Most businesses have re-examined their payroll systems in light of the new and common definition of ‘wages’ under the newly implemented labour rules to see what impact they will suffer.The new codes were established by Parliament in order to “amalgamate, simplify, and rationalise” existing laws on a variety of topics, including wage payment, minimum wages, bonuses, social security, and so on. This Code of wages has been enacted with the express objective of simplifying the Indian law on minimum wages and proposes to bring all workers in both the organised and unorganised sectors within its purview.
On August 8, 2019, the Ministry of Law and Justice of the Government of India notified the Code on Wages, 2019 (the “Code“), which amends and consolidates the laws relating to wages and bonus and matters connected therewith or incidental thereto, and incorporates the provisions of the Payment of Wages Act, 1936 (“Payment of Wages Act“), the Minimum Wages Act, 1948 (“Minimum Wages Act“), and the Payment of Bonus Act, 1949 (“Payment of Bonus Act“) and the Equal Remuneration Act, 1976 (“Equal Remuneration Act“)
The Code of Wages is expected to be enforced and implemented immediately upon Rules are formed by respective State Government.
The Code applies uniformly to scheduled wage limits for all categories of employees in an establishment, regardless of its nature or industry.
The Code recognizes any such action of the establishment under the repealed provision as an action or actions taken under the Code or by the notification by the Central Government to this effect.
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:
The aggregate of the excluded components, aside from gratuity & retrenchment compensation, has been fixed to a limit of 50% of the total remuneration and any excess of which shall be treated as wages for the statutory purpose
Separate definitions of ‘Worker’ and ‘Employee’
The Code establishes a clear distinction between the definitions of “worker” and “employee” to simplify interpretation, coverage, and compliance by the employer.
The Code has maintained the provisions of the ER Act, 1976 prohibiting employment discrimination on the basis of gender.
Unlike the ER Act, 1976, the Code specifies precisely which components comprise wages for the purpose of equal pay regardless of gender, leaving minimal room for interpretational uncertainty.
The Code prescribes floor wages to be determined by the Central Government based on the workers’ standard of living, and the appropriate government is prohibited from fixing any minimum wage rates less than the floor rate prescribed by the Central Government, which will be reviewed at intervals not exceeding five years.
Any hours worked in excess of the usual daily hours will qualify the workman or employee to overtime wage at twice the regular rates of wages.
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/- pm. The Code supersedes threshold wages limit of Rs. 24000/- under the Payment of Wages Act, 1936 for coverage and hence will cover each and everyone in the establishment.
Under the Code, the employer is responsible for ensuring compliance for all employees in the establishment, regardless of grade or pay.
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 associated with his establishment, whose employment is governed by mutually agreed upon standards of employment conditions, 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 gives no reference of ‘contract labour.’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.
The Code specifically defines ‘Contractor’ “Contract Labour” and benefits which a contract labour will be entitled to.
The Code keeps the provision of the Payment of Wages Act, 1936 in regard to period of wage/salary period, time limits for payments etc.
The Code has not prescribed any changes towards computation of bonus as has been provided under the Payment of Bonus Act, 1965
The Code has newly inserted provision for disqualification to bonus of any employee who lost services on the ground of sexual harassment.
The Code prescribes to extend the time limit up to three years for filing of claims by an employee or a trade union on behalf of an employee from six months to two years
The Code empowers inspectors-cum-facilitators to advise employers and workers on compliance issues as well as conduct inspections, the Government to form an Inspection Scheme which may be of web-based inspection processes. An effort of the Government to end the era of Inspector Raj
The Code has strengthened trade unionism by enabling a registered trade union to make complaints for offences under the Code. Contraventions of the Code’s provisions are subjected to a graded penalty system. Unlike the provisions of the Minimum Wages Act and the Payment of Bonus Act, which provide for imprisonment of up to six months, the Code’s penal consequences are relatively lenient, entailing only a fine. However, the Code penalizes a second conviction within a span of five years from the first conviction with imprisonment. The amount of penalties for contraventions under the Code has increased significantly. Additionally, non-maintenance or poor maintenance of documents and registers in the establishment are punishable only with a fine.
The inspector-cum-facilitator is obligated under the Code to provide an opportunity to the employer prior to initiating prosecution proceedings in situations of first offences. This window will benefit non-intentional violations or those that occur as a result of an employer’s genuine lack of information. The Code has exhaustive procedures for compounding offences.
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 labor by introducing inspectors-cum-facilitators instead of merely inspectors.
The Code has resulted in a major transformation with respect to offences and penalties. The punitive provisions demonstrate significant rationality and proportionality, with the aim of assisting rather than impeding business conduct. The Code promotes technology use in areas such as payment of wages and inspection procedures, with the objective of fulfilling the government’s digitization goals.
The Code is a well-intentioned piece of law that seeks to strike a balance between the employer and employee interests. While the Code incorporates significant parts of the abolished law, it makes a decent effort to replace their outdated provisions. The Code’s provisions instill trust in the business community, and further clarity can be achieved once the Code’s subsidiary laws and regulations are in place. Additionally, it would be interesting to see how the other codes governing social security, industrial safety and welfare, and industrial relations would interact with the Code of Wages if they are passed.