Code has provided for establishment of Central Advisory Board at central level and State Advisory Board for each state. These advisory boards shall consist of representatives of employers & employees in equal numbers and independent persons. Further, the Central Advisory Board shall also consist of five representatives of such state governments as may be nominated by the central government. These advisory boards shall advise to the respective governments in matters relating to fixing or revising the minimum wages, increasing employment opportunities for women, other matters of the Code etc.

Penalty Clause:

The penalty under the Code can go upto Rs. 50,000 in case the employer is found to be in violation of the provisions of this Code for the first time. In case of repeat offence by the employer, the penalty can go upto Rs. 1,00,000 or imprisonment upto 3 months. The employer is said to be a repeat offender if he commits the repeat offence within 5 years from the date of commission of first offence.

Concluding Remarks:

With the existence of number of laws relating to wages in India, it was the need of the hour to consolidate these laws into a single legislation. With the Code coming into force, the employer need not to go before the multiple authorities for compliance and further it has also removed the multiplicity of definitions. This will result into smooth functioning of the business and a clear picture of the law will come out before the employer. Similarly, the requirement of maintaining registers under 4 different legislations has been done away with in the Code and now the employer has to maintain only a single register.

As opposed to the earlier laws, this Code has a wide applicability and gives protection to un-organized sectors employees as well which means these employees cannot be paid below the minimum rates of wages as fixed by the appropriate government. Further, the Code has also covered white collar employees which show the intention of the legislators to give protection of law to every single employee which seems to be a positive step for the labor law structure in India. However, one issue which may arise in future with respect to the employees is the 20% cap on bonus as set by the Code. This means that the most performing employee in an establishment may be deprived of his performance linked bonus.

Other positive steps taken under the Code is the introduction of Floor Wage which will be set by the Central Government. Floor wage will not only determine the national minimum wage but also allows employees to get a basic minimum wage as per their geographical location and living standards. The Code has also contributed to ‘Digital India’ campaign of Government of India by allowing Inspector-cum-Facilitator to do a web based inspection of establishment. Further, the Code has also enhanced the limitation period for filing claims to 3 years. This will ensure that no employee will be deprived for justice due to lack of time for filing claim before the authorities. Considering all these factors, the Code, once gets effective, will increase the India’s ranking in World Bank’s Ease of Doing Business Index.

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