Code on Wages, 2019: Key Provisions Explained

Code on Wages, 2019: Key Provisions Explained
Code on Wages, 2019: Key Provisions Explained

By – Shreya Dubey, Neha Das

As part of India’s comprehensive labour law reforms, the Parliament has consolidated multiple legislations into four Labour Codes: Code on Wages, 2019Code on Social Security, 2020Occupational Safety, Health and Working Conditions Code, 2020, and Industrial Relations Code, 2020 (collectively referred to as the Labour Codes). This article, the first in our four-part series, provides an in-depth exploration of the Code on Wages, 2019, focusing on its pivotal provisions, critical analysis, and implications for employers and employees alike.

Overview of the Code on Wages, 2019

The Code on Wages, 2019 (Wage Code) is a transformative legislation consolidating four historic laws: the Minimum Wages Act, 1948Payment of Wages Act, 1936Payment of Bonus Act, 1965, and Equal Remuneration Act, 1976. By unifying these enactments, the Code on Wages aims to simplify compliance, eliminate redundancies, and ensure greater transparency in wage-related matters.

The Code on Wages reflects a modern, inclusive, and retirement-oriented approach, balancing employer and employee rights. It redefines salary structures, addresses wage components, and introduces consistency across industries and states. While enhancing retirement savings for employees, it also impacts take-home pay and could influence the nation’s taxation structure.

Key Measures Introduced by the Code on Wages, 2019

Revised Definition of Wages

The Code on Wages, 2019 introduces a uniform definition of wages, excluding certain components like house rent allowance (HRA) and categorizing them as allowances. It mandates that allowances such as bonus, HRA, provident fund contributions, conveyance, and gratuitymust not exceed 50% of the total remuneration. Any excess is deemed part of wages.

This reform compels companies to restructure salaries, reducing excessive allowances while increasing basic wages. Although this may reduce employees’ current spending power, higher contributions to provident funds and gratuity will significantly boost retirement savings.

Uniform Recognition of Employees

The Code on Wages ensures consistent recognition for all employees across sectors. It extends protections to out-worker jobs like cleaning, washing, altering, ornamenting, and repairing, which were previously excluded under older enactments. This inclusive provision strengthens protections for marginalized and unrecognized workers.

Addressing Regional and Gender Disparities

To minimize regional wage disparities, the Code on Wages, 2019 mandates that state minimum wages must exceed the “floor wage” set by the Central Government. The floor wage ensures a consistent baseline across metropolitan, non-metropolitan, and rural areas.

The Code also expressly prohibits wage discrimination, enabling employees to directly address gender-based and income-based disparities, ensuring fair pay for equal work.

Streamlined Wage Settlements

In cases of removal, dismissal, retrenchment, resignation, or closure, the Code on Wages, 2019 mandates employers to settle wages within two days. This provision eliminates delays, offering employees quicker financial resolution post-employment.

Enhanced Bonus Provisions

Chapter IV of the Code on Wages revises bonus regulations, ensuring applicability across establishments of all sizes. The minimum bonus rate remains at 8.33% of wages, regardless of a company’s allocable surplus.

The set-on and set-off provisions for managing bonus surpluses or deficiencies, retained from the Payment of Bonus Act, 1965, ensure consistency in bonus calculations. Rules governing customary bonuses, misconduct-related deductions, and adjustments have also been retained.

Simplified Claim Procedures

The Code on Wages, 2019 streamlines claim procedures, empowering designated authorities to award compensation of up to 10 times the claim amount in wage disputes. Additionally, enforcement mechanisms include recovery certificates, allowing district authorities to recover unpaid wages as arrears of land revenue. This ensures faster resolution and improved compliance.

Role of Inspectors-Cum-Facilitators

The Code on Wages introduces Inspectors-cum-Facilitators with combined advisory and enforcement responsibilities. This change aims to eliminate arbitrary inspections and reduce malpractice, though its practical effectiveness remains uncertain.

Critical Analysis and Conclusion

The Code on Wages, 2019 represents a pivotal reform in India’s labour landscape, striking a balance between employee welfare and employer obligations. However, certain areas merit further attention:

1. Enforcement Limitations: Despite increased penalties, Section 54 requires inspectors to issue written directions before prosecution, potentially encouraging last-minute compliance and diluting the deterrent effect.

2. Delayed Claim Resolutions: The absence of mandatory timelines for claim disposal could perpetuate delays, particularly in metropolitan and industrial hubs.

3. Lack of Clarity on Floor Wage: The methodology for determining the floor wage remains unclear, leading to potential inconsistencies.

Nevertheless, the Code on Wages sets a strong foundation for improving transparency, inclusivity, and wage fairness across the workforce. With states progressively rolling out their specific rules, the framework promises a streamlined and equitable future for India’s labour laws.

FAQs on the Code on Wages, 2019

  1. When was the Code on Wages, 2019, notified, and what is its current status?

    The Code on Wages, 2019 was notified on August 8, 2019. However, its implementation is still underway, with provisions being rolled out in phases. Currently, only the provisions related to the constitution of the Central Advisory Board have been enforced, as notified by the Ministry of Labour and Employment on December 18, 2020.

  2. What is the status of the enactments covered by the Code on Wages?

    The Minimum Wages Act, 1948Payment of Wages Act, 1936Payment of Bonus Act, 1965, and Equal Remuneration Act, 1976 will be repealed once the Code on Wages, 2019 is fully implemented. Actions and decisions taken under these repealed laws will remain valid as long as they do not contradict the provisions of the Code.

  3. Does the Code empower State Governments to frame rules?

    Yes, the Code on Wages, 2019 allows State Governments to frame rules on various matters, including the calculation of wages, imposition of fines, deductions for absences, and conditions for certain classes of employees. Most states have already released draft rules, which will take effect upon their final publication in the Official Gazette.

  4. What are reserved matters on which Central Government is empowered to frame rules?

    The Code on Wages, 2019 entrusts the Central Government with the responsibility of framing rules on critical matters that ensure nationwide consistency. These include determining the floor wage, which serves as the baseline below which no state can set its minimum wage. The Central Government is also tasked with consulting State Governments to fix and periodically revise the floor wage to address economic changes. Additionally, it governs the calculation of gross profits by employers, the methodology for managing surplus wages (set-on and set-off provisions) across accounting years, and norms for calculating and fixing minimum wages. These provisions, outlined in the draft Wages (Central) Rules, 2020, emphasize a transparent and uniform wage framework across regions and industries.

  5. Has the Central Government issued any rules under the Code on Wages?

    Yes, the Central Government has issued the Wages (Central Advisory Board) Rules, 2021, which outline the structure, functions, and terms of the Central Advisory Board. Additionally, the draft Wages (Central) Rules, 2020, provide guidelines for setting minimum wages, working hours, night shifts, and other issues. These rules are awaiting final approval.

  6. What are the main objectives of the Wage Code? 

    The Code on Wages, 2019 aims to simplify and streamline India’s wage-related legal framework by consolidating four key legislations into a single code. One of its primary objectives is to eliminate the multiplicity of definitions and authorities, making compliance easier for employers while safeguarding employee welfare. It promotes transparency and accountability in wage practices, ensuring fair treatment for all workers, including those in unorganized sectors. By addressing regional, gender, and income disparities, the Code seeks to establish equity and widen the scope of minimum wage applicability. Ultimately, the Code aims to create a more inclusive and effective enforcement mechanism that benefits both employers and employees.

  7. Who is covered under the provisions of the Code on Wages, 2019?

    The Code on Wages, 2019 applies to all establishments engaged in industry, trade, business, manufacturing, or occupation. It also includes government establishments, ensuring uniform application across organized and unorganized sectors.

  8. How does the Code on Wages impact the calculation of minimum wages?

    The Code on Wages, 2019 introduces a uniform structure for minimum wages, which must be higher than the floor wage determined by the Central Government. Geographical regions are divided into metropolitan, non-metropolitan, and rural areas to address regional disparities. Minimum wage calculations now consider factors such as caloric intake, clothing, housing, and other essential expenditures.

  9. What are the key differences between the Wage Code 2019 and previous wage laws?

    The Code on Wages, 2019 consolidates four historic laws—Minimum Wages Act, 1948; Payment of Wages Act, 1936; Payment of Bonus Act, 1965; and Equal Remuneration Act, 1976—into a unified framework. Unlike previous laws, the Code extends its applicability to both organized and unorganized sectors, ensuring broader coverage. A notable difference is the introduction of the floor wage, which ensures no state fixes minimum wages below this threshold, thereby addressing regional disparities. The Code also removes the earlier ₹24,000 wage ceiling, making its provisions applicable to all employees. It incorporates graded penalties for different violations, with provisions for compounding non-imprisonable offenses, ensuring proportionate deterrence. Furthermore, the period for filing claims has been extended to three years, offering employees more time to seek remedies compared to the six-month to two-year limits under previous laws.

  10. What is the penalty for non-compliance with the Wage Code?

    Penalties under the Code on Wages, 2019 are designed to ensure accountability and deter violations. For underpayment of wages, the first offense attracts a fine of up to ₹50,000, while repeat offenses within five years may lead to a fine of up to ₹1,00,000 and imprisonment for up to three months. Other contraventions result in a fine of up to ₹20,000 for the first offense and ₹40,000 for subsequent offenses within five years, along with possible imprisonment of up to one month. Additionally, non-maintenance or improper maintenance of records incurs a fine of up to ₹10,000. By including provisions for compounding certain offenses and requiring written directions before prosecution, the Code balances enforcement with opportunities for compliance.

  11. How does the Code on Wages, 2019, streamline claim resolution?

    The Code on Wages simplifies claim resolution by empowering designated authorities to award compensation up to 10 times the claim amount. It also allows recovery of unpaid wages through certificates issued to District Magistrates, expediting enforcement.

  12. What are the key changes to bonus provisions under the Code on Wages?

    The Code on Wages, 2019 retains the minimum bonus rate of 8.33% of wages while ensuring uniform applicability to all establishments, regardless of size. The set-on and set-off rules remain unchanged, while surplus calculations and adjustments for bonuses are addressed in the draft Wages (Central) Rules, 2020.

References

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