This article has been written by Harshini Naidu, from the Faculty of Law, Maharaja Sayajirao University of Baroda.
The Guest Speaker
Nitish Chopra is an independent practitioner based in Amritsar, Punjab in the domain of Labour Law. He is also a faculty in LawSikho’s Diploma Course in Industrial and Labour Laws. He is an Alumnus of Punjab University.
Anubhav Garg is working as a Content Writer and Event Manager with LawSikho (India’s Largest Legal EdTech Startup) where he secured a PPO during his internship with iPleaders. He is pursuing B.B.A. LL.B. from Delhi Metropolitan Education College affiliated to Guru Gobind Singh Indraprastha University.
What is the Code of Wages?
Code of Wages, also known as the Wage Code was passed in August 2019. The Act consolidates the provisions of four labour laws concerning wage and bonus payments and makes universal the provisions for minimum wages and timely payment of wages for all workers in India. The Acts which are consolidated through the Code of Wages, 2019 are:
- Payment of Wages Act, 1936,
- Minimum Wages Act, 1948,
- Payment of Bonus Act, 1965 and
- Equal Remuneration Act, 1976.
The Code of Wages applies to all the establishments irrespective of the number of employees working in the establishment. This code applies to all the employees employed in both the organized and the unorganized sector. However, the requirement of 20 or more employees in an accounting year has been provided in the code for the application of Chapter IV of the code governing the payment of bonus to employees. The Wage Code applies to all categories of employees irrespective of any ceiling limit for the payment of wages to the employees.
What are the major key highlights of the Code of Wages, 2019?
- The Code introduces a new concept of “floor wages”, which rates will be fixed by the Central Government taking into account the minimum living standards of a worker. Once the Code is enacted, the minimum rates of wages fixed by the State Government cannot be less than floor wages as determined by the Central Government.
- The code advises the Central Government to revise the amount of minimum wages every 5 years, besides periodical revision of Dearness Allowance (DA) and Variable Dearness Allowance.
- The employer of the establishment cannot deduct any amount from the wages except for those which are authorised by the code.
- The payment of bonus to the employees of the establishment has to be made cheques and bank transfers only.
- The Code of Wages prohibits discrimination relating to wages, recruitment and conditions of service amongst employees based on gender.
- The Code of Wages has scrapped the concept of scheduled employments which were covered in the Minimum Wages Act, 1948.
- The code proposes a system through which there will be a composition of offences for which there is no punishment with imprisonment. Such compounded money shall be a sum equivalent to fifty percent of the maximum fine.
What are the definitions of ‘employee’, ‘employment’ and ‘wages’ under the Code of Wages, 2019?
As per Section 2(k) of the Code of Wages, 2019, “employee” means, any person (other than an apprentice engaged under the Apprentices Act, 1961), employed on wages by an establishment to do any skilled, semi-skilled or unskilled, manual, operational, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of employment be express or implied, and also includes a person declared to be an employee by the appropriate Government, but does not include any member of the Armed Forces of the Union.
The term ‘establishment under the Code of Wages, 2019 means any place where industry, trade, business, manufacture or occupation is carried on. The definition will further take into ambit, factories, shops and commercial establishments, educational institutions, the office of lawyers and agriculture.
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: (a) bonus payments;
(b) value of the house-accommodation, supply of light, water, medical attendance or other amenity or of any service excluded from the computation of wages by an order of the appropriate Government;
(c) employer contributions to any pension or provident fund;
(d) conveyance allowances;
(e) sums paid to the employee to defray special expenses on him by the nature of his employment;
(f) house rent allowance;
(g) remuneration payable under award or settlement between the parties or order of court or tribunal;
(h) overtime allowance;
(i) commission payable to employee;
(j) gratuity payments; and,
(k) retrenchment compensation or other retirement benefits payable to the employee or any ex-gratia payment made to the employee on the termination of his employment.
The code introduces a special methodology for computation of “wages” and in certain circumstances, various components of wages that are ordinarily understood to be excluded from the definition of “wages” will be considered as forming part thereof.
What is the time limit for payment of wages under the Code of Wages, 2019?
The Wages Code contains a new clause on the time limit for payment of wages to various categories of employees. The employer shall pay wages to the employee engaged as:
- Daily wage labour – at the end of the shift.
- Weekly wages – on the last working day of the week.
- Fortnight basis – on the second day after the end of the fortnight.
- Monthly basis – before the expiry of the seventh day of the succeeding month.
What does the Minimum Wage Floor mean under the Code of Wages, 2019?
The Code of Wages contains a clause in which the minimum wages are specified for different categories and geographical areas. The code takes into consideration the skill level of the workers – skilled, unskilled, semi-skilled and highly skilled. The categorisation of the geographical area is made as – temperature or humidity difficult to bear, hazardous occupations or processes or underground work.
The Central Government shall fix floor wage for different geographical areas to ensure that no state government fixes the minimum wages below the wage floor. The same shall be reviewed or revised ordinarily at an interval not exceeding five years.
‘Equal Remuneration for Equal Work’ what does this term mean under the Code of Wages?
The Wage Code prohibits any means of discrimination in an establishment among the employees on the ground of gender in matters relating to wages by the same employer, in respect of the same work or work of similar nature by any employee.
The Wage Code also prohibits any discrimination on the grounds of gender while recruiting any employee for the same work or work of similar nature and in the conditions of employment except when the employment of women in such work is prohibited or restricted by any law for the time being in force.
Here, ‘same work or work of similar nature’ means work in respect of which skill, effort, experience and responsibility required are the same when performed under similar working conditions by employees and the difference if any between the skill, effort, experience and responsibility required for employees of any gender, are not of any practical importance concerning the terms and conditions of employment.
What legislative reforms does this Code of Wages intend to bring in the current system?
Minimum Wage Floor is the first legislative reform brought in by the Code of Wages. The Central Government has allowed web-based inspection under the Code through which employees will have to send the stamped papers to the office but it does require the inspectors to physically visit the establishment for inspection. This will decrease the amount of time and resources which are spent during the physical examination by the inspectors.
The code further provided that a single register has to be maintained by an establishment about the recruitments made, wages paid and bonus paid during the year. Due to this provision, the need to maintain multiple registers by the employer of the establishments is not required.
Further, the Code of Wages allows the compounding of offences by the employers which did not exist as a part of four Acts which were consolidated through the Code.
Is compounding of offences possible after the prosecution has been initiated?
Under the Code of Wages, 2019, the provision related to the compounding of offences by the employer allows the compounding of offences to take place even after the prosecution has been initiated. The employer can always contact the Inspector and get the offences compounded under the Code.
What will be the impact of Code of Wages on the Labour Law practice for lawyers?
The Central Government aims to increase the ease of doing business and has focused on reducing the compliance work related to wages. While maintaining a single register to record wages, there is more accuracy due to which the compliance work is reduced.
The litigation and the advisory aspect of labour law is going to increase as the time limit for prosecution of matters related to labour law has been increased from 12 months to 3 years due to which there will be an increase in the work of litigation related to Labour Laws. The Code further empowers the Trade Union members to file a class action claim against the employer.
Due to the increase in punishment of the offences by the employers, the due diligence has to be given importance as a minor offence can cost the employer a huge loss. The employers have to ensure that the wages are paid before 7th of the next month to avoid being punished and the bonus has to be mandatorily paid through bank transfer and cheques only.
What will be the impact of Code of Wages on various sectors of the economy?
There will be a standard impact of Code of Wages on all sectors of the economy as the Code has been made mandatory for the establishments working in various sectors or the industry irrespective of the wages of employees and the number of employees working in an establishment.
A provision of the Code of Wages allows the employees to launch a direct prosecution against the employers, in the laws prevailing before the Wages Code, it could be done only after the prosecution is sanctioned by the Inspector who is responsible for the inspection of the establishment. All the employers of the establishments working in different sectors have to take utmost care and focus on due diligence for these reasons.
How can LawSikho’s Labour Law course enable practitioners, HRs and employers to coordinate with their employees effectively and sustainably?
The Labour Law Course at LawSikho is designed for the law students and working professionals to get a clear understanding of the subject with the help of practical experiences. The course focuses more on the situations which occur during the day to day lives of practitioners, HRs and employers working in an establishment. LawSikho’s Labour Law Course also makes it easy for people who do not have a legal background to understand the various legal aspects of labour law which will help them in coordinating the employees effectively and sustainably.
LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join: