Code on Wages - FAQs

Purpose & Commencement of the Code on Wages

What is the purpose of enacting Code on Wages?

Presently, we have the Minimum Wages Act, Payment of Wages Act, Payment of Bonus Act
and Equal Remuneration Act; these 4 Acts along with their Rules, respectively govern the laws
related to Wages, Bonus, the related and connected matters to it.

The Code reorganizes these 4 laws and simplifies the compliance process.

When will the Code on Wages become effective?

The Code has been published through Official Gazette on 08 August 2019 and not yet brought
into force.
The Central Government will appoint a specific date or different dates for different provisions
of the Code from which the Code will become effective.

Have all the States and UTs published their Draft Rules for Code on Wages?

Presently, the Central Government has proposed the Draft Code on Wages (Central) Rules,
2020 and the State of Bihar, Gujarat, Jammu & Kashmir, Karnataka, Madhya Pradesh, Odisha,
Punjab, Uttar Pradesh, and Uttarakhand have proposed their Draft Rules.


All the other States / UTs have not yet published their proposed Draft Rules.

Where can we find the state-wise drafts & is there any deadline or timeline to implement this?

You can visit the websites of the Ministry of Labour & Employment and the e-gazette to
read/download the published notifications, drafts, Code, etc.
The e-gazette provides the links for respective State and UT gazette websites in which the
corresponding drafts are available.
You can also visit our Stacowiki pages to know the recent updates.

Definitions

Do the terms 'employee' and 'worker' mean the same under the Code?

No. The Code clearly defines the employee and worker separately.

As per Section 2 (k) Employee means:

  • any person employed in an establishment on wages to do any skilled, semi-skilled or
    unskilled, manual, operational, supervisor, managerial, administrative, technical, or clerical
    work for hire or reward;
  • and also includes the person who is declared to be an employee by the appropriate
    Government.
  • But does not include
    • members of the Armed Forces of the Union; and
    • apprentice engaged in an establishment as per the provisions of the Apprentices Act.

As per Section 2 (z) Worker means:

  • any person employed in any industry to do any manual, unskilled, skilled, technical,
    operational, clerical, or supervisory work for hire or reward;
  • the working journalists;
  • sales promotion employees;
  • a person who has been dismissed, discharged, or retrenched, or otherwise terminated in
    connection with, or as a consequence of, that dispute, or whose dismissal, discharge or
    retrenchment has led to that dispute.
  • But does not include
    • who is subject to the Air Force Act, 1950, or the Army Act, 1950, or the Navy Act, 1957;
    • who is employed in the police service or as an officer or other employee of a prison; or
    • who is employed mainly in a managerial or administrative capacity; or
    • who is employed in a supervisory capacity drawing wage of exceeding Rs.15,000/- per month
    • or an amount as may be notified by the Central Government from time to time.

Has the definition of 'employer' expanded in the Code?

Yes, the Code has expanded the definition by including the contractor and legal representative
of the deceased employers into the ambit of the employer.

It defines an employer as a person who employs one or more employees in the establishment either –

  • Directly, or
  • Through any person, or
  • On his behalf, or
  • On behalf of any person,
  • and also includes
    • Occupier of the Factory
    • Manager of the Factory

And in other establishments

  • The person or the authority who has ultimate control over the affairs of such establishment
    and where such affairs are entrusted to a manager or managing director
  • Contractor
  • The legal representative of a deceased employer

Who is a contract labour as per the Code?

A Contract Labour is the

- worker who is hired by or through a contractor to perform certain work; and also includes
- inter-State migrant workers,
- part-time employee.

The worker may or may not have knowledge of the principal employer.
The person who is regularly employed by the contractor for any activity and such employment
if is governed by mutually accepted standards of the employment conditions including
engagement on permanent basis, gets periodical increment in the pay, social security coverage
and other statutory welfare benefits, are NOT contract labours.

What is the significance of 'wages' definition?

The definition of wages is different in the existing laws, and it is quite intricate for the
employers and employees to determine their respective rights under these laws. The Code
unifies and standardizes it to one common definition.

Is it mandatory to have 50% of CTC as Basic Pay? Can organisations still have PF contribution at RS. 1800/- per month?

The Code has defined the components that shall be considered as Wages, namely –
- Basic pay
- Dearness allowance
- Retainer allowance if any

And it also states what are NOT included as Wages, i.e.,
- any bonus payable under any law for the time being in force, which does not form part of
the remuneration payable under the terms of employment;
- the value of any house-accommodation, or of the supply of light, water, medical attendance,
or other amenity or of any service excluded from the computation of wages by a general or
special order of the appropriate Government;
- any contribution paid by the employer to any pension or provident fund, and the interest
which may have accrued thereon;
- any conveyance allowance or the value of any travelling concession;
- any sum paid to the employed person to defray special expenses entailed on him by the
nature of his employment;
- house rent allowance;
- remuneration payable under any award or settlement between the parties or order of a court
or Tribunal;
- any overtime allowance;
- any commission payable to the employee;
- any gratuity payable on the termination of employment;
- any retrenchment compensation or other retirement benefit payable to the employee or any
ex gratia payment made to him on the termination of employment:

It has not mandated 50% of CTC as basic pay. It states that the other remunerations that are
listed as exclusions from the term wages (except gratuity, retrenchment compensation,
retirement benefit, ex gratia) if exceeds one half / 50% of all the remuneration, then the amount
that exceeds 50% shall be added to the wages.

If the employer is providing the employee any remuneration in kind, which does not exceed
15% of the total wages payable, it shall be deemed to be a part of the wages.

For the purpose of payment of wages and equal remuneration to compute the wages the
following shall be taken into consideration from the above listed remunerations.
- any conveyance allowance or the value of any travelling concession,
- house rent allowance,
- remuneration payable under any award or settlement between the parties or order of a court or
Tribunal, and
- any overtime allowance.

Generally, some employers, to avoid the applicability of various employment laws, keep the
basic pay low with larger part of the remuneration covered with variable pay and allowances.
The Code attempts to ensure a judicious structuring of the salary packages balancing the
benefits of employees and compliances by the employer.

What is a Floor Wage?

Floor wage is fixed by the Central Government considering the minimum living standards of a
worker. Different floor wages can be fixed to different geographical areas. 

Wages, Bonus Payout

Can the State fix minimum wages less than the Floor Wage?

No. The minimum wages fixed by the States shall not be less than this floor wage. If the
minimum rates of wages fixed by a Government earlier is more than the floor wage, then it
shall continue with that higher rate.

Can the employer have different policies for recruitment and fixing remuneration based on the Gender?

No, the Code prohibits the employer from causing any gender discrimination in matters relating
to the wages for the same work or work of similar nature done by any employee.

The Code has done away with the male, female and neutralized it by the expression gender to
recognize and consider the transgenders and their rights as well.

Except where the women employment is restricted or prohibited by any law for the time being
in force (e.g., Maternity Benefit, Mines, etc.), the employer is mandated NOT to discriminate
on the grounds of GENDER while fixing the wages, recruitment process to provide
employment opportunity and in work conditions.

A contract is executed by employer and employee having term to waive the right to bonus. Is it valid?

No. Any agreement or contract between the employer and employee through which the
employee relinquishes the right to any amount, or bonus that is due under this Code, shall be
null and void.

What is the validity of the employment agreement/appointment letter stating the full and final settlement term more than the timeline of 2 days mandated in the Code?

The provisions of the Code will prevail over the inconsistent provisions of any other law for
the time being in force (except the laws that are specified under the saving clauses) or in
the terms of any award, agreement, settlement, or contract of service.

As per the Code, the employee if –
- Removed or dismissed from service, or
- Retrenched or has resigned from service, or became unemployed due to closure of the
establishment,
The wages payable shall be paid within 2 working days.

This is a mandatory provision and not directory or optional.

It is an attempt to ease the employee’s financial situation and to bring in structured practices
with certain employers who may have extended or unreasonable timelines to settle the dues.

The Code also has an enabling provision allowing the appropriate Government to provide
any other time limit for payment of wages where it considers reasonable having regard to
the circumstances under which the wages are to be paid.

Is it compulsory to pay an employee double wages for the work done on a public (fixed) holiday?

The appropriate Government may

- fix the number of work hours that shall constitute the normal working day (including one
or more specified intervals)
- provide for a day of rest in every period of 7 days which shall be allowed to all employees
or to any specified class of employees and for the payment of remuneration in respect of
such days of rest.
- Provide for payment for work on a day of rest at a rate not less than the overtime rate.

So, if the employee is asked to work on a rest day or a paid holiday, then as per the
respective State Rules, the payment of work on such rest day/paid holiday has to be a rate
not less than the overtime rate.

How will it affect the TDS if we change this in the mid of financial year?

There are no explicit provisions provided explaining the TDS in the Code.

For the sake of clarity, section 69 of the Code can be referred to. 

By virtue of section 69 (1), the Code will repeal the Payment of Wages Act, 1936, the Minimum
Wages Act, 1948, the Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976.

In spite of such repeal, anything done or any action taken under the enactments so repealed
including any notification, nomination, appointment, order, or direction made thereunder or any
amount of wages provided in any provision of such enactments for any purpose shall be deemed
to have been done or taken or provided for such purpose 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 till they are repealed under the corresponding provisions of this Code or by the
notification to that effect by the Central Government.

What is the Overtime policy in the new wage code?

The applicability of minimum wage rates has been expanded to the workforce of organized
as well as unorganized sectors.

So, where an employee whose minimum wage rate has been fixed by the hour/day or by
any other wage period (as may be prescribed), works on any day in excess of the number
of hours constituting a normal working day, the employer shall pay such employee for
every hours or for part of an hour so worked in excess, at the overtime rate which shall not
be less than twice the normal rate of wages.

Claims Settlement

Who is the Authority to decide on the Claims?

The appropriate Government will appoint one or more Authorities (not below the rank of a
Gazetted Officer) to hear and decide on the claims. 

Who can file for claims before the Authority?

The aggrieved employee, or the registered trade union in which such employee is a member,
or the Inspector-cum-Facilitator can file the application for the claims before the designated
Authority

Is there any limitation period within which the claims have to be filed before the Authority?

The Code extends the limitation period up to 3 years from the date on which claim arises. The
claim application can be filed before the appropriate Authority well within this 3 years timeline. 

On whom the does the burden of proof lies? Employer Or Employee?

The Code lays the onus of proof on the employer. When an employee files a claim application
before the Authority, the employer is accountable to prove its stand.

Records and Readiness

What are the records, registers and compliances prescribed under the Code?

The compliance is simplified, and the employer of the establishment have to maintain:

Registers
- For details of the persons employed
- For muster roll
- For wages, and other details

Notice
Every employer shall display a notice on the notice board at a prominent place of the
establishment containing:
Abstract of the Code.
Category-wise wage rates of employees.
Wage period.
Day or date and time of payment of wages.
Name and address of the Inspector-cum-Facilitator having jurisdiction.

Wage Slip
Every employer shall issue wage slips to the employees in such form and manner as may be
prescribed.

These provisions are not applicable to employers who have not more than 5 employees
employed for agriculture, or domestic purposes that are exclusively relating to the home or
family affairs of the employer and does not include any affair relating to any establishment,
industry, trade, business, manufacture, or occupation.

Is the employer obligated to maintain the salary components as per new wage code from now? Is that compulsory from now or only after the code implementation?

When the Code on Wages comes into effect, the employers have to ensure their existing
practices, policies, payables, and compliances are aligned with the provisions of the Code.

Till then, the employer is free to continue with its existing practices or revise them to align with the provisions of the Code. In whichever case, the employer has to ensure that the
existing practices and compliances are aligned with the laws for the time being in force.

How to handle these different state rules and wage code draft rules if the employer has employees in various locations?

The Code covers the fundamental and substantive aspects as to how the minimum wage
rates shall be fixed/revised, how the payment of wages should take place, how the bonus
shall be paid, balancing the equal remuneration without gender discrimination, the related
and incidental matters that are essentially required to achieve it.

The Central and the respective State Rules when coming into force, mandate the employers
for the required statutory compliances as per the revised processes defined in it and describe
the procedures to follow.

When it comes to the matter of handling different locations, the employer has to bear in
mind the applicable minimum wage rates. The appropriate Government may provide
further clarifications on the portions that are not covered, ambiguous or incomplete to
remove the difficulties in implementing the Code. 

What if the employer frame any rule which may supersede social security acts?

Any rules, policies that violates or contravenes the provisions of any applicable laws for the
time being in force shall be constituted as offence as prescribed in such laws and shall attract
liability as provided in those laws.

The provisions of Code will prevail not only over the inconsistent provisions of any other law
for the time being in force (except the laws that are specified under the saving clauses) but also
over the terms of any award, agreement, settlement, or contract of service.

What are the duties of the employer or step by step guide to implement this?

The employer is mandated to follow and comply with the applicable laws for the time being
in force; when the Code comes into force, the employer shall ensure that the practices,
policies and compliances are aligned to the provisions of the Code and Rules. Any
contravention to the provisions or non-compliance shall constitute an offense under the
Code and will attract applicable fine or imprisonment or both.

Hence, the employer has to diligently examine the current practices and compliance level
of the establishment, do the required restructuring to keep in pace with the compliance
under the Code.

Gratuity, PF, ESI, Retrenchment Rules

Are there any changes expected in the Gratuity law as per new wage code?

Gratuity Laws will be governed by the Code on Social Security, 2020.

The Code on Wages (also known as wages code) is the Code that will replace 4 Acts, i.e., the
Minimum Wages Act, the Payment of Wages Act, the Payment of Bonus Act, and the Equal
Remuneration Act.

The provisions of Gratuity will be covered under the Code on Social Security. Under this
Social Security Code, the provisions of Gratuity remains the same except for a few add-ons
viz.,:

- Gratuity is payable on the termination of the contract period under fixed-term
employment. The employer shall pay gratuity on a pro-rata basis and not on the basis
of continuous service of five years.
- The amount of gratuity payable to an employee shall not exceed such amount as may
be notified by the Central Government (20 lac threshold will be removed).
- The working journalist’s gratuity threshold period gets reduced from five to three years.

Since everything is confined into four codes, will there still be a bifurcation of PF, ESI, etc., or would everything be replaced and considered one?

The provisions of PF, ESI, and other social security and benefits related laws are consolidated
under the Code on Social Security, 2020. It is not replaced or integrated as a single deduction.
The statutory contributions continue, and the Code integrates the provisions of 9 laws to bring
the employees and workers within the ambit of a single Code expanding the applicability of
certain provisions, simplifying the compliance, etc.

The Code on Social Security restructures the provisions of 9 Acts and when comes into force
will repeal the following Acts, viz.,

- The Employee's Compensation Act, 1923;
- The Employees' State Insurance Act, 1948;
- The Employees' Provident Funds and Miscellaneous Provisions Act, 1952;
- The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959;
- The Maternity Benefit Act, 1961;
- The Payment of Gratuity Act, 1972;
- The Cine-Workers Welfare Fund Act, 1981;
- The Building and Other Construction Workers' Welfare Cess Act, 1996;
- The Unorganised Workers' Social Security Act, 2008

What is the retrenchment rule in the new wage code?

The Wages Code (Code on Wages) do not provide for the rules related to retrenchment.

The retrenchment rules are governed by the provisions of the Industrial Relations Code,
2020 which amalgamates the provisions of

- the Trade Unions Act, 1926;
- the Industrial Employment (Standing Orders) Act, 1946; and
- the Industrial Disputes Act, 1947.

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