Article: New minimum wage code Bill approved in the Union Cabinet

Compensation & Benefits

New minimum wage code Bill approved in the Union Cabinet

The good and not-so-good about the New Minimum Wage Code Bill
New minimum wage code Bill approved in the Union Cabinet

On 26th July 2017, the Union Cabinet approved the new minimum wage code bill. The bill is expected to be introduced in the Parliament during the ongoing monsoon session which will conclude on 11th August. The proposed legislative change is projected to benefit over 4 crore employees across the country by ensuring a minimum wage across all sectors through the integration of four related labor laws.

The new minimum wage norms would be applicable for all workers irrespective of their pay. At present, the minimum wages fixed by the Centre and states are applicable to workers getting up to Rs 18,000 pay monthly and does not cover workers getting a monthly wage of more than Rs 18,000. If the bill is approved in the Parliament, workers getting a monthly pay of higher than Rs 18,000 would also be legally entitled to a minimum wage. Also, until now the central government was the decision maker for fixing wages in its own sphere and the States were responsible for their areas leading to non-uniformity. The lack of proper methodology to arrive at the wages of unskilled workers added to the woes. This wage code bill could solve all of these to some extent. 

Let us have a quick look into what it talks about:

  • It will have consolidation of four Labour Laws - the Minimum Wages Act, 1948; the Payment of Wages Act, 1936; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976.

  • Under this bill, the Centre will set a minimum wage across all sectors in the country.

  • All states will have to maintain the minimum wage that has been fixed by the center.

  • States will have the power to provide for higher minimum wage in their jurisdiction apart from the one fixed by the central government.

  • This bill universalizes the provisions of minimum wages and ensures timely payment of wages to all employees.

Some of the benefits this new wage code bill will bring to us are:

  • Multiplicity of definitions will be removed through this change.

  • There will be ease of compliances which in turn will incentivize setting up of more enterprises.

  • The role and designation of the inspector will change from mere inspection to that of the facilitator who would guide and advise the employers as well as the worker class.

  • The move will be popular among trade unions and those currently employed.

  • Historically, the wage conditions of unskilled workers who are outside the central sphere are dismal. Hence this Bill will be the harbinger of good news to them.

The challenges

After the goods and services tax (GST) implementation, the ability to offer Value Added Tax (VAT) sops by the State Government has already reduced. And with this new change now, the capacity of states to attract investments on the basis of lower wage rates too will take a hit. The latest Economic Survey points to the fact that 78% of Indian firms employ less than 50 workers. Just 10% employs more than 500 workers. The comparable figures for China are 15% and 28% which speaks for itself.  Countries like Brazil too had suffered regional income disparities as a result of the implementation of a similar minimum wage law in the past.

 Let us look at more challenges which this new wage bill may bring for us:

  • This law will affect the competitiveness of trade and industry.

  • The Bill may lead to wide regional income disparity due to some low-income states suffering current de-industrialization.

  • This new change will ensure that more of the organizations remain in the informal sector where policing wages is difficult.

  • The applicability of current act is restricted to scheduled establishments due to which a sizeable number of workers are left out. If Parliament approves the code, the minimum wage will be applicable to all classes of workers. This will certainly make it more difficult for smaller companies to function efficiently.

  • The unorganized sector will eventually find ways around to bypass the law if economics tells them that they can’t afford it.

The good news is that the Indian Government is in full swing to bring in reforms with the aim of creating a more effective, rationalized, transparent and user-friendly Labour law system in the country. But with this higher, uniform minimum wages across the country in the offering, there seems to be a possibility of low-income states suffering de-industrialization, leading to wide regional income disparity. On one hand, due to such changes technology and mechanization will move a step ahead leading to higher productivity. However, if not tackled correctly may lead to a fall in employment level across all industries. 

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Topics: Compensation & Benefits, Strategic HR, C-Suite

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