The 2019 Code On Wages

5 key aspects you need to know

With an objective of increasing India’s Ease of Doing Business Ranking, bolstering investor confidence and labour compliances, the Government has attempted to consolidate and simplify four central labour legislations pertaining to wages and bonuses, i.e., the Payment of Wages Act, 1936 (POW Act), the Minimum Wages Act, 1948 (MW Act), the Payment of Bonus Act, 1965 (Bonus Act) and the Equal Remuneration Act, 1976 (ER Act). The Code on Wages, 2019 (Code) was passed by the Lok Sabha on July 30, 2019 and the Rajya Sabha on August 02, 2019. Further, the Code received the Presidential assent on August 8, 2019 and was published for general information in the Official Gazette.
 

We have analysed the Code and set out below five key aspects that every employer and legal and human resource professional must know:

While the Code has received the President’s assent and has already been published in the Official Gazette, it has not yet been brought into effect. The Code shall come into force on such date as the Central Government may, by notification in the Official Gazette appoint and different dates may be appointed for different provisions under the Code. 

The Code, once notified, will extend benefits currently envisaged under the POW Act and the MW to all types of employees and establishments irrespective of their nature of business or activities. The eligibility threshold and under the POW Act and the concept of scheduled employment under the MW Act will be obsolete once the Code is in effect.

Broadly, benefits under the Code would extend to all employees, including, persons performing skilled, semi-skilled, unskilled, manual, operational, supervisory, managerial, administrative, technical or clerical work. Therefore, the scope and applicability of benefits that were earlier available under POW Act and MW Act have been significantly expanded under the Code. 

Further, the Code defines both employee and worker. ‘Employee’ has been defined to mean any person, other than an apprentice engaged under the Apprentices Act, 1961, employed 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. The definition of ‘worker’ is similar to that of ‘workman’ under the Industrial Disputes Act, 1947 and has been defined to exclude, inter alia, persons employed (i) mainly in a managerial or administrative capacity; or (ii) supervisory capacity drawing wages exceeding INR 15,000 or an amount as may be notified by the Central Government from time to time. While most provisions in the Code apply to employees, provisions with respect to minimum wages are used in reference to ‘workers’. 

The Code includes a common definition of the term ‘wages’, bringing much-needed relief from the problem of multiplicity of definitions under the different existing legislations. This would certainly enable employers to take a consistent and uniform approach in interpreting the term. 

‘Wages’ has been defined under the Code to include salary, allowances and other components expressed or capable of being expressed in monetary terms and includes basic pay, dearness allowance, and retaining allowance. The Code provides a specific list of components that would not constitute ‘wages’, i.e., bonuses, value of house accommodation, social security contributions, conveyances allowances, house rent allowances, etc. 

To tackle the issue of sham wage structures, where wages are split into several components to, inter alia, limit social security contributions, the Code stipulates that in the event payments made to employees under the excluded components exceed 50% of the total remuneration (or such other percentage notified by the Government), the excess amount shall be deemed to be part of ‘wages’.

In this context, it is also important to note the concept of ‘floor wages’, which is possibly the most critical reform introduced as part of the Code. As per the Code, the ‘floor wage’ shall be notified by the Central Government to serve as a baseline for State Governments to prescribe minimum wages. The ‘floor wage’ is to be prescribed based on the minimum living standards and  the geographical area of the workers. If the existing minimum wages fixed by the Central or State Governments are higher than the ‘floor wage’, the minimum wages cannot be reduced. The Code also provides for review/revision of minimum wages at intervals not exceeding five years. 

Yes! The Code expressly prohibits any discrimination on the basis of gender in matters relating to wages, in respect of the same work or work of similar nature done by an employee. The Code further prohibits an employer from making any discrimination on the ground of sex while recruiting any employee for the same work or work of similar nature and in the conditions of employment. While the current ER Act limits its scope to the binary genders of male and female, the Code’s approach to preventing wage related discrimination is gender agnostic. 

The Code provides for a single authority to inspect the compliance status of establishments under the Code, i.e., the Inspector–cum–Facilitator, who is also required to advise employers and employees on better compliance. The Code provides for the inspection to be carried out on the basis of an inspection scheme, as laid down by the appropriate Government, which may also provide for generation of a web-based inspection mechanism. The Code envisages a time-bound adjudication mechanism requiring claims to be filed before the relevant authority within a period of three years from the date on which the claim arises. 

In a move to encourage compliance, the Code requires the Inspector-cum-Facilitator to, before initiation of certain prosecution proceedings, give an opportunity to the employer to comply with the provisions of this Code within a stipulated timeline. However, no such opportunity shall be accorded to an employer, if the violation of the same nature is repeated within a period of five years from the date on which such first violation was committed. Further, such opportunity to cure is not available with respect to offences involving non–payment of the amounts due to an employee as per the provisions of the Code. 

Another key aspect of the Code is that, in addition to the Inspector-cum-Facilitator, it allows concerned employees, registered Trade Unions of which employees are members to make applications for claims to the designated authorities. A similar right has however not been vested with employers or unions of employers. 

In terms of penalties, broadly speaking, the Code contemplates 3 kinds of contraventions i.e., (a) payment of an amount that is less than the amount due to the employee under the Code; (b) non-maintenance or improper maintenance of records under the Code; and (c) any other contravention of the Code. Where an employee has been paid an amount that is lesser than the amount due to the employee under the Code, the employer is punishable with a fine of INR 50,000 for the first contravention. The penalty for failure to maintain records is up to INR 10,000. For any other contravention, the employer is punishable with a fine of up to INR 20,000 for the first contravention. 
                
The Code also provides for compounding of offences, at any time before or after initiation of the prosecution. Offences under the Code can be compounded for a sum of 50% of the maximum fine prescribed. However, once compounded, compounding of any further offenses will not be permitted for a period of 5 years thereafter.   

Once the relevant provisions of the Code are notified, the provisions of the POW Act, MW Act, Bonus Act, and ER Act shall stand repealed.  The Code clarifies that any action taken under the repealed legislations, including any notification, nomination, appointment, order or direction made thereunder shall be deemed to have been done or taken under the corresponding provisions of this Code and shall be in force to the extent they are not contrary to the provisions of this Code. 

While the Code is fundamentally an exercise in consolidation of extant legislations, it does provide an opportunity to ease the compliance burden on employers. Particularly, the provisions on compounding and requiring Inspectors to also provide advice and guidance to employers, have great potential in ensuring effective implementation and enforcement of the statute. The Code also eliminates the issue of multiplicity of definitions and authorities. Whether or not the Code actually eases compliances would only be known once the rules under the Code are framed, notified, and implemented.

	Nohid Nooreyezdan is Senior Partner at AZB & Partners. Connect Nohid Nooreyezdan Visit www.azbpartners.com
	Veena Gopalakrishnan is Associate at AZB & Partners. Connect Veena Gopalakrishnan Visit www.azbpartners.com
	Akanksha Maria Paul is Associate at AZB & Partners.  Connect Akanksha Maria Paul Visit www.azbpartners.com