Insights
The code on wages 2019: Key provisions
August 1, 2019The Code on Wages 2019 (the ‘Code’) was passed by the parliament in the monsoon session of parliament 2019 and received presidential assent on 8 August 2019. The provisions of the Code, however, are yet to come into force. The Code is the first in the series of four labour codes that the government proposes to enact to simplify 32 central labour laws to bring them in sync with the emerging economic situation and facilitate easier compliance by establishments. The Code amalgamates and replaces four central labour enactments related to wages, namely, (i) the Payment of Wages Act, 1936 (ii) the Minimum Wages Act, 1948 (iii) the Payment of Bonus Act, 1965, and (iv) the Equal Remuneration Act, 1976 into a single, unified code. This is expected to remove the multiplicity of definitions and authorities. The Code also introduces the use of technology and thereby brings in transparency in its enforcement across all employments where industry, trade, business or manufacture is carried out.
The key provisions of the Code are as follows:
Minimum Wages and Payment of Wages
- The provisions related to wages will apply to all employees in both organised as well as unorganised sectors.
- The Central government will continue to fix wages for establishment of railways, mines, oil fields, major ports, air transport service, telecoms, banking and insurance and PSU including establishment of contractors. For all other establishments, the State governments will fix wages. The appropriate government is empowered to determine the factors by which the minimum wages shall be fixed for different categories of employees, such as skill of workers and difficulty of work.
- Authorised deductions from wages and timely payment has been made applicable to all employees irrespective of wage ceiling (earlier applicable only to employees drawing Rs. 24000 per month).
- Wages may also be paid by cheque, digital or electronic mode or by direct credit in the bank account of the employee. However, the government may specify the establishments where wages shall be paid only through such electronic transfer.
- The Central Government will fix a floor wage for different geographical areas, taking into account living standards of workers. State governments shall ensure that the minimum wage is not fixed below such floor wage notified by the Centre. Before fixing the floor wage, the central government may obtain the advice of the Central Advisory Board and may consult with state governments. In case the existing minimum wages fixed by the central or state governments are higher than the floor wage, they cannot reduce the minimum wages.
- The appropriate government may fix the number of hours that constitute a normal working day. Employees who work in excess of a normal working day will be entitled to overtime wage, which must be at least twice the normal rate of wages. However, an employee’s wages may be deducted on certain grounds including: (i) fines (ii) absence from duty (iii) accommodation given by the employer or (iv) recovery of advances given to the employee, among others. These deductions should not exceed 50% of the employee’s total wage.
- Where an employee has been removed or dismissed from service or retrenched or resigns or becomes unemployed due to closure will be paid wages within two working days of such dismissal, removal or resignation.
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Payment of Bonus
- The appropriate government can determine the ceiling of the wage limit for purposes of eligibility and calculation of bonus.
- All employees whose wages do not exceed a specific monthly amount, notified by the Central or State government, and who have put in at least 30 days work in an accounting year will be entitled to an annual minimum bonus of 8.33% of his wages or Rs 100, whichever is higher, whether or not the employer has an allocable surplus during the previous accounting year.
- Where the minimum wages exceeds the specified monthly amount notified by the appropriate government, the bonus payable will be calculated as if the wage were such amount or the minimum wage, whichever is higher.
- Where the allocable surplus exceeds the minimum bonus payable, the employer, shall, in lieu of such minimum bonus, be bound to pay every employee in respect of that accounting year, bonus in proportion to the wages earned during the accounting year, subject to a maximum of 20% of such wages.
Other key provisions
- Prohibition against gender discrimination: The Code prohibits gender discrimination in wage or recruitment related matters for the same work or work of similar nature. Work of similar nature is defined as work for which the skill, effort, experience, and responsibility required are the same.
- Appointment of Inspector-cum-Facilitators: In order to remove arbitrariness and malpractices of Inspectors, the appropriate government will appoint Inspectors-cum- Facilitators who will supply information and provide advice to employers and workers. They will inspect the establishment on the basis of the guidelines issued by the Government
- Deciding of Claims/Appeals: One or more authorities will be appointed by the appropriate government (in place of authorities at multiple levels) to hear and decide claims under the Code. An appellate authority will hear appeals for redressal of grievances and settlement of claims. Further, in order to reduce the burden on the subordinate judiciary, officers not below the rank of Under Secretary to the Government of India and equivalent officer at the State Government level shall dispose of cases punishable only with fine upto Rs. 50000. In case a claim is filed for non-payment of remuneration or bonus or payment of less than minimum wages or bonus or for unauthorised deductions, the burden is on the employer to prove that such dues have been paid to the employee.
- Graded penalty: The Code provides for graded penalties for different types of contraventions by employers, with the maximum penalty being imprisonment for three months along with a fine of up to one lakh rupees. The Inspector-cum Facilitator is obliged to give the employer an opportunity before initiation of prosecution proceedings to comply with the provisions of the Code. However, in case an offence of a similar nature is repeated within a period of five years from the date of first violation, such an opportunity will not be provided to the employer and prosecution will be initiated in accordance with the provisions of this Code. Offences that are not punishable with imprisonment may be compounded.
- Limitation for filing claims: The period of limitation for filing of claims by a worker has been enhanced to three years, as against the existing time period varying from six months to two years, to provide a worker more time to settle his claims.
- Bar on ‘Contracting Out’: The Code prohibits ‘Contracting Out’, which means that any contract or agreement whereby an employee relinquishes the right to any amount or the right to bonus due to him under this Code, shall be null and void in so far as it purports to remove or reduce the liability of any person to pay such amount under this Code.
- Advisory boards: Central and State Advisory Boards will be constituted by the appropriate government to render advise, amongst others, on fixing of minimum wages, and increasing employment opportunities for women. The Central Advisory Board will consist of: (i) employers (ii) employees (in equal number as employers) (iii) independent persons and (iv) five representatives of state governments. State Advisory Boards will consist of employers, employees, and independent persons. Further, one-third of the total members on both the Central and State Advisory Boards will be women.
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SAM & Co comment
Unlike the existing laws (which the Code on Wages will replace), the Code applies to all employees across all industries, except possibly in relation to payment of bonus.
In keeping with the objectives of rationalisation, simplification and consolidation, the Code has brought several significant changes such as uniformity in the definition of wages; the concept of a “floor wage” to be fixed by the Central Government; expansion of the definition of Central Government in relation to establishments for which it will prescribe the minimum wages; vigilance by an “ inspector cum facilitator” as opposed to only policing compliance; higher penalties; consolidation of registers and returns, amongst others.
The Code has not only aligned itself in some respects with the recent laws by including conviction for sexual harassment as a ground for disqualification for bonus, but it is also futuristic in terms of introducing the term ‘gender’ when prohibiting discrimination in matters of equal remuneration.
The impact on organisations will be to consider revision of the salary structure and statutory bonus, inclusion of all employees and aligning registers, records and policies with the new format once the Code is notified.
