IMPLICATIONS OF CODE ON WAGES

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Apart from causing a national health crisis, the COVID-19 pandemic had a significant impact on the Indian workforce, resulting in a major exodus of migrant laborers. These laborers were left to fend for themselves as they set off on foot to return to their hometowns.

As a result of the COVID-19-induced shutdown, which destroyed various industries, millions of people lost their employment and were forced into poverty.

According to a Brookings Institution paper issued in October 2020 by Homi Kharas titled “The Impact of COVID-19 on Global Extreme Poverty,” India will have the biggest number of people slipping into poverty. The pandemic, according to the report, will push 85 million Indians into poverty.

As a result, the issue over a minimum wage for an acceptable quality of life has resurfaced.

The 2019 Wage Code outlines why the earlier proposals of the Labour Committees on national floor wages were rejected by the government, and how the new code will ultimately effect the fate of millions of Indian employees.

 

INTRODUCTION

The Code on Wages, 2019 (‘Code’) was introduced in the parliament to amalgamate, simplify and rationalize the four central labor enactments relating to wages, namely:

  1. the Payment of Wages Act, 1936 (‘P.W Act’)
  2. the Minimum Wages Act, 1948 (‘M.W Act’)
  3. the Payment of Bonus Act, 1965 (‘P.B Act’)
  4. the Equal Remuneration Act, 1976 (‘E.R Act’)

It is an endeavour to change outdated labour rules into more accountable and transparent laws that are more in line with current needs. The Second National Commission on Labour (NCL-II) recommended that all wage regulations be integrated into a single statute, which the Code mainly followed.

As a result, a change in the salary structure and working hours for a substantial number of employees is expected. According to the Wage Code, an employee’s basic compensation must equal 50% of his or her total wage or cost-to-company (CTC).

 

THE NEED FOR THE CODE ON WAGES

What was the need to implement or bring the new act of Code on Wages? Why did the other four acts subsume? The following questions are answered below as to the need for Code on Wages:

  1. Obsolete Laws: 

The existing labor laws are very ancient, some were implemented even before the independence. 17 Labour Laws were as old as 50 years like the Payment of Wages Act was implemented in 1936. Hence, it was necessary to bring the new code on wages.

 

  1. 40% worker’s coverage:

The previous laws covered only 40% of the workers because they specific organization, specific schedules, and only specific range of salaries of workers. But the new act will cover every worker, benefitting 50 crores workers approx.

  1. Same thing, different definitions:

The prior statute contained 12 separate definitions of the term wages, which made referring to it in court a pain. As a result, there is just one definition for the news act, which covers every facet of it in great depth.

  1. There are 2000 different sorts of minimum wages:

Both the federal and state governments have about 2000 different types of minimum salaries. It was decreased to 300 minimum salaries in the new act, making it easier to compile.

 

BACKGROUND AND LEGISLATIVE HISTORY

In 2015, the Narendra Modi administration proposed consolidating India’s 44 labor laws into four codes to simplify labor rules and improve ease of doing business. “This will ensure that the process of registration and filing of returns is harmonized and expedited,” Finance Minister Nirmala Sitharaman said in her 2019 Union Budget speech.

It is envisaged that there would be less disagreement as numerous labor-related concepts are harmonized.” The Code of Wages is the first of the suggested codes. The Occupational Safety, Health, and Working Conditions Code, the Industrial Relations Code, and the Social Security Code were all passed in 2020, but their effective dates have yet to be published in the official gazette.

On August 10, 2017, Santosh Gangwar, Minister of State for Labour and Employment (Independent Charge), presented the Code on Wages Bill in the Lok Sabha. The bill was referred to a Parliamentary Standing Committee on August 21, 2017. The Committee submitted its report on December 18, 2018. The committee made 24 recommendations, with 17 of them making it into the bill.

The bill lapsed after the 16th Lok Sabha was dissolved ahead of the 2019 general elections. The Code on Wages Bill, 2019, was reintroduced in Parliament on July 23, 2019.

 

Gangwar, who proposed the bill for debate, stated that the government has held discussions with labour unions, corporations, and state governments, as well as three-way consultations on March 10 and April 13, 2015. He also noted that a draft of the bill was posted on the Ministry of Labour and Employment’s website and that public input was taken into consideration. Existing labor rules only governed the payment of wages for around 40% of the workforce, according to Gangwar, and the Code on Wages would encompass the whole workforce, regardless of sector or wage limitation. Workers in the unorganized sector of the economy would benefit from regulations requiring timely payment of salaries, he said. On July 30, 2019, the Lok Sabha passed the bill.

 

On August 2, 2019, the Rajya Sabha passed the bill. On August 8, President Ram Nath Kovind signed the bill, and it was published in The Gazette of India on the same day.

 

On 7 July 2020, the Union Ministry of Labour published proposed rules under section 67 of the Act in the Gazette. The draft rules were accessible for public comment for 45 days and are set to take effect soon. On December 18, 2020, several parts of the Act went into effect. The bill obtained presidential assent on August 8, 2019, but the date for the remaining clauses to take effect has yet to be announced in the official gazette.

 

 

PROVISIONS MADE UNDER THE CODE OF WAGES, 2019

Basic salary will be 50% or more of total salary, changing the salary structure of an employee, and gratuity and provident fund will be increased, among other measures imposed under the code law. There are also rules for prohibiting continuous work for more than five hours, as a 30-minute break would be required after every five hours of work, and work lasting more than 15 minutes would be considered overtime. The Wage Code is broken into nine chapters with 69 sections.

 

  1. The distinction between ‘Employee’ and ‘Worker’:

Under the Wage Code, the terms “worker” and “employee” are defined differently. The term “employee” encompasses a broader definition than “worker.” Any individual engaged in any business to do any physical, unskilled, skilled, technical, operational, clerical, or supervisory work for hire or reward, whether the terms of employment are express or implied, is referred to as a “worker.” This includes working journalists and sales promotion personnel. However, those employed primarily in a managerial or administrative capacity, or in a supervisory role drawing a monthly remuneration above INR 15,000 or such sum as the Central Government may notify from time to time, are excluded.”

Any individual engaged on wages by an establishment to conduct any skilled, semi-skilled, or unskilled physical, operational, supervisory, management, administrative, technical, or clerical labour for hire or reward, whether the terms of employment are express or implied, is a “employee” under the Wage Code.

  1. Uniform Applicability:

The Payment of Wages Act applies to employees whose wages are equal to or less than a statutory limit, while the Minimum Wages Act only applies to scheduled jobs. The Wage Code now envisions the provisions of timely payment of wages and minimum wages being applied uniformly to all employees, regardless of wage ceilings or sectors.

  1. Uniform definition of wages

The concept of ‘wages’ differed slightly between the PWA, MWA, and PBA, resulting in numerous lawsuits. As a result, the Wage Code aims to offer a single, universal definition of “wages” for wage computation and payment.

According to the Wage Code, the term “wages” refers to all monetary payment, whether in the form of salaries, allowances, or otherwise, and includes base pay, dearness allowance, and any holding allowance.

“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.”

The Wage Code states that if the amount of exclusions (excluding gratuity, retrenchment, ex gratia, and retiral benefits) exceeds half or such other specified percentage (“Exclusion Limit”) of the compensation provided to the employee, then the amount over the Exclusion Limit would be recognized as wages.

 

  1. Minimum Wages

Only scheduled employments were subject to the former MWA’s minimum wage requirements. The Wage Code now gives the competent government the authority to set wages in all industries. The concept of a “floor wage” has been established for the first time. The Pay Code gives the Central Government the authority to set a floor wage based on the minimum living conditions of workers in different geographical locations. State governments may not set a minimum pay rate that is lower than the federal government’s floor wage.

Furthermore, if the minimum wages in effect previous to the floor wage’s establishment are higher than the floor wage, the appropriate government is precluded from lowering those rates. The Wage Code mandates that the minimum wages be reviewed and updated every five years by the respective administrations.

 

  1. Equal Remuneration:

The Wage Code, like the ERA, prevents businesses from discriminating based on gender when it comes to wages or recruiting for the same or similar types of employment. The Wage Code prohibits discrimination against people of all genders, whereas the ERA defined genders as male and female human beings.

 

  1. Payment of Bonus: 

There are no notable differences from PBA, and the clauses relating to bonus computation are likewise in line with PBA’s rules. Previously, the scheme was only applicable to employees earning less than INR 21,000 per month. The Wage Code now gives the competent government the authority to set the wage threshold for determining applicability. The Wage Code specifies the conditions that exclude a person from receiving a bonus under the PBA, such as fraud, disorderly or violent behavior, or theft. The only further disqualification is discharged from service due to a sexual harassment conviction.

  1. Inspector cum Facilitator:

Inspectors were used in previous enactments to conduct inspections and examinations to guarantee that the enactments were being followed. The inspector regime has been replaced by an Inspector-cum-Facilitator, who will act as a facilitator rather than an inspecting authority under the Wage Code. Before beginning any prosecution procedures, the Inspector-cum-Facilitator must give the employer a reasonable opportunity to correct the non-compliance. The appropriate government may establish an inspection scheme that includes the creation of a web-based inspection and the retrieval of inspection-related data.

  1. Time-bound resolution of claims

In contrast to the timetables provided by existing enactments, the Wage Code set a three-year restriction period for filing claims by employees. The issue over bonus fixation or eligibility for bonus payment should be regarded as an ‘industrial conflict.’

Before the notified authority, an employee, any registered trade union of whom the employee is a member or the Inspector-cum-Facilitator can make an application for claims under the Wage Code. The authorities must decide on the allegation within three months. Appeals must be filed within ninety days, and the appellate authority will make every effort to resolve them within that time frame. Claims should be collected as land revenue arrears and remitted to the authorities for payment to the affected employee.

 

  1. Offences and Penalties

Unlike previous enactments, the Wage Code’s penalties are not severe, with only imprisonment for the second and subsequent offenses. The amount of fines for violations of the Wage Code, on the other hand, has been dramatically increased. Furthermore, the offenses penalized under the Wage Code must be compounded by a gazette officer nominated by the competent government, unless they are solely punishable by imprisonment.

 

MERITS OF THE CODE ON WAGES ACT, 2019 

  1. Currently, many states have numerous minimum wage levels. The system for determining minimum wages has been streamlined and rationalized thanks to the Code on Wages, which eliminates the nature of employment as one of the factors for determining minimum wage.
  2. Many modifications to inspection regimes, such as web-based randomized automated inspection systems, the composition of fines, and so on, will help to ensure that labor laws are enforced with transparency and accountability.
  3. The act would guarantee every worker the “Right to Subsistence” and aspires to expand the legislative protection of minimum wage from around 40% to 100% of the workforce.
  4. This will be a watershed moment for the unorganized sector, as it will provide a decent existence for 50 million people who will be paid a minimum wage, raising their purchasing power and boosting economic growth and quality of life.

 

 

DEMERITS OF THE CODE ON WAGES ACT, 2019

  1. The plethora of minimum wage rates to be determined based on talent, arduousness and hazardousness of labour, geographical locations, and other government-imposed standards is perplexing.
  2. A single statutory minimum wage should apply to all workers in all sectors, with regional variances addressed by increasing the cost-of-living allowance. This will make it more realistic.
  3. Bill uses distinct definitions for the terms “worker” and “employee.”
  4. To eliminate wage discrimination between employers and workers, a clear and comprehensive definition of employee/worker is essential.

 

IMPACT OF THE BILL ACROSS INDUSTRIES

When it comes to the impact, it appears that the passed law has simply served to benefit the government. Experts believe that while it will help employees live a more secure life in the long term by expanding their retirement corpus, it is currently only beneficial to the government because the PF amount that we are obliged to invest in (now the amount shall be increased with the implementation of new wage Code) would be used by the government during such an economic downturn.

The private sector is anticipated to be the most affected by the new Wages Code. Most private organizations now seek to keep the non-allowance share of overall remuneration below 50% and increase the allowance component. With the new pay regulations in place, however, this will alter. It is quite likely that these new laws will have an impact on private-sector salaries once they are implemented.

“Now, looking at the medical and pharma sector, it has hardly impacted because actually pharma has had the time of life during Covid. In our sector, I don’t see any challenge, though the government has unified a lot, of course, the labor laws in one kind of thing like GST, where all taxes have been specified under one umbrella. Similarly, the wages to has streamlined the wages for employees across the organized and unorganized sector,” states Anil Mohanty, Head –People and Culture, Medikabazaar.

Experts in the IT sector, on the other hand, claim that it is too early to speculate on the impact it will have on their industry because companies that have already strategically drafted their payouts will be unaffected by the law, while those who fall into the category of streamlining the process will be the ones who suffer.

 

ANALYSIS

The Code tries to harmonize the meaning of ‘wages,’ which is a step in the right direction. However, the Code’s establishment of separate definitions for ‘worker’ and ’employee,’ as well as their usage, creates ambiguity. Furthermore, the Code aims to transform the public’s impression of the government’s labor regulation by introducing inspectors-cum-facilitators instead of merely inspectors.

In terms of offenses and sanctions, the Code has ushered in a sea change. The penal provisions show significant rationality and proportionality, intending to assist rather than hindering economic action. The Code encourages the use of technology in areas such as wage payment and inspection procedures, intending to achieve digitalization.

 

CONCLUSION

The Code is a well-intentioned piece of legislation that tries to strike a balance between the employer and employee’s interests. Even though the Code maintains significant elements of the abolished laws, it makes a good effort to replace their outmoded elements. The Code’s provisions instill confidence in the business community, and once the Code’s subordinate legislations and rules are in place, even more clarity will be possible. It will also be fascinating to see how the other codes dealing with social security, industrial safety and welfare, and labor relations interact with the Code of Wages once they are passed.

Article By – Bhakti Khara

REFERENCES

  1.   https://www.researchgate.net/publication/347313227_CODE_ON_WAGES_2019_A_PARADIGM_SHIFT_IN_ENFORCEMENT_OF_WAGE_RELATED_LABOUR_LAWS
  2.   https://www2.deloitte.com/content/dam/Deloitte/in/Documents/tax/in-tax-presentation-code-on-wages-7-october-2020-noexp.pdf
  3.  https://www.moneycontrol.com/news/business/what-is-code-on-wages-how-will-it-impact-indian-workforce-and-other-questions-answered-6602821.html
  4.   https://www.mondaq.com/india/employee-benefits-compensation/856716/code-on-wages-2019-key-features-and-highlights
  5.   https://www.financialexpress.com/opinion/decoding-the-code-on-wages-now-central-and-state-govts-must-decide-the-national-floor-wage-and-minimum-rates-of-wages/2169673/
  6.   https://www.hindustantimes.com/business/explained-how-new-wage-code-will-impact-take-home-salary-retirement-benefits-101616926951000.html#:~:text=affect%20your%20salary%3F-,According%20to%20the%20new%20wage%20code%2C%20employers%20will%20have%20to,existing%20allowances%20of%20the%20employees

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