The compliance with the labour law legislations in India is a complex and cumbersome process and is often regarded as a bottleneck in ease of doing business. Rationalization and codification of labour laws is a longstanding industry demand. The Union Government had appointed the Second National Commission on Labour Laws, which submitted its report in June 2002. The said Commission had recommended that the existing set of labour laws should be broadly divided and grouped into the four groups. Acting on the recommendations, the Union Government has proposed to enact four labour codes, subsuming 29 labour law legislations. The Code on Wages, 2019 (‘Wage Code’) is the first of the lot to get the legislative approval and subsequently, the assent of the President of India on August 8, 2019.
The Wage Code is to amend and consolidate the laws relating to wages, bonus and matters connected therewith or incidental thereto. The Wage Code subsumes the following four existing labour law enactments:
The Payment of Wages Act, 1936 (“PWA”);
The Minimum Wages Act, 1948 (“MWA”);
The Payment of Bonus Act, 1965 (“PBA”); and
The Equal Remuneration Act, 1976 (“ERA”).
The Ministry of Labour and Employment has on July 7, 2020 published the draft Code on Wages (Central) Rules 2020 (Rules). These Rules are expected to replace the rules notified under PWA, MWA, ERA, and PBA. The Rules prescribes the process and fixation of the minimum wages, the process of making payment, constitution of the Central Advisory Board for fixing floor wage, etc. The provisions of the Wage Code and the Rules are now expected to be notified anytime soon.
The Wage Code comprises of 69 sections divided into nine chapters.
1. Uniform Applicability:The PWA is applicable to employees drawing wages equal to or below a statutory limit and MWA is applicable only to scheduled employements. The Wage Code now envisages uniform applicability of the provisions of timely payment of wages and minimum wages to all employees irrespective of the wage ceiling and sectors.
2. Uniform definition of wages: The definition of ‘wages’ slightly varied across PWA, MWA, PBA and this has resulted in numerous litigations. Therefore, the Wage Code seeks to provide a single uniform definition of ‘wages’ for the purposes of computation and payment of wages to the employees. As per Wage Code, the term ‘wages’ means all remuneration whether, by way of salaries, allowances or otherwise, expressed in terms of money and includes basic pay; dearness allowance; and retaining allowance if any.
The Wage Code lays down the list of exemptions which do not form part of the term ‘wages’ which inter alia includes the value of house accommodation, supply of electricity, water, house rent allowance, bonus payable under any law, contributions to a pension or provident fund, sums paid to defray special expenses, remuneration payable under any award or order of a court/tribunal or settlement between parties, overtime allowance, gratuity payable, retrenchment compensation, ex gratia, and other retiral benefits.
A significant introduction under the Wage Code is that in the event the quantum of the exclusions (except gratuity, retrenchment, ex gratia, and retiral benefits) is exceeding more than half or such other notified percentage (“Exclusion Limit”) of the remuneration paid to the employee, then the amount in excess of Exclusion Limit will be treated as wages.
3. The distinction between 'Employee' and 'Worker':The Wage Code provides separate definitions of ‘worker’ and ‘employee’. The definition of ‘employee’ is broader than that of ‘worker’. The term 'worker' refers to any person except an apprentice employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied and also includes working journalists and sales promotion employees, but excludes persons who is employed mainly in a managerial or administrative capacity; or person who is employed in a supervisory capacity drawing a monthly wage exceeding INR 15,000 or such amount as may be notified by the Central Government from time to time.
An 'Employee' under the Wage Code is any person employed other than apprentice 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.
4. Minimum Wages: The erstwhile MWA prescribed minimum wages only in relation to scheduled employments. Now, the Wage Code empowers the appropriate government to fix wages in all industries. A new concept of floor wage has been introduced. Under the Wage Code, the Central Government is empowered to fix floor wage after taking into account minimum living standards of a worker as applicable for different geographical areas. The State Governments under no circumstance, shall fix a minimum wage rate which is lower than the floor wage determined by the Central Government. Further, if the minimum wages fixed prior to the fixation of the floor wage are higher than the floor wage, then the appropriate government is prohibited from reducing those rates. The Wage Code prescribes that the minimum wages are to be reviewed and revised by the appropriate governments in intervals not exceeding five years.
5. Equal Remuneration: Similar to ERA, the Wage Code prohibits discrimination on ground of gender with respect to wages by employers or for purpose of recruitment, with respect to same or work of similar nature of work. The Wage Code ensures non-discrimination against all genders, while under ERA the genders were specified and limited to male and female human beings.
6. Payment of Bonus: There is no significant modification from PBA and the provisions relating to the computation of bonus are also consistent with the terms of PBA. Earlier, the applicability is limited to employees drawing wages not exceeding INR 21,000 per month. Now, under the Wage Code, the appropriate government is empowered to fix the wage threshold for determining the applicability. The Wage Code lists out the disqualifications for receiving bonus in line with PBA like fraud, riotous or violent behavior, or theft. However, the only additional disqualification is dismissal from service due to conviction for sexual harassment.
7. Inspector cum Facilitator: The erstwhile enactments had the concept of inspectors to carry out inspections and examinations to ensure compliance of the enactments. Now, under the Wage Code, the inspector regime is replaced with Inspector-cum-Facilitator who shall be a facilitator towards compliance and not just an inspecting authority. The Inspector-cum-Facilitator is required to provide the employer an opportunity to rectify the non-compliance within a specified time before initiating any prosecution proceedings. The appropriate government may lay down an inspection scheme which may also provide for generation of a web-based inspection and calling of information relating to the inspection.
8. Time-bound resolution of claims: The Wage Code prescribed a limitation period of three years for filing of claims by an employee as against the timelines prescribed under the existing enactments. The dispute of fixation of bonus or eligibility for payment of bonus be deemed to be considered as an ’industrial disputes’. An employee or any registered trade union registered of which the employee is a member; or the Inspector-cum-Facilitator can file an application for claims under the Wage Code before the notified authority. The authority shall decide the claim within a period of three months. Appeals are to be filed within a period of ninety days, which the appellate authority will endeavour to dispose of them in three months. Claims are to be recovered as arrears of land revenue and remit the same to the authority for payment to the concerned employee.
9. Offences and Penalties: Unlike the provisions of earlier enactments, the penal consequences under the Wage Code are not stringent and only entail imprisonment for the second and subsequent offences. However, the quantum of fines for contraventions under the Wage Code have been significantly increased. Further, the offences punishable under the Wage Code, not being the offences punishable with imprisonment only, be compounded by a gazetted officer, as appointed by the appropriate government.