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The Code on Wages 2019, was published in the Official Gazette of India on 8 August 2019, the date on which it received the President’s ascent. The Code will subsume 4 labour laws, 

  1. The Payment of Wages Act, 1935
  2. The Equal Remuneration Act, 
  3. The Minimum Wages Act, 1948 and
  4. The Payment of Bonus Act, 1965.

The introduction of a consolidated Code aims to simplify existing and disparate labour laws. Though the language of the old laws has been retained in many places, the Code has brought in some major changes. 

This article summarises important sections of the Code on Wages.

Definition of Terms used

The Code defines who a ‘contractor’ is and what ‘contract labour’ is. A ‘contractor’ in relation to an establishment means a person who undertakes to produce a given result through contract labour or is engaged in the supply of ‘contract labour’. It is important to note that ‘contract labour’ shall be deemed to be employed by the establishment; the exclusion being labour regularly employed by the contractor for the activities of the contractor’s establishment & who gets increments and social security coverage because of such employment.

The definition of ’employee’ continues to exclude apprentices covered by the Apprenticeship Act.

There is a demarkation between an ’employee’ and a ‘worker’, the primarily difference being that ‘worker’ excludes persons employed in managerial or administrative capacity or in supervisory capacity & drawing more than Rs. 15,000 per month. While minimum wage will apply to both employees and workers, the Central Government has power to fix floor rates of wage only in connection with ‘workers’. 

The term ‘Wages’ has an interesting definition. It means all remuneration payable to the person employed and includes basic pay, dearness allowance and retaining allowance. It does not include, inter alia,

  • Bonus, 
  • Contribution to pension or provident fund
  • Conveyance allowance,
  • House rental allowance & housing accommodation
  • Overtime allowance,

It is interesting to note that the Code has introduced a cap on the quantum of these exclusions. If the excluded components together constitute more than 50% of the total remuneration payable to the employee, such excess shall be treated as ‘Wages’. 

This modification will impact the payment of Bonus. Further, if the definition is retained in the consolidated code on social security, it would also mean additional payments to pension and provident funds.

Payment of Minimum Wages

Every employee shall be entitled to minimum wages. The wages may be computed based on time or work. The rate of wage shall be fixed by the appropriate government (i.e. State or Central as currently applicable), but the Central Government shall have the power to fix ‘floor rates’. The State Governments cannot fix wages lower than the floor rate. Of course, the floor rates shall be fixed geography wise and shall be based on the skill level of the employees. Further, if the current level of minimum wage is more than the floor rate, the State Government shall not reduce the wage & such higher minimum shall prevail.

The appropriate government shall also fix 

  • the hours of work which constitutes a normal working day,
  • define the intervals in a working day,
  • provide for a rest day in every 7 days
  • if the employee is called to work on a rest day or works beyond normal hours, then payment of wages at the overtime rates (i.e. twice the normal rate)

Please note that in Karnataka, till date, House Rental Allowance (HRA) was considered as part of minimum wages. However, with the introduction of the Code, this is no longer true. Establishments should revisit their salary structure to ensure compliance.

Payment of Wages

The appropriate government may declare certain establishments where wages have to be paid mandatorily through bank transfer or cheque.

No wage period shall be more than 1 month and wages will have to be paid within the following time limits

  • Day wages by end of the day,
  • Weekly wage, by the last day of the week,
  • Fortnightly wage, within 2 days from the end of the fortnight, and
  • Monthly wage, within 7 days from the end of the month.

An important change that has been introduced is with respect to payment on separation. If an employee is removed or dismissed from service, or has resigned, all wages payable to him shall be so paid within 2 days of such resignation. This move is beneficial for employees but would add considerable strain to the administrative process of the employer.

Another important change is with respect to the deductions permissible from wages. Only defined deductions shall be permissible and the list includes deductions for

  • absence from duty
  • amenities and services supplied by the employer (e.g. recovery of medical insurance)
  • recovery of advances and loans
  • income tax or any other levy imposed by the government,

It is important to note that the aggregate of deductions shall not exceed 50% of the wages for the wage period! This guarantees the employee payment of 50% of wage. 

Please note that 50% of wage is not equal to 50% of total remuneration. Thus, the employer should ensure 50% of wage as per the Code is duly paid. Where loans and benefits have been provided, the employer must revisit the compensation structure to ensure compliance.

Payment of Bonus

The Code is consistent with the existing Payment of Bonus Act. This also means the carry forward of archaic rules to compute ‘gross margin’, ‘allocable surplus’ and ‘available surplus’. 

All establishments employing 20 persons or more at any time in the year shall be required to pay bonus. Every employee, drawing wages upto such limit, established by the government (currently Rs. 21,000) and who has worked for at least 30 days in the year shall be eligible for bonus. 

Bonus shall be computed pro-rata for the period the employee has actually worked. However, 8.33% shall be the guaranteed minimum. The maximum bonus payable shall be 20% of wages.  

Further, provisions with respect to bonus ceiling have been retained. The ceiling currently is Rs. 7,000 per month or the minimum wage, whichever is higher.

Establishments shall be exempt from payment of bonus in the year of loss, upto the 5th anniversary. Any deficiency in allocable surplus of the 5th year can be carried forward to the 6th & 7th year. However, the employer must pay minimum bonus at least from the 6th year onwards.

An employee shall be disqualified from receiving bonus if he is convicted of sexual harassment.

Penalties & record keeping

The period of limitation to file an application vis-a-vis any claim is 3 years. 

The amount of penalty for non-compliance with respect to payment of any amount due to the employee (including bonus, minimum wage etc.) shall be Rs. 50,000 for the first offence. Subsequent offences carry a penalty of Rs. 100,000 or 3 months imprisonment or both.

Contravention of any other provision of the Code may lead to a penalty of Rs. 20,000. Subsequent offences of similar nature carry penalty of Rs. 40,000 or 1 month imprisonment or both.

Every employer must maintain a register of employee, the muster roll and wage detail as would be prescribed. Further, an extract of this Code should be displayed together with the day or date and time of payment of wages, & the name and address of the Inspector-cum-Facilitator having jurisdiction

Wage slips will have to be issued in the format prescribed. Persons employing more than 5 domestic helpers will also have to maintain these records. 

While the consolidated Code is a welcome change, the language of the Code presents the picture of an opportunity lost. Most of the provisions of the old laws are retained. The Code could have been a refreshing change if it incorporated provisions simplifying the computation of bonus, balancing the expectations of the job-giver with the job-seeker and simplifying record maintenance. Are these ominous signs of new Codes yet to see the light of the day?

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