The Government of India is set to implement a set of four labor codes aimed at streamlining and simplifying the labor regulations in the country. This article explores one of the codes, the Code on Wages, and its underlying provisions.
What is the Code on Wages, 2019?
In 2015, the Government of India began planning to combine India's 44 labor laws into four codes. The intention was to make India's labor laws easier to understand and facilitate ease of doing business. To streamline and rationalize these laws, the Central Government has combined them under four Codes. Four Labor Codes now exist as a codification of the labor Laws. The four codes have been categorized as:
- The Code on Wages, 2019
- The Industrial Relations Code, 2020
- The Occupational Safety, Health and Working Conditions Code, 2020
- The Code on Social Security, 2020.
The Rajya Sabha passed the wages bill on Aug. 2, 2019. President Ram Nath Kovind signed the bill into law on Aug. 8, 2019. The Code on Wages seeks to provide a more comprehensive and unified framework for regulating wages and bonuses in India. Collectively, these laws represent a significant overhaul of India's labor laws. The revamp was done with the idea of providing greater protection and security to workers, while also promoting the growth and development of the country's economy.
Which Laws Will Be Subsumed Under the Code on Wages, 2019?
The Code on Wages is a central legislation in India that consolidates the laws relating to wages and bonuses. The code will bring together the following pre-existing Acts:
- Payment of Wages Act of 1936
- The Minimum Wages Act of 1948
- The Payment of Bonus Act of 1965
- The Equal Remuneration Act of 1976
What Is the Applicability of the Code on Wages, 2019?
The Code on Wages covers both the organized and unorganized sectors and applies to all establishments employing more than 10 workers. It applies to both public and private sector establishments and covers all workers, including regular, casual, temporary, contractual, and sub-contractual.
The Code applies to all industries, including agriculture, manufacturing, construction, and service sectors. It covers all types of workers, including manual workers, clerical workers, and supervisory workers. Further, it applies to the whole of India, except the state of Jammu and Kashmir, which has its own separate laws on wages. The Code on Wages also applies to Indian citizens working in foreign countries, if the employer is an Indian company or if the work is financed by the Indian government.
When Will the Code on Wages Come Into Effect?
The Central Government will announce the date that the Code will go into effect and be operational in the Official Gazette. A single date may be set to make the entire Code operative, or various dates may be earmarked for implementing multiple provisions.
What Are the Key Provisions of the Code on Wages, 2019?
The Code on Wages, 2019, is a comprehensive set of laws that covers a wide range of provisions related to wages and benefits for workers in India. Some of the key provisions covered under the Code on Wages include:
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Minimum wage
The Central Government will set a floor wage for different geographical areas. Before setting the floor wage, the central government may ask the Central Advisory Board for advice and talk to the governments of the states.
The Code on Wages establishes a minimum wage that must be paid to different categories of workers, regardless of their skill level or the type of work they do. The minimum wage is reviewed and updated periodically to ensure that it remains fair and reflects the cost of living in India.
The state governments must make sure that the minimum wage is not set lower than the floor wage set by the Central Government. If the central or state governments have already set minimum wages that are higher than the floor wage, they cannot lower those wages.
2. Overtime payment
- The maximum number of overtime hours has been increased from 50 hours to 125 hours in a quarter across all industries.
- Extra work for durations between 15 and 30 minutes will be counted as overtime for 30 minutes. The current rule does not consider extra work of fewer than 30 minutes as overtime.
- Workers who work more than the normal number of hours per day or week are entitled to receive overtime pay at a rate that is twice their regular wage.
- Employers need to seek employees’ consent for overtime.
3. Payment of wages
The Code on Wages covers provisions related to the payment of wages, including the frequency of wage payments and the methods that can be used to pay wages. The payment needs to be made according to the period of payment in the following manner:
Daily wages: At the end of the shift.
Weekly wages: On the last working day of the week.
Fortnightly basis: On the second day after the end of the fortnight.
Monthly basis: Before the end of the seventh day of the succeeding month.
4. Full and final settlement
In case of dismissal, including resignation, the settlement of wages must be done within 2 working days from the date of relieving the worker. The settlement of wages can include an unpaid monthly wage or other payment towards, say, unavailed leave or impending bonus, if any.
5. Components of wages
The employee's basic salary must be at least 50% of their gross salary. Wages will constitute a) basic pay, b) dearness allowance c) retaining allowance. Other components such as bonuses, overtime, house rent allowance (HRA), gratuity, retrenchment allowance, and Employers’ Contribution to the provident fund (PF) won’t be included in wages. Further, at least 50% of the total remuneration must be considered 'wages' for calculating social security contributions.
6. Deductions from wages
The Code on Wages sets out the circumstances under which deductions can be made from an employee's wages and the maximum amount that can be deducted. Deductions can be made in cases such as fines, being absent from work, accommodation provided by the employer, or retrieval of advances that were given to the employee. These deductions shouldn't take more than half of the employee's pay.
7. Payment of bonus
According to the Code on Wages, in establishments employing at least 20 employees on any day in that accounting year, an employer will be required to pay a bonus to an employee who has worked in the establishment for at least 30 working days in the accounting year. The bonus is calculated as a percentage of the wages earned by the worker during the year. The maximum bonus that can be paid is equal to 8.33% of the wages earned by the worker during the year, or a maximum of INR 100, whichever is higher.
The Code on Wages also provides for the payment of ex-gratia to workers in certain circumstances. Ex-gratia is a payment made by an employer to a worker in addition to the wages and bonuses due to the worker. The ex-gratia is paid at the discretion of the employer and is not a legal obligation.
The Code on Wages also contains provisions for the payment of productivity-linked bonuses to workers in certain circumstances. The productivity-linked bonus is calculated as a percentage of the increase in production or productivity of the establishment over a certain period of time. The productivity-linked bonus is paid in addition to the wages and bonus due to the worker.
8. Records and inspections
Employers are required to maintain records related to the wages and benefits of their employees, and these records may be inspected by authorized officials to ensure compliance with the Code on Wages. The code provides for the appointment of labor inspectors to enforce the provisions of the code.
9. Equal pay
The code requires employers to pay equal wages to men and women for the same or similar work and prohibits discrimination on the basis of sex in the matter of wages.
10. Grievance redressal
The Code on Wages includes provisions for the resolution of grievances related to wages and other employment issues. The code also provides for the filing of complaints by workers or their representatives and for the resolution of disputes through conciliation and arbitration.
11. Penalties
The Code on Wages includes provisions for penalties and fines in cases of non-compliance with the laws, with a three-month prison sentence and a fine of up to one lakh rupees as the highest penalty.
The Way Forward for Organizations
The new labor codes in India represent a significant reform of the country's labor laws. Businesses in India are expected to benefit from the disentanglement of labor regulations and compliances. The four labor codes have been designed with the aim of consolidating and simplifying the existing labor laws and making them more relevant and effective in the contemporary economic and social context.
Once the codes are enacted, organizations will need to ensure they are in compliance with the new laws. It will be crucial that the implementation of the codes is closely monitored and that any issues or challenges that arise are addressed in a timely and effective manner. HR leaders in organizations will be expected to spearhead this implementation and while it may seem challenging, staying on top of these reforms doesn’t have to be a hassle for your organization.
To learn more about the labor law reforms in India, get insights into their impact on businesses, and explore how Darwinbox can help you implement them seamlessly in your organization, download this comprehensive guide.
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