INTRODUCTION

India begins the process of codification of its labour laws, a long-awaited and much-needed reform. India’s new Code on Wages, 2019 (“Code on Wages”) has been approved by both the Houses of the Parliament [4] and it is now awaiting Presidential assent in order to become law.[5]

This is the first in the series of four labour codes that have been proposed by the government and is expected to pave way for the other labour codes including the code on employee health and safety and social security.[5]

Once the effective date of the Code on Wages is notified, it shall subsume and repeal the following important labour laws:[5]

1) The Payment of Wages Act, 1936 (POWA)

2) The Minimum Wages Act, 1948 (MWA)

3) The Payment of Bonus Act, 1965 (POBA)

4) The Equal Remuneration Act, 1976 (ERA)

The Code on Wages shall regulate wage and bonus payments in all employments and aims at providing equal remuneration to employees performing work of a similar nature in every industry, trade, business, or manufacture. [5]

COVERAGE AND APPLICABILITY

The Code on Wages will apply to employees in the organized and un-organized sectors. While the Central Government will continue making wage-related decisions for employments such as railways, mines, oil fields, central public sector undertaking etc., the State Governments shall make such decisions for all other employments including for private sector establishments.[5]

Unlike the POWA which applied to only those employees who drew monthly wages of up to INR 24,000 (approx. US$ 340) and the MWA which applied only to scheduled employments, the provisions of the Code on Wages relating to payment of wages shall extend to all employees irrespective of their wage ceiling and type of employment.[5]

WHEN THE CODE ON WAGES, 2019 WAS ENACTED AND PASSED?

The Code on Wages, 2019 the enactment of which empowers the Centre to set a minimum statutory wage, expected to benefit over 500 million workers across the country, was re-introduced in Lok Sabha by the Minister of Labour, Mr. Santosh Gangwar, on July 23, 2019, and subsequently passed on July 30, 2019. [3]

After due deliberations on the suggestions received, the Committee furnished its report on December 18, 2018, incorporated with its various recommendations. [3]

Thereafter, it was passed by Rajya Sabha on August 2, 2019 and is currently awaiting the Presidential assent following which, it will become an Act of Parliament.[3]

“OBJECTIVE” OF THE CODE ON WAGES, 2019

The Code seeks to regulate and streamline wage and bonus payments in all the employment sectors where any industry, trade, business, or manufacture is carried out.

The central government will make wage related decisions for employment sectors, inter alia, railways, mines, oil fields, etc. and the state governments are to make similar decisions for all the other employment sectors.[3]

BACKGROUND

Presently, the provisions of both the Minimum Wages Act, 1948 and the Payment of Wages Act, 1936 are applicable only on workers falling below a particular wage ceiling, working in the Scheduled employment sectors. [3]

Many unorganized sector workers like agricultural workers, painters, persons working in restaurants and roadside food stalls, gatekeepers, etc., who previously did not fall under the cloak of the minimum wages, will get legislative protection of minimum wages after the Code becomes an Act.[3]

The Code is likely to be an improved and a more efficient version of the 2017 Bill as it incorporates many of the recommendations provided by the Parliamentary Standing Committee in their December 2018 report.[3]

The need for codifying and implementing a uniform labour legislation arose owing to the fact that currently, there are close to 12 different definitions for wages, which is one of the primary reasons for labour litigations in the country, and for inefficiency in the implementation of these legislations.[3]

NEW DEFINITION FOR WAGES UNDER THE CODE ON WAGES, 2019

The Code introduces a simplified definition for wages, which includes salary, allowance, or any other component expressed in monetary terms, but does not include, inter alia, bonus payable to employees or any travelling allowance.[3]

This new definition is expected to reduce litigation and enable easier and cheaper means of compliance for an employer. Establishments will further be benefitted as the number of registers, returns, forms, etc. can not only be filed and maintained electronically, but it is believed that by taking recourse to the applicable rules, all the statutory compliances can be comprised under a single template.[3]

ARTICLE 43 AND THE DEFINITION OF “LABOUR”

Article 43 of the Constitution of India states that, “The State shall endeavour to secure, by suitable legislation or economic organization or in any other way, to all workers, agricultural, industrial or otherwise, work, a living wage, conditions of work ensuring a decent standard of life and full enjoyment of leisure and social and cultural opportunities”. [3]

Under the Constitution of India, ‘Labour’ falls under the Concurrent List under the Seventh Schedule, where both the central and the state governments are competent to enact legislations.[3]

WHO SHALL SET THE STANDARD FOR MINIMUM WAGES BASED ON THEIR EMPLOYMENT UNDER THE CODE ON WAGES, 2019?

Presently, the state governments are empowered to set the standard for minimum wages, based on employment, in their respective states. With the introduction of the Code, the central government, to the exclusion of the state governments, will be empowered to fix a floor wage, keeping in mind the living standards of the workers. [3]

Moreover, different floor wages may be fixed for different geographical areas. The central government may consult the Central Advisory Board and the state governments to decide and set a favorable floor wage.

Thereafter, the minimum wages set by the central and the state governments, in their respective states, have to mandatorily be higher than the floor wage fixed. In case the existing minimum wage fixed by the central or the state governments is higher than the floor wage fixed, they cannot be reduced.[3]

NEW CONCEPT INTRODUCED: THE FLOOR WAGE

The concept of a floor wage was brought about to ensure a uniform standard of living across the country. Presently, differences observed in the minimum wages set out across states and regions are primarily attributed to the fact that the central and state governments set, revise and enforce minimum wages for the employments covered by them.[3]

The advent of a floor wage may aid in reducing these differences and provide a basic standard of living for all employees across the country, as the floor wage fixed by the Centre will no longer be based on employment, but on geography and skills.[3]

PROCESS OF FIXING MINIMUM WAGES

The process of fixing minimum wages has also been revisited while framing the Code. Under the Code, the employers are prohibited from paying wages less than the minimum wage fixed.[3]

This minimum wage will be fixed based on either the time consumed or the number of pieces produced i.e., the level of difficulty of the task undertaken or the skill of the workers involved, and will be notified by the central or state governments from time to time.[3]

This minimum wage rate fixed by the governments will be reviewed and revised periodically, at an interval of not more than 5 years in a stretch.[3]

OVERTIME WAGES

With reference to overtime wages, the Code provides for the central and state governments to fix the number of hours which would constitute a normal working day, and employees working in excess of a normal working day shall be entitled to overtime wages, which would be no less than twice the normal rate of wages payable to the respective employee. [3]

MODE OF PAYMENT

Payment of wages is to be made in coins, currency notes, by cheque, by crediting to the bank account, or through electronic mode, and the employer is responsible for fixing the wage period as daily, weekly, fortnightly, or monthly.[3]

SALARY TO BE GIVEN IN A TIME BOUND MANNER

The Code also ensures that the employee’s be given their salary on a timely basis by stating that employees in receipt of monthly payment will receive the same by the 7th day of the next month. Further, those employees working on a weekly basis will receive their salary on the last day of the week, and daily wagers, on the same day.[3]

HARMONY BETWEEN THE EMPLOYER AND EMPLOYEE RELATIONSHIP SHALL BE MAINTAINED BUT IN AN ENHANCED WAY

The Code, in order to maintain harmony in the employer-employee relationship, has subjected an employee’s wages for deductions, inter alia, on the grounds of fines, absence from duty, accommodation given by the employer, recovery of advances given to the employee, etc.

Further, keeping in mind the beneficial nature of the labour legislations, the Code caps the maximum deductions to up to 50 percent of an employee’s total wages.[3]

Under the Code, every employee whose wage does not exceed a specified monthly amount, as notified by the central and state governments, will be entitled to receive an annual bonus, aggregating to at least 8.33 percent of his/her wages or INR 100, whichever is higher.[3]

In addition to receiving bonus, the employer is mandated to distribute a portion of the gross profits amongst the employees, in proportion to the annual wages of the respective employee. An employee can receive a maximum bonus of up to 20 percent of his/her annual wages.[3]

GENDER DISCRIMINATION: A BY-GONE ERA IN THE NEW CODE

The Code also places strong emphasis on prohibition of gender discrimination in matters concerning wages and recruitment of employees for the same work or work of similar nature. [3]

“Work of similar nature” is defined as ‘work for which the skill, effort, experience, and responsibility required are the same, when performed under similar working conditions’. [3]

The definition further extends to state that if there are any differences in skill sets with respect to gender, they are not of practical importance in relation to the terms and conditions of the employment.[3]

ADVISORY BOARD UNDER THE NEW CODE ON WAGES,2019

Under the Code, the central and state governments are required to constitute advisory boards, who would advise the respective governments on various aspects including, but not limited to, fixing minimum wages, increasing gender-neutral employment opportunities, etc. [3]

The Central Advisory Board will consist of employers, employees (in equal number of employers), independent persons, and 5 representatives of state governments; and the State Advisory Board will consist of employers, employees (in equal number of employers), and independent persons; all the while keeping in mind that one-third of the total members in both the boards will be women.[3]

PENALTIES FOR OFFENCES

As minimum wages is regarded to be an integral aspect in the life of an employee, stricter compliance of the provisions is envisioned under the Code.

The Code now lays down penalties for offences committed by an employer, be it by way of paying less than the due wages, or for contravening any of the provisions under the Code. [3]

The extent of penalties differ according to the nature of the offence, with a maximum penalty set at imprisonment of up to 3 months and fine of up to INR 100,000. [3]

Further, with a view of providing appropriate and adequate relief to the claims of the employees, the limitation period for filing claims for minimum wages, bonus, and equal remuneration has been raised to 3 years.[3]

It is a widely accepted notion that India has a serious wages problem. Today, regular workers in urban sectors earn an average of INR 449 per day, 49 percent more than their peers in rural sectors, who take home an average of INR 300. Casual workers in rural sectors earn the least, at INR 138.[1]

Keeping in mind the glaring inequalities, a mandated minimum wage is a welcome step to streamline the employment sectors and reduce disparities.[3]

According to the Periodic Labour Force Survey 2017-18[2], 45 percent of the regular workers (people who are employed in a relatively stable, formal sector) are paid less than the minimum wage. [3]

MINIMUM FLOOR WAGE: A MUST UNDER THE NEW CODE

The Code mandates payment of a minimum floor wage for all workers, which will be universal across the country, and across all sectors. This would allow for wages to rise in the informal sector and would also serve as a stepping stone in addressing the gender based disparities. [3]

At present, women earn roughly 45 percent less than men in the same occupation. A universal floor wage would reduce the rural-urban gaps. Although there is little doubt that the implementation of the Code would uplift the employment sector, we still have a far way to go in ensuring that these provisions are enforced in accordance with the true intent of the legislature.[3]

COMPARISON OF THE PAYMENT OF BONUS ACT, 1965 AND THE CODE ON WAGES, 2019:

While the Equal Remuneration Act extends protective provisions in favor of women, the Wage Code has taken a gender-neutral approach by prohibiting discrimination on the ground of gender in matters relating to wages. [3]

1) Payment of Bonus: The Payment of Bonus Act applies only to employees earning less than INR 21,000. [3]

The Main Point of difference :

While Section 26(1) of the Wage Code stipulates that employees earning below the salary threshold to be notified by the state government, will be eligible for payment of bonus, Section 26(2) of the Wage Code provides that where the wages of the employee exceeds the notified salary threshold, the bonus payable to such employee shall be calculated as if his wage were such amount, so determined by the appropriate government or the minimum wage fixed by the appropriate government, whichever is higher. [3]

It may be noted that the state governments may, by way of a notification, exempt employees of any establishment from the application of the chapter relating to the payment of bonus, having regard to the overall benefits under any other profit-sharing scheme available in such establishments. [3]

2) Fixation of minimum wages and floor wages: For fixing minimum wages, the appropriate government shall primarily take into account the skill of workers and the arduousness of work. [3]

By foregoing ‘type of employment’ as one of the factors for fixation of minimum wages, over 2000 minimum wage rates existing as of today are expected to reduce to 300. [3]

Further, the Wage Code introduces the concept of floor wages, whereby the central government will fix floor wages taking into account the minimum living standards of a worker for different geographical areas. The minimum rates of wages fixed by the state governments will have to be not less than the floor wages fixed by the central government. [3]

3) Inspection: The Wage Code provides for randomized web-based inspections, and information relating to the inspection may be called for electronically. It is expected that this will reduce the potential for corruption and harassment that a physical inspection entails. [3]

4) Streamlining of procedural compliances: With the consolidation of the Payment of Wages Act, Payment of Bonus Act, Minimum Wages Act and the Equal Remuneration Act into the Wage Code, multiple filings, and maintaining multiple records and registers under each of the four legislations is reduced.[3]

5) Penalties: Non-payment of amounts due to an employee under the Wage Code is punishable with a monetary fine, which may range up to INR 50,000.[3]

Other contraventions are punishable with monetary fines, which may range up to INR 20,000 depending on the type of contravention. [3]

REPEAT OFFENSES CRIMINALIZED UNDER THE NEW CODE

The Wage Code criminalizes only repeat offenses, that is, when a similar offense is committed within five years from the date of commission of the first or subsequent offense, after conviction, in which case imprisonment and a higher penalty may be imposed. [3]

Before initiation of prosecution for the offenses under the Wage Code, the employers are to be given an opportunity, by way of a written direction to be issued by the Inspector-cum-Facilitator, to comply with the provisions of the Wage Code within a specified time period (provided it is not a repeat offense) and if the employer complies with such direction, no prosecution proceedings shall be initiated against the employer. [3]

This would come as a relief to employers as they are given an opportunity to cure any inadvertent non-compliances before initiation of prosecution.

The Wage Code also provides for compounding of offenses for which imprisonment is not prescribed as a penalty. [3]

6) Claims: The existing labor legislations prescribe six months to 1 year as a period of limitation for filing claims, and some are silent on the period of limitation. [3]

Under the Wage Code, employees may file claims at any time within a period of 3 years from the date on which the claim arises. The Wage Code also expressly provides for filing of a single application on behalf or in respect of any number of employees employed in an establishment, subject to any prescribed rules. [3]

The authorities to be appointed under the Wage Code for determination of claims are empowered to order payment of compensation in addition to the claim determined, which may be up to ten times of the claim determined.[3]

RELEVANT CASE LAWS OF EACH OF THE 4 ACTS MENTIONED ABOVE ARE AS FOLLOWS:

(A) Payment of Wages Act, 1936:-
What are the rules that an employer should follow before deducting wages for damage or loss?[6]

An employer can deduct wages for damage or loss through Section 7(2)(c), which is authorised under the Act. According to Section 10 the employer shall not deduct the wages exceeding the amount of damage or loss of goods occurred due to neglect or default of the employee.[6]

Also, it is to be ensured that the employee had the custody of the goods which were so damaged. The employer is bound to give an opportunity to the employee for showing cause before deducting any wages.[6]

In M/S Rampur Engineering Co. Ltd. v. City Magistrate (AIR 1966 All 544) it was observed by Allahabad High Court that the deduction for loss of electric bulbs and tools that were given to the employees for their own personal use is a valid deduction. [6]

(B) Equal Remuneration Act, 1976:-
A landmark case in the light of equal pay for equal work was the Judgment given by the Hon’ble Supreme Court in the case of Randhir Singh v. Union of India. [7]

Here, the Court adopted a sociological ideology and deviated from strict interpretation to liberal interpretation for the employees. [7]

The court, in this case, relied on ‘‘socialist’ as envisage in the Preamble to the Constitution in deciding the case, and it was held that the principle of equal pay for equal work was deducible from article 14 and 16 of the Constitution of India, may be properly applied to the cases of unequal scale of pay based on classification, though those drawing a different scale of pay do identical work under the same employer.” [7]

Here, the court observed that “equal pay for equal work” is deductible from Articles 14 &16, understood in the light of the Preamble and Art. 39(d). [7]

(C) Minimum Wages Act, 1948:-

Sanctity of the Act

It is a clear decision of the Supreme Court in their three rulings held that non-payment of minimum wages leads to “forced labour” which is prohibited under Article 23 of The Indian Constitution. ‘Forced labour’ can arise in many ways like hunger and poverty, want and destruction.[8]

In the case of Sanjit Roy Vs. State of Rajasthan, the Supreme Court has decided that ‘The Exemption Act in so far as it excluded the applicability of the Minimum Wages Act, 1948 to the workmen employed in famine relief work is “clearly violative” of Article 23.

Thus, even public works ostensibly initiated by the Government for the sole purpose of providing employment are subject to the Minimum Wage Act.[8]

(D) Payment Of Bonus Act, 1965:-

Case Law: Shashikant Janardan Pimpalpure Vs Development Corpn. Of Vidarbha

On 20 February, 1995 the Respondent No. 1 (Corporation) filed a reply to the application and contested the claim of the petitioner.

The respondent set up the defense that the petitioner was not an employee of the respondent Corporation, but was appointed in Carpet Weaving Center only and is on the rolls of that establishment only.[9]

According to the respondent Corporation, Carpet Weaving Center was totally separate and distinct from the Corporation and had no resemblance to the terms of employment of the employees of the respondent Corporation.[9]

The Corporation set up the plea that since the Carpet Weaving Center was a training center and an educational institution and has no profit motive, bonus was not payable under the Payment of Bonus Act.[9]

The Corporation also set up the defence that the said Training Center has not completed five years of service and on that ground under Section 16 of the Payment of Bonus Act, the employee is not entitled to the payment of bonus.[9]

The first and foremost question which requires consideration is, whether an application under- Section 33-C(2) of the Act of 1947 is maintainable seeking payment of minimum bonus under the Payment of Bonus Act. Admittedly, the petitioners are only seeking minimum payment of bonus under the Payment of Bonus Act.[9]

It is also admitted that before filing of the application under Section 33-C(2) of the Act of 1947, there was no order for payment of bonus to the present petitioner under the Payment of Bonus Act.[9]

Scope of Section 33-C(2) of the Act of 1947 is now well settled and does not require any debate. The right to the benefit which is sought to be computed under Section 33-C(2) must be an existing one and that is to say, already adjudicated upon or provided for and must arise in the course of and in relation to the relationship between the industrial workmen and his employer.[9]

CONCLUSION

The Wage Code is being hailed as a historic step towards labor reforms and ease of doing business in India without diluting any basic rights of employees. The Wage Code aims for enforcement of labor laws with transparency and accountability, and it is expected to reduce the cost of compliance for employers significantly. [3]

Amongst several benefits, the codification of labour laws shall remove the multiplicity of definitions and authorities, without compromising on the basic concepts of employee welfare and benefits. [5]

In a way, it would make it easier for employers to understand and thereby comply, and for the labour authorities to enforce the laws. Including the unorganised sector under the ambit of the Code on Wages and implementing a national level floor wage for minimum wages could end up becoming path breaking for a labour-intensive country like India. [5]

Encouraging digitization through introduction of web based inspection scheme, calling of information electronically for inspection, composition of offences etc. may also become a model for other ministries when it comes to enforcement. The ease of compliance is also expected to promote setting up of more enterprises catalyzing the creation of more employment opportunities. [5]

Thanks to the Code on Wages and other continuing efforts of the government, please expect a higher ranking for India in the next World Bank survey on Ease of Doing Business! [5]

WEBSITES REFERRED AND FOOTNOTES:

1) Tish Sanghera (2018), “Daily Wages in India Doubled in 18 Years, But Wage Inequalities Grow”, IndiaSpend.

https://www.indiaspend.com/daily-wages-in-india-doubled-in-18-years-but-wage-inequalities-grow-20098/

2) Annual Report, PLFS 2017-18 (2019), Periodic Labour Force Survey (PLFS), National Statistical Office, Ministry of Statistics and Programme Implementation, Government of India.

http://www.mospi.gov.in/sites/default/files/publication_reports/Annual Report, PLFS 2017-18_31052019.pdf

3) Wage Code – A Step In The Right Direction by Vaishnavi Eshwar and
Sawant Singh of Phoenix Legal

https://www.google.com/amp/s/www.peoplematters.in/amp-compensation-benefits-a-primer-on-code-on-wages-24808

4) Passed by the Lok Sabha on July 30, 2019 and by the Rajya Sabha on August 2, 2019

5) India Consolidates And Codifies Its Labour Laws – The Code On Wages, 2019 by Preetha Soman and Vikram Shroff of Nishith Desai Associates

https://www.mondaq.com/india/employee-benefits-compensation/834696/india-consolidates-and-codifies-its-labour-laws–the-code-on-wages-2019

6) The obligations of employer under the Payment of Wages Act, 1936 by Anubhav Pandey

https://www.google.com/amp/s/blog.ipleaders.in/payment-of-wages-act-1936/amp/

7) Duties Of The Employer Under The Equal Remuneration Act, 1976 by Sylvine

https://www.google.com/amp/s/blog.ipleaders.in/duties-employer-equal-remuneration-act-1976/amp/

8) Indian Labour laws- Minimum Wages Act, 1948 by Akanksha

https://www.google.com/amp/s/blog.ipleaders.in/labour-law-indian-laws-caselaws/amp

9) A Critical Analysis Of The Payment Of Bonus Act, 1965 by Rebecca Furtado

10) https://www.google.com/amp/s/blog.ipleaders.in/critical-analysis-payment-bonus-act-1965/amp/

11) https://corporate.cyrilamarchandblogs.com/2020/01/recap-indian-labour-law-developments-2019-outlook-2020/amp.html/