Employment law updates in India: The Code of Wages 2019 receives Presidential assent

​published on August 28, 2019 | reading time approx. 6 minutes

 

On August 8, 2019 , the Code of Wages 2019 ( the Wage Code)  has received Presidential assent,  and has been published in the official gazette for general information. The main objective of the Wage Code is to consolidate and amend the existing laws related to wages and bonus payments and to transform old and obsolete laws into more accountable and transparent ones.

 

 

It is aligned with government’s labour reforms to merge 44 existing labour laws into four broader categories for easier compliance. Such four categories include wages, social security, industrial safety and welfare, and industrial relations. The Wage Code is one of the first of four labour codes which amalgamates the four labour laws: The Payment of Wages Act 1936, the Minimum Wages Act 1948, the Payment of Bonus Act 1965 and the Equal Remuneration Act 1976 into a single piece legislation. The Wage Code shall come into force on such date as notified by the Central Government in the official gazette.

 

Key highlights of the Wage Code are as under:

 

 

Applicability

The Wage Code universalizes right to minimum wages and timely payment of wages to all the employees regardless of wage ceiling, employment sector. At present, the provisions of Payment of Wages Act 1936 is applicable to workers and employees below a particular wage ceiling (which is earning up to INR 24,000 per month) and the Minimum Wages Act 1948 extended only to certain type of employment included in the schedule.

 

The Wage Code prohibits gender discrimination on wagerelated matters and employment conditions.

 

Definition of wage

At present there are almost 12 definitions of wages under different labour laws often  leading in to litigation and difficulty in implementation. For dealing with this issue, the Wage Code provides a uniform definition of ‘wages. As per section 2(y) of the Wage Code, wage means all remuneration whether by way of salaries, allowance or otherwise, expressed in terms of money or capable of being so expressed which would, if the terms of employment (express or implied) were fulfilled, be payable to a person employed in respect of his employment, and includes basic pay, dearness allowance and retaining allowance. Further, certain components which are excluded from the ambit of definition of wages are as follows : statutory bonus, value of any housing accommodation, contribution towards pension and provident fund by the employer, conveyance allowance and travelling concession, sums paid to the employee to defray special expenses, house rent allowance, overtime allowance, any commission payable to the employee, gratuity, retrenchment compensation, other retirement benefits and exgratia payments (if any) (“excluded components”).

 

It is pertinent to note that for the first time, a condition is attached stating that payment made under any of the excluded components other than gratuity, retrenchment compensation, other retirement benefits and exgratia payments (if any) cannot exceed 1.5 percent or such other percentage as notified by the Central Government of all the remuneration calculated. In case if such amount exceeds such 1.5 percent or such percent so notified, the amount in excess shall be accordingly added in wages.


Prohibition of discrimination on the grounds of wage related matters

In line with, the Equal Remuneration  Act, 1976 which prohibited gender-based discrimination in terms of payment of wages, recruitment, the Wage Code prohibits employer from resorting to discrimination amongst employees on the grounds of gender in matters related to wages in respect of the “ same work or work of similar nature” done by any employee.

 

“Same work or work of a similar nature” means work in respect of which the skill, effort, experience and responsibility required are the same, when performed under similar working conditions by employees of any gender. In case of there is a dispute on the question of work is of same or similar nature, such dispute shall be decided by such authority as may be notified by the appropriate government.

 

The employer shall not be allowed to reduce the wage for the purpose of complying with the requirement of non-discrimination in payment of wages. Also discrimination is also prohibited on the ground of sex in terms of recruitment and conditions of employment, this is subject to exception where the employment of women in such work is prohibited or restricted by or under any law for time being in force.

 

Minimum wage

Under the Wage Code, the minimum wage has been universalised for all employees and consequently those who were earlier out of the ambit of minimum wages will be covered under the protection of minimum wages as granted under the Wage Code.

 

No employee shall be paid wages  less than the minimum rate of wages notified by the appropriate government. The Wage Code prescribes the Central Government and the State Government as appropriate government. For private sector establishments the State Government shall have the authority to fix the minimum rate of wages.

 

The concept of “floor wage” is introduced under the Wage Code and power and authority to fix the floor wage is vested with the Central Government taking into account minimum living standards of a worker for different geographical areas. A condition is attached that the minimum wages to be fixed by the central or the state government as the case may be cannot be lesser that the floor wage. Also  in the event that the minimum wages fixed is more than the floor wages, it is not permitted to reduce the same to bring in parity with the floor wage.

 

The minimum rate of wages shall be reviewed and revised in intervals not exceeding five years. The minimum rate of wages may be fixed by the hour or by the day or by the month. The Wage Code also gives  a power to the appropriate government to fix the number of hours of work which shall constitute a normal working day and also provide a weekly rest. In case employees work in excess of a normal working day or work on a rest day, they will be entitled to overtime wage, which must be at least twice the normal rate of wages.


Payment of wages

The Wage Code provides that all wages shall be paid in current coin or currency notes or by cheque or by crediting the wages in the bank account of the employee or through electronic mode.  However, an exception is carved in respect of certain specific industrial or other establishment as notified by the appropriate government wherein the wages shall be paid only by cheque or by crediting the wages in bank account.

 

Different wage period will be fixed for different establishments for eg. Daily or weekly or fortnightly or monthly basis. Time limit is prescribed depending upon the wage period is fixed within which the payment of wages has to be made. For eg. in case of monthly basis, before the expiry of the seventh day of the succeeding month. In the event if an employee is removed, dismissed, retrenched, resigns or becomes unemployed due to closure of establishment, the wages are required to be paid within two working days.

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The Wage Code also permits deduction of employees’ wages on certain grounds including fines, absence from duty etc. provided the total deductions authorised cannot exceed 50 percent of the employees’ the wages.

 

Bonus payment

Requirement of bonus payment as given under the Wage Code shall apply to only those establishments employing at least 20 employees or if at least 20 employees have been employed on any day in that accounting year. The Wage Code provides that every employee, drawing wages not exceeding such amount per month as notified by the central or state government will be entitled to an annual bonus. The bonus will be at least: (i) 8.33 percent of his wages, or (ii) Rs 100, whichever is higher. An employee can receive a maximum bonus of 20 percent of wages earned by the employee in the accounting year.

 

An important point to note that in case an employee is found guilty of indulging into  sexual harassment at work place, the same can be considered as a ground amongst other grounds for disqualification of bonus under the Wage Code.

 

Records, returns and notices

The Wage Code mandates every establishment to maintain a register containing details with regard to persons employed, day or date and time of payment of wages, muster roll, wages and such other details in such manner as may be prescribed. Every employer shall display a notice on the notice board at a prominent place of the establishment containing the abstract of the  Wage Code, address of the Inspector-cum Facilitator having jurisdiction etc.

 

Inspection

Many changes have been introduced in the inspection regimes including appointment of Inspector-cum Facilitators who will carry out the onsite inspection throughout the state or such geographical limits assigned in relation to one or more establishments. The Wage Code now introduces a web based randomised computerised inspection scheme, jurisdictionfree inspections, calling of information electronically for inspection, composition of fines etc. All these changes will be conducive for enforcement of labour laws with transparency and accountability.

 

Offences

The Wage Code provides that any employer who pays to any employee less than the amount due to such employee under the provisions of the Wage Code shall be punishable with fine which may extend to INR 50,000. If the offence is repeated for the second time and the employer is again found guilty within 5 years from the date of the commission of the first or subsequent offence, the same will be punishable with an imprisonment for a term which may extend to 3 months or with fine which may extend to INR 100,000 or with both.

 

In case of contravention  of any other provisions of the Wage Code, same shall be punishable with fine extending up to INR 20,000.In case of repeated offence within the period of 5 years from the date of the commission of the first or subsequent offence, enhanced punishment to be imposed which may extend up to one month of imprisonment or with fine which may extend up to INR 40,000 or with both.

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Nonmaintenance or improper maintenance of records in the establishment, the employer shall be punishable with fine which may extend to INR 10,000.

 

Limitation

The limitation period has been raised to 3 years and made uniform for filing claims for minimum wages, bonus, equal remuneration etc., as against existing varying period between 6 months to 2 years.

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