The Code on Wages, 2019

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The Code on Wages, 2019

Introduction

The Ministry of Labour and Employment (Ministry) is on its way to bring about major labor law reforms. As part of its reforms, it has come up with the Code on Wages, 2019 (Wage Code) to amend, simplify and consolidate the law relating to wages. On 1 November 2019, the Ministry also circulated preliminary draft rules i.e. the Code on Wages (Central) Rules, 2019 on the Wage Code to obtain stakeholders’ views.

The Wage Code seeks to replace the Payment of Wages Act, 1936 (PW Act), Minimum Wages Act, 1948 (MW Act), Payment of Bonus Act, 1965 (Bonus Act) and Equal Remuneration Act, 1976 (ER Act).

The Wage Code received the Presidential assent on 8 August 2019 and is yet to come into force.

This update discusses the key features of the Wage Code.

Key features

Applicability: the Wage Code will be applicable to all employees belonging to the organized and the unorganized sector, irrespective of wage ceiling and their nature of employment. Currently, the MW Act is applicable to employees in a scheduled employment only and the PW Act is applicable to employees drawing a salary of less than INR24,000 per month.

Prohibition of gender discrimination: the Wage Code, like the ER Act, prohibits discrimination on ground of gender in matters relating to wages by the same employer (in respect of the same or similar work done by an employee). Further, the Wage Code expressly prohibits discrimination pertaining to recruitment and conditions of employment.

Minimum wages: like the MW Act, the Wage Code mandates no employer to pay wages less than the minimum wage rate notified by the appropriate government. The appropriate government is the central government in relation to establishments carried by or under the authority of the central government, and the state government in relation to private establishments.

Additionally, the central government has been given the power to fix the floor wage. The minimum wage rate set by the appropriate government cannot be less than the floor wage. If the minimum wage rate set by the appropriate government previously is more than the floor wage, then the appropriate government cannot reduce the minimum wage rate set earlier. The floor wage will be revised every five years.

Payment of wages: the Wage Code specifies that wages can be paid in (i) current coins, or (ii) currency notes, or (iii) by cheque, or (iv) by crediting the wages in the bank account of the employee, or (v) by electronic mode. Similar to the PW Act, the Wage Code specifies that if an employee is removed or dismissed from a service or retrenched or becomes unemployed due to closure of an establishment, the wages have to be paid within two working days from the date of termination of services. The Wage Code has also introduced the concept of payment of wages within two days in case an employee submits resignation.

Payment of bonus: the Wage Code, similar to the Bonus Act, is applicable to every establishment in which 20 or more persons are employed or were employed on any day during an accounting year. Conviction for sexual harassment has been introduced as an additional ground for disqualification from entitlement of bonus. The time limit for the payment of bonus still stands at eight months from the close of the accounting year.

Records, returns and notices: the Wage Code mandates every employer to maintain a register containing details of the persons employed, muster rolls, wages and such other details, as may be prescribed. This will simplify the requirement for maintenance of registers under the MW Act, PW Act, Bonus Act and ER Act.

Offence and penalties: under the Wage Code, the penalty amounts have been significantly increased. The penalties are for three kinds of offences, i.e., (i) where the employer pays less than the amount due to the employee, (ii) where the employer does not maintain proper records, and (iii) where the employer violates any other provision(s) of the Wage Code.

The maximum penalty prescribed for an offence is INR1,00,000, or three months of imprisonment, or both. Increase in the penalty amount ensures greater compliance with the provisions of the Wage Code.

Conclusion

The Wage Code is a welcome move towards rationalizing and consolidating the various laws in India on matters relating to employees? wages. Once it is notified, it will provide minimum wage assurance to the workforce belonging to the informal sector as well.

The Wage Code is one of the four labor codes being introduced to rationalize and simplify the existing labor laws. The other three codes, namely, Industrial Relations, Social Security; and Occupational Safety, Health and Working Conditions are still under discussion. Therefore, the true success of the Wage Code will depend on not just its effective implementation but on all the four labor codes.