The Code of Wages

The Code on Wages, 2019 (“Wages Code”) amalgamates 4 central labour laws – the Payment of Wages Act, 1936, the Payment of Bonus Act, 1965, the Equal Remuneration Act, 1976 and the Minimum Wages Act, 1948. A brief synopsis of the main matters included under the Wages Code is provided below:

• Applicability - The provisions related to wages will apply to all employees in both organised as well as unorganised sectors, irrespective of wage threshold.

The Central Government will continue to fix wages for establishments of railways, mines, oil fields, major ports, air transport service, telecoms, banking and insurance and PSUs, including establishments of contractors. For all other establishments, the State governments will fix wages. The appropriate government will determine the factors by which the minimum wages shall be fixed for different categories of employees, such as skill of workers and difficulty of work.

• National Floor Wage - The Central Government will fix the floor wages. State Governments will then have to fix the minimum wage based on this floor wage.
• Definition of "Employee" – Employee includes managerial and supervisory employees. There is no wage threshold for the definition and all compliances under the Wages Code will need to be followed for all employees.
• Definition of "Wages" – Wages includes Basic pay, Dearness allowance, Retaining allowance. Wages do not include overtime, remuneration in respect of holidays or leave, bonus which does not form part of the terms of employment or sums payable on termination under any scheme, law, or contract.
• Special Computation Rules – Allowances in excess of 50% of the sum of Basic pay, Dearness Allowance, and Retaining Allowance shall be deemed to be part of wages.
• Overtime – Overtime is fixed at twice the rate of normal wages. Working hours and day of rest will be notified by the State Government.
• Wage deduction - An employee’s wages may be deducted on specified grounds including: (i) fines (ii) absence from duty (iii) accommodation given by the employer or (iv) recovery of advances given to the employee, among others. The deductions cannot exceed 50% of the employee’s total wage.
• Pay parity and no gender discrimination– Equal wages will be paid to all genders and not just men and women. The Wages Code also prohibits gender discrimination in recruitment related matters for the same work or work of similar nature. Work of similar nature is defined as work for which the skill, effort, experience, and responsibility required are the same.
• Bonus – The threshold for payment of bonus will need to be notified by the government. An employee will be disqualified from receiving bonus if convicted for sexual harassment. All employees whose wages do not exceed a specific monthly amount, notified by the Central or State government, and who have put in at least 30 days work in an accounting year will be entitled to an annual minimum bonus of 8.33% of his wages or Rs 100, whichever is higher, whether or not the employer has an allocable surplus during the previous accounting year.

Where the minimum wages exceeds the specified monthly amount notified by the appropriate government, the bonus payable will be calculated as if the wage were such amount or the minimum wage, whichever is higher.

Where the allocable surplus exceeds the minimum bonus payable, the employer, shall, in lieu of such minimum bonus, be bound to pay every employee in respect of that accounting year, bonus in proportion to the wages earned during the accounting year, subject to a maximum of 20% of such wages.

• Wage period - The wage period has been made flexible and can be daily, weekly, fortnightly or monthly.
• Payment mode - Electronic mode for salary payments has been introduced, such as direct credit in the bank account of the employee. However, the government may specify the establishments where wages shall be paid only through such electronic transfer.
• Full and final settlements – Payment must be made within 2 days of termination, including resignation of a worker.
• Registers and Records - Only 2 registers and display required notices and unified annual return to be filed on the portal
• Inspector-cum-Facilitator - Officials are tasked with advising employers and workers on compliances- facilitative approach. Inspections will be conducted on the basis of a scheme decided by the Central or State Government. The scheme may provide for a web-based inspection and calling of information.
• Limitation period, Adjudication - The limitation period for filing of claims by an employee has been increased to 3 years (from the existing time periods under different laws, such as 6 months or 1 year). Claims need to be disposed of by the regulator within 3 months.
• Penalties - Higher monetary penalties have been prescribed (ranging from INR 10,000 to INR 50,000 and up to INR 1,00,000 in case of repeat offences) and imprisonment is provided only for repeat offences. Compounding of offences is available for the first-time offenders.