Wage Code, 2019- Summary

 The Code on Wages, 2019 (the "Code") on August 8, 2019, which seeks to
amend and consolidate the laws relating to wages and bonus and matters
connected therewith or incidental thereto, and subsumes the provisions of the
Payment of Wages Act, 1936 ("Payment of Wages Act"), the Minimum Wages
Act, 1948 ("Minimum Wages Act"), the Payment of Bonus Act, 1965
("Payment of Bonus Act") and the Equal Remuneration Act, 1976 ("Equal
Remuneration Act").

 Clause 1 of the Code provides that the Code shall come into force on such date
as the Central Government may, by notification in the official gazette appoint
and different dates may be appointed for different provisions under the Code.

Unlike the Payment of Wages Act which is applicable to employees drawing

salary below a statutory limit, and the Minimum Wages Act which is applicable
to employees engaged in scheduled establishments, the Code envisages uniform
applicability of the provisions of timely payment of wages and minimum wages
to all employees irrespective of the wage ceiling and sector.

It is relevant to note that as per the Code, any action taken under the repealed
enactments including any notification, nomination, appointment, order or
direction made thereunder or any amount of wages paid shall be deemed to have
been done or taken or provided for such purpose under the corresponding
provisions of the Code to the extent that they are not contrary to the provisions
of the Code and until such time that they are repealed under the corresponding
provisions of the Code or by the notification to that effect by the Central
Government.

Definition of wages under the Code:

As per the Code – (i) basic pay, (ii) dearness allowance and (iii) retaining
allowance have been included as components of 'wages'.

Further, the Code excludes the following components from the definition of
wages: (a) bonus payments;

(b) value of the house-accommodation, supply of light, water, medical

attendance or other amenity or of any service excluded from the computation of
wages by an order of the appropriate Government;

(c) employer contributions to any pension or provident fund;

(d) conveyance allowances;

(e) sums paid to the employee to defray special expenses on him by the nature
of his employment;

(f) house rent allowance;

(g) remuneration payable under award or settlement between the parties or order

of court or tribunal;

(h) overtime allowance;

(i) commission payable to employee;

(j) gratuity payments; and,

(k) retrenchment compensation or other retirement benefit payable to the

employee or any ex-gratia payment made to the employee on the termination of
his employment.

According to the new wage definition, in effect, at least 50 per cent of the gross
remuneration of employees should form the basis to calculate benefits such as
gratuity, retrenchment compensation and provident fund, etc. in situations
where the sum of basic salary and other fixed allowances (such as dearness
allowance) is less than 50 per cent of the gross remuneration.
The new definition is part of the Wage Code 2019 that was passed by the
Parliament last year and also reflects in the more recently passed codes on
Social Security.

Highlights of the Code

Definition of 'wages': The definition of 'wages' varies across labour legislations

in India. The Code seeks to provide a single uniform definition of 'wages' as
applicable to minimum wages, payment of wages and payment of bonus.

 It is to be noted that for the purpose of equal wages to all genders and for the
purpose of payment of wages, the emoluments specified in clauses (d), (f),
(g) and (h) (specified above), should also be considered for computation of
wages.

 The Code prescribes that if the sum-total of the excluded components (apart
from gratuity and retrenchment compensation) exceeds 50% (Fifty Percentage)
(or such other percentage notified by the Central Government) of the total
remuneration, then that portion of the amount exceeding 50% (Fifty percentage)
(or such other percentage notified by the Central Government) is also to be
calculated as 'wages' under the Code. Employers should be particularly wary of
such a stipulation in devising salary structures for their employees.

Separate definitions of 'worker' and 'employee'

 The Code provides for separate definitions of 'worker' and 'employee'. The

definition of 'employee' is broader than that of 'worker' as it includes persons
carrying out managerial and administrative work. The definition of 'worker,'
however, expressly includes working journalists and sales promotion
employees.

 Equal Remuneration

 Consistent with the Equal Remuneration Act, the Code, inter-alia, includes

provisions prohibiting discrimination on grounds of gender (i) with respect to
wages by employers, with respect to same work or work of a similar nature
done by employees and (ii) with respect to recruitment of employees for same
work or work of a similar nature.

Further, it is relevant to note that under the Equal Remuneration Act, the
definition of remuneration was vague, and included basic wage or salary and
any additional emoluments whatsoever payable in cash or kind to a person
employed in respect of employment or work done. However, as per the Code,
the components that will constitute wages for the purpose of payment of equal
remuneration irrespective of gender, leaving little room for confusion in this
regard.

Changes with respect to minimum wages

The procedure for determination of minimum wages by the appropriate

Government is in line with the provisions of the Minimum Wages Act.
However, the Code introduces the concept of a floor wage, which is to be
determined by the Central Government after taking into account the minimum
living standards of workers in a manner to be prescribed, which may be
different for different geographical areas. The appropriate Government can,
under no circumstance, fix a minimum wage rate which is lower than the floor
rate determined by the Central Government. However, if the existing minimum
wages fixed by the appropriate Government is higher than the floor wage, they
cannot reduce the minimum wages. Further, the Code prescribes that the
minimum rate of wages are to be reviewed and revised by the appropriate
Government in intervals not exceeding five years.
The Code provides that in case an employee works on any day in excess of the
number of hours constituting a normal working day, the employer is to pay him
for every hour or for part of an hour so worked in excess, at the overtime rate
which should not be less than twice the normal rate of wages.

 Removal of threshold limit for triggering the application of payment of

wages provisions

Previously, the Payment of Wages Act read with Notification No. S.O. 2806 (E)
dated August 29, 2017 issued by the Ministry of Labour and Employment, was
applicable only to employees drawing wages below INR 24,000/- (Indian
Rupees Twenty-Four Thousand only) per month. However, the Code makes no
mention of any such threshold and it appears that the payment of wages
provisions in the Code will be applicable to all employees across the board.

The Code is applicable to all employees across the board. Accordingly, the
Code has raised the responsibility of an employer to ensure proper wage
structuring and timely payment of such wages to all its employees.

Definitions of 'contractor' and 'contract labour'

Clause 2(f) of the Code defines 'contractor', along the lines of the Contract
Labour (Regulation and Abolition) Act, 1970. The Code has also defined
'contract labour'. Workers (other than part-time employees) who are regularly
employed by the contractor for any activity of his establishment, where their
employment is governed by mutually accepted standards of the conditions of
employment and who get periodical increment in the pay, social security
coverage and other welfare benefits as per the law would not be considered as
contract labour. Interestingly, despite the definition, the Code does not contain
any references to 'contract labour' in the Code. However, the Code on
Occupational Safety, Health and Working Conditions, which is yet to be passed,
contains a nearly similar definition of 'contract labour' and detailed provisions to
regulate it. Once the Code on Occupational Safety, Health and Working
Conditions is passed, better clarity on the regulation of contract labours can be
expected.

 Provisions relating to period and payment of wages

 The Code has provided express provisions for the employer to fix the wage
period for the employees on a daily, weekly, fortnightly or monthly basis, and
stipulates the time limits for payments by the employer under each of such wage
periods.  In this era of the gig-economy where monthly basis payments are less
relevant and increasingly more number of employees are migrating out of the
formal sector, this is a welcome inclusion. This scheme departs from the one
under the Payment of Wages Act which merely mentions that a wage period
shall not exceed one month, and prescribes two different time limits for
payment of wages based on the number of employees in an establishment.

Changes with respect to payment of bonus: While the threshold to determine

the payment of bonus to employees is required to be notified by the appropriate
government, it is to be noted that the provisions relating to the computation of
bonus are consistent with the terms of the Payment of Bonus Act.

The Code lists disqualifications for receiving bonus along the lines of the
Payment of Bonus Act. However, it is to be noted that the Code additionally
provides that dismissal from service due to conviction for sexual harassment
would also be considered as a ground for disqualification for receipt of bonus
under the Code.

 Increase in period of limitation for filing claims and filing of claims by

trade unions

 The Code prescribes a limitation period of three years (calculated from the date
on which claims arose) for filing of claims by an employee as against the
existing time period varying from six months to two years, to provide a worker
more time to settle his claims. The Code now allows the trade union of which
the employee is a member to file claims. Additionally, the Code places the
burden of proof on an employer to prove that the amounts claimed by the
employee have been paid.

 Provision for inspectors-cum-facilitators

The Code provides for appointment of inspectors-cum-facilitators and their

powers. These authorities would have a dual function – providing compliance
advisory to employers and workers and conducting inspections. Further, as per
the Code, the appropriate Government may lay down an inspection scheme,
which may also contain web-based inspection processes.

Revamped provisions for offences and penalties

The Code has provided an impetus for trade unionism by allowing a registered
trade union to make complaints for offences under the Code. The Code provides
for a graded penalty system for contraventions under the provisions of the
Code. Unlike the provisions under the Minimum Wages Act and the Payment of
Bonus Act which provide for punishment of imprisonment up to six months, the
penal consequences under the Code are relatively lenient and only entail
punishment with fine. However, the Code penalises a second conviction within
a span of five years from the first conviction with imprisonment. The quantum
of fines for contraventions under the Code has seen a significant increase.
Additionally, it is to be noted that the offences of non-maintenance or improper
maintenance of records and registers in the establishment are punishable only
with a fine.

Under the Code, the inspector-cum-facilitator is required to afford an

opportunity to the employer before initiating prosecution proceedings in cases
of first contraventions. This window will benefit contraventions which are non-
intentional or due to genuine lack of information on the part of the employer.
Exhaustive procedures in relation to compounding of offences have been
provided under the Code.

Analysis

The Code attempts to unify the definition of 'wages', which is a step towards
providing better clarity. However, the provision of separate definitions for
'worker' and 'employee' and their usage within the Code leaves room for
confusion. Further, the Code seeks to change the 'Inspector Raj' perception in
relation to the Government's regulation of labour by introducing inspectors-
cum-facilitators instead of merely inspectors.

The Code has created a pivotal transformation with respect to offences and
penalties. Substantial rationalisation and proportionality, with an intent to
support rather than hamper the conduct of business is evident from the penal
provisions. The Code encourages technology adoption in matters such as mode
of payment of wages, inspection procedures, which are aimed at achieving its
digitalisation goals in governance.

Conclusion

The Code is a well-intentioned piece of legislation which aims to balance the

interests of the employer and the employee. Though the Code contains
substantial portions of the repealed legislations, it makes a decent attempt to
replace their obsolete provisions. The provisions of the Code inspire confidence
in the business community, and further clarity can be realised once the
subordinate legislations and rules under the Code are in place. It would also be
interesting to gauge how the other codes relating to social security, industrial
safety and welfare, and industrial relations will interact with the Code of Wages
once they are passed.
The term 'worker' has been defined under Clause 2(z) and the term 'employee'
has been defined under Clause 2(k) of the Code on Wages, 2019