IAS Target

The Code on Wages - 2019

The Code on Wages Bill was earlier introduced in Lok Sabha in 2017 and was referred to the Parliamentary Standing Committee which submitted its report in December 2018. However, due to the dissolution of the 16th Lok Sabha, the Bill failed. The Code on Wages, 2019 was introduced in Lok Sabha by the Ministry of Labour, on 23 July 2019. The bill seeks to regulate wage and bonus payments in all employments where any industry, business, trade, or manufacture is carried out.

The Code replaces the following four laws:

  • The Payment of Wages Act, 1936,
  • The Minimum Wages Act, 1948,
  • The Payment of Bonus Act, 1965, and
  • The Equal Remuneration Act, 1976.

Reasons for bringing new code on wages

  • An establishment will also be advantageous as the number of returns, registers, forms, etc., not only can be electronically maintained, but it is predicted that through rules, not more than one template will be prescribed.
  • The definition has been simplified and is expected to reduce litigation and will entail at a lesser cost of compliance for an employer.
  • To simplify the definition of wages as present labour laws made up of 12 different definitions of wages which is the major reason of inefficiency and litigation in the implementation of labour laws.
  • This is long pending reform and industrial lobby for simplification because these labour laws hamper FDI and Ease of doing business.
  • The code on wages bill also aid to boost domestic manufacturing and create employment opportunities


Key provision of the Bill

  • Coverage:
    The Code will apply to all employees. The central government will make wage-related decisions for employments such as mines, oil fields, railways, and others. State governments will make decisions for all other employments.

  • Wages include salary, allowance, or any other component expressed in monetary terms. This does not cover bonus payable to employees or any traveling allowance, among others.

  • Floor wage
    Under the Code, the central government will fix a floor wage, taking into consideration the living standards of workers. It may further set different floor wages for different geographical areas. Before fixing the floor wage, the central government may take the suggestion of the Central Advisory Board and may discuss it with state governments.

  • The minimum wages decided by the central or state governments must be higher than the floor wage. In case the existing minimum wages fixed by the central or state governments are higher than the floor wage, they cannot decrease the minimum wages.

  • Fixing the minimum wage:
    The Code prohibits employers from paying wages less than the minimum wages. The Central Government will let us know about the increased or decreased Minimum wages and this will be merely based on time, or the number of pieces produced. The minimum wages will be revised and reviewed by the central or state governments at an interval of not more than five years. While fixing minimum wages, the central or state governments may take into account factors such as:
    • skill of workers, and difficulty of work.

  • Overtime:
    The central or state government may fix the number of hours that constitute a normal working day. In case employees work over a normal working day, they will be paid overtime wage, which must be at least twice the normal rate of wages.

  • Payment of wages:
    Wages will be paid in
    • currency notes, coins, and by cheque
    • by crediting to the bank account, or
    • through electronic mode.
    The wage period will be fixed by the employer as either:
    • daily,
    • weekly,
    • fortnightly, or
    • monthly.

  • Deductions:
    An employee’s wages may be deducted on certain grounds including:
    • absence from duty, and fines
    • accommodation given by the employer, or
    • recovery of advances given to the employee, among others.
    These deductions should not go above 50% of the employee’s total wage.

  • Determination of bonus:
    All employees whose wages do not exceed a specific monthly amount, informed by the central or state government, will be entitled to an annual bonus. The bonus will be at least:
    • Rs 100, whichever is higher, or
    • 8.33% of his wages,
    In addition, the employer will allocate a part of the gross profits among all the employees. This will be allocated in proportion to the annual wages of an employee. An employee can receive a maximum bonus of 20% of his annual wages.

  • Gender discrimination:
    The Code prohibits gender discrimination in matters related to recruitment and wages of employees for the same work or work of similar nature. Work of a similar nature is defined as work for which the skill, experience, responsibility, and efforts required are the same.

  • Advisory boards:
    The state and central governments will set up advisory boards. The Central Advisory Board will consist of:
    • employers,
    • independent persons, and
    • five representatives of state governments
    • employees (in equal number as employers).
    State Advisory Boards will encompass employers, employees, and independent persons. Further, one-third of the total members on both the state and central Boards will be women. The Boards will advise the respective governments on various issues including:
    • fixation of minimum wages, and
    • increasing employment opportunities for women

  • Offences:
    The Code specifies penalties for offences committed by an employer, such as
    • paying less than the due wages
    • for breaching any provision of the Code
    Penalties vary depending on the nature of offence, with the maximum penalty being imprisonment for three months or a fine of up to one lakh rupees.


Implication of this reform

  • This will reduce regulatory procedures and seeks to reduce compliance costs for employers.

  • It is expected to reduce litigation as it streamlines the definition of wages.

  • This would ensure that every worker gets a minimum wage which will also be accompanied by an increase in the purchasing power of the worker thereby giving a boost to growth in the economy.

  • Reduces Regionalism - A National Floor Level Minimum Wage

  • Improves Worker’s Condition, which in turn help in eradicating hunger and poverty.

  • Impact on Indian Economy
    • formalisation of economy
    • Digitization

  • No Gender partiality
    The Code prohibits gender discrimination

  • Ensures Ease of Doing Business
    ‘One licence one return’

  • Role of Technology
    Technology will play an indispensable role in both the processing of information around wages and tracking compliance.


Conclusion

  • National minimum wage is a prerequisite to a productive workforce and economic growth of the country. The employers too will benefit from a more productive workforce.
  • This long-pending reform aid India to implement its Ease of doing business ranks. This code will help to make consensus b/w employer and labour union, because of inclusivity
  • A national-level dashboard can be made at the center with access to state governments whereby states can sporadically update notifications regarding minimum wages, and the portal must be created available at Common Service Centres and rural haats.