The Code on Wages Act, 2019

employement law

Labour laws in India have traditionally been governed by multifarious and fragmented legislations, both at the central and state level. With a view to harmonising and consolidating the various legislations pertaining to wages, the Ministry of Labour and Employment (“Ministry“) first introduced the Code on Wages Act in Lok Sabha on August 10, 2017, which lapsed. The Code on Wages Act, 2019 was reintroduced in the Lok Sabha on July 23, 2019 and gained presidential assent on August 08, 2019 after getting passed in both houses of the Parliament.

The Code on Wages Act, 2019 (“Code“) has unified and subsumed four different acts, namely the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976.  The implementation of the Code is expected to have wide ranging implications for a majority of industries and it is therefore crucial to understand the key aspects of the Code and how they differ from the previous regulations.

The Code has modified the definition of “employee” from the extant definition as contained under the Minimum Wages Act, 1948. Under the Minimum Wages Act, 1948, “employees”were restricted to workers in certain specified categories of scheduled employment which under the Code has been extended to all types of establishment, irrespective of whether it falls under the organised or the unorganised sector. This implies that the benefits under the Code with respect to payment of wages and minimum wages to all employees, including those engaged in skilled, semi-skilled or unskilled, manual, operational, supervisory, managerial, administrative, technical or clerical work, and irrespective of whether the terms of employment have been expressly conveyed or merely implied[1], therefore widening the ambit considerably. This development is especially beneficial to the large number of workers in India’s unorganised sector, who often do not have written contracts to rely on.

Furthermore, “wages” have also now been given a unified structure as opposed to the varying definitions stipulated under the Minimum Wages Act, 1948, the Payment of Wages Act, 1936 and the Payment of Bonus Act, 1965. The definition of “wages” under the Code encompass (i) basic pay; (ii) dearness allowance; and (iii) retaining allowance and categorically excludes components such as statutory bonus, value of house accommodation, overtime, gratuity, etc[2], unless such exclusions exceed more than 50% (fifty percent) of all remuneration, in which case the amount which exceeds 50% (fifty percent) shall be considered as remuneration and be added to the wages thereof[3].This concretisation of the concept of wages under the Code also correspondingly impacts equal remuneration. Under the Equal Remuneration Act, 1976, the definition of “remuneration” left room for ambiguity and included basic wage and any additional emoluments whatsoever payable to a person employed in respect of employments or work done[4]. This is in contrast to the clarity brought about under the Code, which has specified the components that will constitute wages under its new harmonised definition for the purpose of determining equal remuneration to all genders, thus leaving little room for doubt in that regard.

The Code has also introduced the concept of “floor wages” which will be fixed basis the minimum living standards of a worker within the relevant geographical area[5], and where the minimum rate of wages fixed by the respective State Government is higher than the floor wage, then the former shall be retained[6].

Furthermore, the Code has also prescribed the appointment of a single authority namely the Inspector-cum-Facilitator for the effective implementation of this Code. The Inspector-cum-Facilitator shall be assigned by the State Government for the establishments in a given geographical area and has been granted the power to inter alia advice employers and workers on various compliances under the Code, inspect the establishments to ensure conformity with the provisions of the Code and examine any person found in the premises of the establishment[7].

While the Government is yet to notify the effective date of the Code coming into force, it is essential for employers to familiarise themselves with the provisions of the Code as it is bound to have far ranging effects on the operational aspects of most establishments.

[1] Section 2(k), Code on Wages Act, 2019.
[2] Section 2(y), Code on Wages Act, 2019.
[3]Section 2(y), Code on Wages Act, 2019.
[4] Section 2(g), Equal Remuneration Act, 2019.
[5] Section 9(1), Code on Wages Act, 2019.
[6] Section 9(2), Code on Wages Act, 2019.
[7] Section 51(5), Code on Wages Act, 2019