The Ministry of Labor and Employment is in the process of codifying 44 central labor laws into four codes to govern wages, industrial relations, social security and welfare, and occupational safety, health and working conditions. Out of the four proposed labor codes, the Code on Wages, 2019 (“Wage Code”), consolidating the laws relating to wages and bonus has been passed by both houses of the Parliament, and it received the President’s assent on August 08, 2019.
The Wage Code will 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 of the Wage Code. The Wage Code has been formulated after wide consultations with trade unions, employers, and state governments. It subsumes four legislations primarily dealing with remuneration of employees namely, 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”). The Payment of Wages Act, Minimum Wages Act, Payment of Bonus Act, and the Equal Remuneration Act will stand repealed on such date as the central government may appoint.
The complexity and rigidity of Indian labor laws are a major impediment to investments and growth of business in India. Under the Constitution of India, certain labor and labor welfare matters are matters within the concurrent list, meaning that both the central and state government can legislate on the same. As a result, there are more than 50 central labor legislations and over 200 state labor laws governing various aspects of labor and employment matters in India, many of which are outdated. In addition to the sheer volume of labor laws that employers have to deal with, there is also uncertainty on the applicability of labor laws, which depends on various factors including workforce threshold, wage ceiling, type of establishment, and varying definitions of employees, wages, etc. in each statute. This often leads to difficulties in the implementation of the statutes resulting in protracted litigation and also employers having to grapple with various procedural requirements while also ensuring substantive compliance.
Given this background, the consolidation of labor laws is seen as a key step towards promoting inclusive growth, investments, and business in India.
The consolidation of labor laws is seen as a key step towards promoting inclusive growth, investments, and business in India
Salient features of the Wage Code
Definition of employee, worker: The Wage Code defines the terms ‘employees’ and ‘workers.’ The term ‘employee’ has been given an expansive meaning by including even persons employed in a managerial, administrative, and supervisory capacity. The term ‘worker’ excludes managerial and supervisory employees and includes sales promotion employees and working journalists. The provisions on payment of minimum wages, payment of wages, payment of bonus, the prohibition of discrimination in matters of remuneration, recruitment, and conditions of service are applicable to ‘employees.’
Payment of minimum wages and timely payment of wages: The Wage Code aims to ensure the “right to sustenance” for every employee by universalizing the provisions of minimum wages and timely payment of wages. The provisions of the Payment of Wages Act and the Minimum Wages Act apply to workers earning below a particular wage ceiling or if they are working in scheduled employment. However, the Wage Code does not make any such differentiation. As a result, the directives in the Wage Code on payment of minimum wages, the timeline for payment of wages, salary payout upon cessation, and manner of deduction from employee’s salary will now be extended to employees as defined under the Wage Code including those in high paying jobs. Industrial or other establishments, if so notified by the appropriate government, will be required to pay wages to its employees by cheque or by direct credit to their bank account.
No discrimination on the grounds of gender and sex: The Wage Code prohibits discrimination of employees on the grounds of gender in matters relating to wages, and prohibits discrimination on the ground of sex in matters of recruitment and conditions of employment, for the same work or work of similar nature. While the Equal Remuneration Act extends protective provisions in favor of women, the Wage Code has taken a gender-neutral approach by prohibiting discrimination on the ground of gender in matters relating to wages.
Payment of Bonus: The Payment of Bonus Act applies only to employees earning less than INR 21,000. While Section 26(1) of the Wage Code stipulates that employees earning below the salary threshold to be notified by the state government, will be eligible for payment of bonus, Section 26(2) of the Wage Code provides that where the wages of the employee exceeds the notified salary threshold, the bonus payable to such employee shall be calculated as if his wage were such amount, so determined by the appropriate government or the minimum wage fixed by the appropriate government, whichever is higher. It may be noted that the state governments may, by way of a notification, exempt employees of any establishment from the application of the chapter relating to the payment of bonus, having regard to the overall benefits under any other profit-sharing scheme available in such establishments.
Fixation of minimum wages and floor wages: For fixing minimum wages, the appropriate government shall primarily take into account the skill of workers and the arduousness of work. By foregoing ‘type of employment’ as one of the factors for fixation of minimum wages, over 2000 minimum wage rates existing as of today are expected to reduce to 300. Further, the Wage Code introduces the concept of floor wages, whereby the central government will fix floor wages taking into account the minimum living standards of a worker for different geographical areas. The minimum rates of wages fixed by the state governments will have to be not less than the floor wages fixed by the central government.
- Inspection: The Wage Code provides for randomized web-based inspections, and information relating to the inspection may be called for electronically. It is expected that this will reduce the potential for corruption and harassment that a physical inspection entails.
- Streamlining of procedural compliances: With the consolidation of the Payment of Wages Act, Payment of Bonus Act, Minimum Wages Act and the Equal Remuneration Act into the Wage Code, multiple filings, and maintaining multiple records and registers under each of the four legislations is reduced.
- Penalties: Non-payment of amounts due to an employee under the Wage Code is punishable with a monetary fine, which may range up to INR 50,000. Other contraventions are punishable with monetary fines, which may range up to INR 20,000 depending on the type of contravention. The Wage Code criminalizes only repeat offenses, that is, when a similar offense is committed within five years from the date of commission of the first or subsequent offense, after conviction, in which case imprisonment and a higher penalty may be imposed. Before initiation of prosecution for the offenses under the Wage Code, the employers are to be given an opportunity, by way of a written direction to be issued by the Inspector-cum-Facilitator, to comply with the provisions of the Wage Code within a specified time period (provided it is not a repeat offense) and if the employer complies with such direction, no prosecution proceedings shall be initiated against the employer. This would come as a relief to employers as they are given an opportunity to cure any inadvertent non-compliances before initiation of prosecution. The Wage Code also provides for compounding of offenses for which imprisonment is not prescribed as a penalty.
- Claims: The existing labor legislations prescribe six months to 1 year as a period of limitation for filing claims, and some are silent on the period of limitation. Under the Wage Code, employees may file claims at any time within a period of 3 years from the date on which the claim arises. The Wage Code also expressly provides for filing of a single application on behalf or in respect of any number of employees employed in an establishment, subject to any prescribed rules. The authorities to be appointed under the Wage Code for determination of claims are empowered to order payment of compensation in addition to the claim determined, which may be up to ten times of the claim determined.
The Wage Code is being hailed as a historic step towards labor reforms and ease of doing business in India without diluting any basic rights of employees. The Wage Code aims for enforcement of labor laws with transparency and accountability, and it is expected to reduce the cost of compliance for employers significantly.
Tomes of research on gender inequality on pay suggest that women are particularly reluctant to negotiate their initial offers, which provides one reason why they earn less than men
However, the Wage Code is still more of an amalgam of existing statutes and does not address new-age forms of employment and engagement such as flexitime, work from home, dual hatting, aggregator models, multiple employers/freelancing, etc. The efforts of the central government could also be undone with the state governments promulgating multiple state amendments and varying state rules, which would again result in employers having to comply with multiple statutory requirements across states.