Code On Wages 2019: Key Features

This is the first in the series of four labour codes and paves way for the other labour codes on:

• Industrial Relations;
• Social Security and Welfare; and
• Occupational Safety, Health and Working Conditions

The Code on Wages subsumes and repeals the following important labour laws:

1. The Payment of Wages Act, 1936 (POWA)
2. The Minimum Wages Act, 1948 (MWA)
3. The Payment of Bonus Act, 1965 (POBA)
4. The Equal Remuneration Act, 1976 (ERA)

The Code on Wages shall regulate wage and bonus payments in all employments and aims at providing equal remuneration to employees performing work of a similar nature in every industry, trade, business, or manufacture. The Code on Wages also aims to transform old and obsolete labour laws, some of which were enacted in the pre-Independence era and meant primarily for factories and industrial establishments, into a more accountable and transparent law.

Key features of the Code on Wages are as follows:

The Code on Wages comprises of 9 chapters. While the applicability, coverage, definitions and provisions mandating equal remuneration are listed out in Chapter I, Chapter II contains provisions relating to payment of minimum wages, Chapter III deals with ‘Payment of Wages’, Chapter IV deals with ‘Payment of Bonus’, Chapter V provides for constitution of an Advisory Board, Chapter VI deals with the manner of raising claims under the Code on Wages, Chapter VII provides for the appointment of an Inspector cum Facilitator, Chapter VIII lists out the offences and penalties and finally Chapter IX lists down the miscellaneous provisions.

Coverage and Applicability

The Code on Wages will apply to employees in the organized and un-organized sectors. While the Central Government will continue making wage-related decisions for employments such as railways, mines, oil fields, central public sector undertaking etc., the State Governments shall make such decisions for all other employments including for private sector establishments.Unlike the POWA which applied to only those employees who drew monthly wages of up to INR 24,000 and the MWA which applied only to scheduled employments, the provisions of the Code on Wages relating to payment of wages shall extend to all employees irrespective of their wage ceiling and type of employment.

Definition of ‘Wages’

The definition of ‘Wages’ under the Code on Wages has been defined to include salary, allowances and other components expressed in monetary terms. The definition lists down the specific items including certain allowances such as conveyance and house rent allowance which are excluded from the ambit of ‘Wages’. An interesting feature to be noted here is that the excluded components cannot exceed one half or such other percent as notified by the Central Government of all the remuneration payable to the employee. In the event that it does so, then the amount exceeding the one half or such percent as specified by the Central Government shall be considered as ‘Wages’.

Definition Of A Floor Wage

A key feature of the Wage Code, which has been debated most extensively, is the provision allowing the central government to stipulate a ‘floor wage’ (which may vary based on geographical areas), based on advice from the Central Advisory Board.While state governments retain the authority to stipulate their own minimum wages, these cannot be lower than the floor wage stipulated set by the Central Government. This provision has met with some pushback, as it takes away a state’s autonomy in determining the wages for its workforce based on its own regional and economic conditions.To try and achieve balance, the Wage Code has revised the composition of the Central Advisory Board to now also include five representatives of state governments nominated by the central government.The Wage Code further expects the government to stipulate as few number of minimum wage rates “as far as possible”. Currently, each state stipulates several hundred rates of minimum wage based on the nature of industry, zone, nature of employment, level of skill, education, etc. Fewer rates of minimum wage, guided by the floor rate stipulated by the central government, will hopefully make compliance simpler and also make it easier for the actual beneficiaries to know what wages they deserve.

Lack Of A Wage Threshold

Obligations relating to payment of wages, deductions from wages, etc. have been extended to all ’employees’, i.e. even individuals in supervisory and managerial roles, without any wage threshold. In comparison, the existing Payment of Wages Act currently only extends to individuals whose wages don’t exceed Rs 24,000 per month.Since no such wage limit has been contemplated by the Wage Code, these provisions would apply even to senior employees, including the c-suite CEO or MD of an organisation. This makes matters extremely cumbersome and onerous for employers, especially when it comes to structuring pay and benefits agreements with senior employees.Such arrangements increasingly involve claw back and other deduction provisions, which may fall afoul of this law. It is absolutely critical to either re-introduce a wage threshold or, at the very least, limit the application of these sections of the Wage Code only to ‘workers’.

Distinction between ‘Employee’ and ‘Worker’:

The Code on Wages distinguishes between an ‘Employee’ and ‘Worker’. An ‘Employee’ is any person (other than an apprentice engaged under the Apprentices Act, 1961), employed on wages by an establishment to do any skilled, semi-skilled or unskilled, manual, operational, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of employment be express or implied. A ‘Worker’ refers to any person (except an apprentice as defined under clause (aa) of section 2 of the Apprentices Act, 1961) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied; however excludes inter alia (i) someone who is employed mainly in a managerial or administrative capacity; or (ii) someone who is employed in a supervisory capacity drawing a monthly wage exceeding Rs.15,000 or such amount as may be notified by the Central Government from time to time. Only certain limited provisions under the Code on Wages that relate to fixation and payment of minimum wages uses the term ‘Worker’.

Working Hours & Overtime:

The Central or State Governments may fix the number of hours that constitute a normal working day. 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.To avoid employee burnout and health concerns for such individuals, there can be reasonable limits imposed on the total number of overtime hours in a week, month or quarter (The State of M.P vide Madhya Pradesh Labour Laws (Amendment) and Miscellaneous Provisions act, 2015 stipulated a 125 hours overtime limit in a quarter by Amendment of The Factories Act, 1948). This would help ensure that employees at the lower end of the wage spectrum are duly compensated for extra effort, and at the same time employers are not burdened with incremental overtime cost for those who are already well-compensated.

Payment of Wages

The Code on Wages provides for payment of all wages in current coin or currency notes or by cheque or by crediting the wages through digital or electronic mode in the bank account of the employee except in those industrial establishments as notified by the appropriate government. It also specifies the time limit for payment of wages and clearly specifies that in the event that an employee is removed, dismissed, retrenched, resigns or becomes unemployed due to closure of an establishment, the wages shall be paid within two working days.

Payroll Deductions

The Wage Code has not made any material changes or improvements in an employer’s ability to make payroll deductions, ignoring market realities and practices. Making deductions from employees who receive large joining /retention bonuses and quit, or other similar circumstances remain illegal under the Wage Code, which is harmful to employers and allows employees to capitalise on their own defaults. Any contracting out of such provisions is expressly prohibited under Clause 60.

Prohibition of Gender Discrimination

Consistent with the ERA, the Code on Wages prohibits discrimination amongst employees on the ground of gender in matters relating to payment of wages by the same employer, in respect of the ‘same work or work of a similar nature done by any employee’. ‘Same work or work of a similar nature’ has been defined to mean work in respect of which the skill, effort, experience and responsibility required are the same, when performed under similar working conditions by employees and the difference if any, between the skill, effort, experience and responsibility required for employees of any gender, are not of practical importance in relation to the terms and conditions of employment.

Bonus Payments

Consistent with the POBA, the chapter relating to bonus payments under the Code on Wages shall apply to only those establishments employing atleast 20 employees or if atleast 20 employees have been employed on any day in that accounting year. All employees whose wages do not exceed a specific monthly amount, notified by the Central or State government, will be entitled to an annual bonus. The bonus shall be at least 8.33% of his wages or Rs 100, whichever is higher. In addition, the employer will distribute a part of the gross profits amongst the employees. This will be distributed in proportion to the annual wages of the employee. An employee can receive a maximum bonus of 20% of his/her annual wages.

Records, Returns and Notices

The Code on Wages mandates the employer to maintain a register containing the details of the persons employed, muster roll, wages and such other details in the manner to be specified in the rules by the appropriate government. It also provides for the display of a notice on the notice board at a prominent place at the establishment containing the abstract of the Code on Wages, category-wise wage rates of employees, wage period, day or date and time of payment of wages and the name and address of the Inspector cum Facilitator having jurisdiction. There is also a provision for issuance of a wage slip.

New Definition Of Contract Labour

The Wage Code has proposed a new definition of ‘contract labour’ which excludes individuals who are regularly employed by the contractor under mutually accepted conditions of employment, and who get periodic increments in pay, social security benefits, etc.A similar definition appears in the Occupational Safety, Health and Working Conditions Code 2019 as well. This has been the demand of the industry for the longest time (a proposed amendment to the CLRA Act on this has languished for some time now), which will ease compliances to a great extent.This definition allows organisations to not treat staff of well-established service providers, who hire employees for their ongoing business needs and not necessarily for just a client project, as contract labour.The definition of ’employer’ includes a ‘contractor’ too, which appears to indicate that a contractor would also need to independently comply with all the obligations in the Wage Code viz.-a-viz. employees and workers, thereby safeguarding the interest of the employees.

Inspector cum Facilitator

With the objective of removing the arbitrariness and malpractices in inspection, the Code on Wages requires the appropriate Government to appoint Inspectors cum Facilitators (in the place of Inspectors), to carry out inspections and provide information to employers and employees for better compliance. Inspections will be done on the basis of a scheme to be decided by the Central or State Government.

Right to be Heard

With the objective of facilitating compliance, the Code on Wages specifies that in the event that the employer violates provisions of the Code on Wages, the Inspector-cum-Facilitator shall not initiate any action against the employer unless the employer has been given an opportunity to rectify the non-compliance within a specified time period. However, in case of repetition of the same contravention within five years from the date on which such first violation was committed such an opportunity shall not be provided to the employer.

Offences

The Code on Wages specifies penalties for offences committed by an employer, such as (i) paying less than the due wages, or (ii) for contravening any provision of the Code on Wages. Penalties vary depending on the nature of the offence, with the maximum penalty being imprisonment for three months and/or with a fine of up to Rs. 100,000.

Limitation Period

The period of limitation for filing of claims by a worker has been enhanced to three years, as against the existing time period varying from six months to two years. This would provide employees more time to protect their statutory rights under the Code on Wages.

Actions taken under pre-existing laws

The Code On Wages clarifies that 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 on Wages to the extent that they are not contrary to the provisions of the Code on Wages and until such time that they are repealed under the corresponding provisions of the Code on Wages or by a notification to that effect by the Central Government.

Claim Handling Procedure: The Perception Game

The claim handling procedure under the Wage Code permits a single application to be filed “on behalf or in respect of any number of employees employed in an establishment”, subject to such rules as may be made.This suggests a move towards class-action disputes, where similarly placed aggrieved employees can join hands and tag their claims together for greater force and persuasiveness before the adjudicating authority appointed under the Wage Code.This, coupled with the fact that the onus to demonstrate compliance has expressly been shifted onto the employer in case of any dispute (which is very employee-friendly and one-sided), may result in a significant change in how organisations currently perceive the risk associated with certain non-compliances associated with the payment of wages, minimum wages, overtime, etc.It would be important for lawmakers to address these issues first, rather than push through legislation simply to demonstrate progress on the labour reform agenda.Overall, the Wage Code is a significant move forward in its attempt to cut through four large statutes and condense them into a more concise law with just 69 sections. Employers will also hopefully be spared the effort of maintaining multiple records and registers under each of these laws.For the most part, the Wage Code has shied away from making any drastic or substantive changes that better reflect current market practices. That said, some of the modifications are commendable.

Decriminalisation Of Offences

The Wage Code has decriminalised all offences except where it is a repeat of a similar offence within 5 years. It also allows compounding of the first offence, which means that the organisation can pay a composition fee to settle the matter and avoid lengthy court proceedings.On the other hand, it also prescribes larger fines for non-compliance, and the compensation payable for any default in payment of wages, minimum wages, bonus, etc. could be up to 10 times the claim determined by the relevant authority.While this is a positive move, the Wage Code could have gone a step further to stipulate imprisonment only for more serious offences, if they are repeated, and done away with any sort of imprisonment for mere procedural non-compliance.The Wage Code states that the appropriate government must lay down an ‘inspection scheme’ which may also provide for web-based inspection and calling of information, thereby excluding the potential harassment organisations undergo in physical inspections. Further, labour inspectors have been given the dual role of a ‘facilitator’ as well. The Inspector-cum-facilitator must first give the employer an opportunity to cure the non-compliance (provided it’s not a repeat offence) within a stipulated period, and only on failure to do so, should prosecution be initiated. This would go a long way in mitigating needless prosecution for unwitting/unintentional non-compliances.

Conclusion

It is important for the government to use the opportunity to revamp Indian labour laws to not just reduce the number of laws or the number of sections in them. Most labour laws are from the independence era and there is a drastic need to make substantive changes to make sure they align with market realities. No doubt, the unions will oppose changes since all labour laws have historically been pro-worker, but an opportunity to make such large scale changes does not come often. The revised laws must not just reflect present practices, but also be equipped to deal with the realities and challenges of the future such as increasing automation, artificial intelligence, use of technology for compliance monitoring, etc. The Wage Code and the other proposed codes can and should go above and beyond their current form.

Code on Wages, 2019 – An overview

Exerpts from from lexology.com

Introduction

1. Uniform Applicability: The PWA is applicable to employees drawing wages equal to or below a statutory limit and MWA is applicable only to scheduled employements. The Wage Code now envisages uniform applicability of the provisions of timely payment of wages and minimum wages to all employees irrespective of the wage ceiling and sectors.
2. Uniform definition of wages: The definition of ‘wages’ slightly varied across PWA, MWA, PBA and this has resulted in numerous litigations. Therefore, the Wage Code seeks to provide a single uniform definition of ‘wages’ for the purposes of computation and payment of wages to the employees. As per Wage Code, the term ‘wages’ means all remuneration whether, by way of salaries, allowances or otherwise, expressed in terms of money and includes basic pay; dearness allowance; and retaining allowance if any.

The Wage Code lays down the list of exemptions which do not form part of the term ‘wages’ which inter alia includes the value of house accommodation, supply of electricity, water, house rent allowance, bonus payable under any law, contributions to a pension or provident fund, sums paid to defray special expenses, remuneration payable under any award or order of a court/tribunal or settlement between parties, overtime allowance, gratuity payable, retrenchment compensation, ex gratia, and other retiral benefits.A significant introduction under the Wage Code is that in the event the quantum of the exclusions (except gratuity, retrenchment, ex gratia, and retiral benefits) is exceeding more than half or such other notified percentage (“Exclusion Limit”) of the remuneration paid to the employee, then the amount in excess of Exclusion Limit will be treated as wages.

3. The distinction between ‘Employee’ and ‘Worker’: The Wage Code provides separate definitions of ‘worker’ and ’employee’. The definition of ’employee’ is broader than that of ‘worker’. The term ‘worker’ refers to any person except an apprentice employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied and also includes working journalists and sales promotion employees, but excludes persons who is employed mainly in a managerial or administrative capacity; or person who is employed in a supervisory capacity drawing a monthly wage exceeding INR 15,000 or such amount as may be notified by the Central Government from time to time.

An ‘Employee’ under the Wage Code is any person employed other than apprentice on wages by an establishment to do any skilled, semi-skilled or unskilled, manual, operational, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of employment be express or implied.

4. Minimum Wages:The erstwhile MWA prescribed minimum wages only in relation to scheduled employments. Now, the Wage Code empowers the appropriate government to fix wages in all industries. A new concept of floor wage has been introduced. Under the Wage Code, the Central Government is empowered to fix floor wage after taking into account minimum living standards of a worker as applicable for different geographical areas. The State Governments under no circumstance, shall fix a minimum wage rate which is lower than the floor wage determined by the Central Government. Further, if the minimum wages fixed prior to the fixation of the floor wage are higher than the floor wage, then the appropriate government is prohibited from reducing those rates. The Wage Code prescribes that the minimum wages are to be reviewed and revised by the appropriate governments in intervals not exceeding five years.
5. Equal Remuneration: Similar to ERA, the Wage Code prohibits discrimination on ground of gender with respect to wages by employers or for purpose of recruitment, with respect to same or work of similar nature of work. The Wage Code ensures non-discrimination against all genders, while under ERA the genders were specified and limited to male and female human beings.
6. Payment of Bonus:There is no significant modification from PBA and the provisions relating to the computation of bonus are also consistent with the terms of PBA. Earlier, the applicability is limited to employees drawing wages not exceeding INR 21,000 per month. Now, under the Wage Code, the appropriate government is empowered to fix the wage threshold for determining the applicability. The Wage Code lists out the disqualifications for receiving bonus in line with PBA like fraud, riotous or violent behavior, or theft. However, the only additional disqualification is dismissal from service due to conviction for sexual harassment.
7. Inspector cum Facilitator:The erstwhile enactments had the concept of inspectors to carry out inspections and examinations to ensure compliance of the enactments. Now, under the Wage Code, the inspector regime is replaced with Inspector-cum-Facilitator who shall be a facilitator towards compliance and not just an inspecting authority. The Inspector-cum-Facilitator is required to provide the employer an opportunity to rectify the non-compliance within a specified time before initiating any prosecution proceedings. The appropriate government may lay down an inspection scheme which may also provide for generation of a web-based inspection and calling of information relating to the inspection.
8. Time-bound resolution of claims:The Wage Code prescribed a limitation period of three years for filing of claims by an employee as against the timelines prescribed under the existing enactments. The dispute of fixation of bonus or eligibility for payment of bonus be deemed to be considered as an ‘industrial disputes’. An employee or any registered trade union registered of which the employee is a member; or the Inspector-cum-Facilitator can file an application for claims under the Wage Code before the notified authority. The authority shall decide the claim within a period of three months. Appeals are to be filed within a period of ninety days, which the appellate authority will endeavour to dispose of them in three months. Claims are to be recovered as arrears of land revenue and remit the same to the authority for payment to the concerned employee.
9. Offences and Penalties:Unlike the provisions of earlier enactments, the penal consequences under the Wage Code are not stringent and only entail imprisonment for the second and subsequent offences. However, the quantum of fines for contraventions under the Wage Code have been significantly increased. Further, the offences punishable under the Wage Code, not being the offences punishable with imprisonment only, be compounded by a gazetted officer, as appointed by the appropriate government.