Guide to the Code on Wages, 2019

The Code on Wages (Code) is enacted with the object to amend and consolidate laws relating to payment of wages, minimum wages, bonus, equal remuneration, and the connected matters.

The Code on Wages

A Code in legal essence is for the purpose of bringing the diversified laws together at one place.

Presently, in India, we have almost 44+ Acts that cover the labour and employment laws. These Acts further have their respective set of Rules defining the procedural aspects.

The Central Government, to simplify and rationalize these wide-spread laws, amalgamated those laws principally under 4 Codes, namely:

  • The Code on Wages, 2019 - that covers the laws relating to wages and bonus.
  • The Industrial Relations Code, 2020 - that covers the laws relating to Trade Unions, conditions of employment in industrial establishment or undertaking, investigation and settlement of industrial disputes.
  • The Code on Social Security, 2020 - that covers the laws relating to social security with the goal to extend social security to all employees and workers either in the organized, unorganized or any other sectors.
  • The Code on Occupational Safety, Health and Working Conditions, 2020 - that covers laws regulating the occupational safety, health and working conditions of the persons employed in an establishment.

In this article, you will get a quick overview of the Code on Wages, 2019 and its relevance to your business.

Key Objectives

The Code on Wages, 2019 is enacted to reform the present set of laws for wages, bonuses and the related aspects with uniformity, transparency and accountability. The draft rules are notified in the year 2020.

The Code under 9 chapters with 69 sections, integrates and simplifies the below mentioned Acts related to wages, bonus and connected matters, viz.,

  • The Minimum Wages Act, 1948 (“MWA”) Fix / revise minimum wages to scheduled employment.
  • The Payment of Wages Act, 1936 (PoW”) Applicable to employees with earning threshold not exceeding Rs.24,000 per month.
  • The Payment of Bonus Act, 1965 (PoB”) Applicable to establishments that have 20 or more employees on any given day in an accounting year for its employees whose wages do not exceed Rs.21,000 per month.
  • The Equal Remuneration Act, 1976 (“ERA”) Prohibits gender discrimination in payment of wages, recruitment, transfers and promotions.

Highlights of the Code

  • It has expanded the applicability of minimum wages to all employment which will benefit several workers from the unorganized sectors who were not in the ambit of scheduled employment under the Minimum Wages Act.
  • It has introduced the concept of Floor Wage that will be fixed by the Central Government.
  • The States and UTs have to fix their minimum wages not less than the Floor Wage. Simplified the methodology of fixing the minimum wages principally by geography and skills.
  • Provides for timely salary, bonus disbursements and settlements.
  • Removed the wages threshold for the payment of wages and it is applicable to all the employees.
  • Restructured the definition of Wages by removing the different definitions of Salary, Remuneration and Wages that existed under different labour laws.
  • Integrated the maintenance of records, registers, notices, wage slips and filing of returns.
  • Replaced the term male and female employees to gender along with necessary provisions to ensure equal pay and opportunities in employment.
  • Reformed inspection mechanism. Increased the limitation period to 3 years making it uniform for filing claims of minimum wages, bonus, equal remuneration, etc.

Applicability

The Code is applicable to the whole of India.

The Central Government will notify in the Official Gazette the date on which the Code will become effective and operational. It may be a single date appointed to bring the entire Code operational, or there may be different dates appointed for different provisions to come into force.

The Code is applicable to all the establishments, employers, and employees unless it is expressly exempted under any provisions.

Components of Wages

The Code recognizes the basic pay, dearness allowance and the retaining allowance as the wages and excludes all the other payables, such as PF, Pension contributions, bonus, gratuity, retrenchment compensation, retirement benefits, ex-gratia, remuneration entitled through an award or settlements and all other commission, allowances and amenities that covers travel, conveyance, overtime, house accommodation, light, water, medical and other amenities, etc.

While computing the wages for the purpose of equal remuneration and for payment of wages, the allowances for conveyance, travel, house rent, overtime, remuneration payable under any award or settlement shall be included.

Other than the wages as mentioned above, the sum total of the remuneration paid in the form of allowances (except gratuity, retrenchment compensation, retirement benefits, ex-gratia) if exceeds one-half (50%) of the overall remuneration (wages + other allowances), the differential amount has to be added as a part of the wages.

Any remuneration paid in kind that does not exceed 15% of the total wages payable shall be treated as a part of the wages.

Here is an example to understand the 50% rule.

Salary payable per month to XYZ (for the purpose of illustration)

ParticularsAmount (INR)
Basic10,000
Dearness Allowance5,000
Bonus1,000
Employers’ Contribution to PF1,800
Conveyance Allowance6,000
House Rent Allowance4,000
Overtime Allowance4,000
Total31,800
50% of the total remuneration15,900
Payables that are not included as wages16,800
The difference amount on the 50% cap16,800-15,900 = 900
Amount to be added with wages900

As per section 2(y) of the Code,

Wages means all remuneration whether by way of salaries, allowances or otherwise, expressed in terms of money or capable of being so expressed which would, if the terms of employment, express or implied, were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment, and includes,

(i) basic pay; (ii) dearness allowance; and (iii) retaining allowance, if any,

but does not include––

(a) 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; (b) 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; c) any contribution paid by the employer to any pension or provident fund, and the interest which may have accrued thereon; (d) any conveyance allowance or the value of any travelling concession; (e) any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment; (f) house rent allowance; (g) remuneration payable under any award or settlement between the parties or order of a court or Tribunal; (h) any overtime allowance; (i) any commission payable to the employee; (j) any gratuity payable on the termination of employment; (k) any retrenchment compensation or other retirement benefit payable to the employee or any ex gratia payment made to him on the termination of employment:

Provided that, for calculating the wages under this clause, if payments made by the employer to the employee under clauses (a) to (i) exceeds one-half, or such other per cent. as may be notified by the Central Government, of the all remuneration calculated under this clause, the amount which exceeds such one-half, or the per cent. so notified, shall be deemed as remuneration and shall be accordingly added in wages under this clause:

Provided further that for the purpose of equal wages to all genders and for the purpose of payment of wages, the emoluments specified in clauses (d), (f), (g) and (h) shall be taken for computation of wage.

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Explanation
Where an employee is given in lieu of the whole or part of the wages payable to him, any remuneration in kind by his employer, the value of such remuneration in kind which does not exceed fifteen per cent. of the total wages payable to him, shall be deemed to form part of the wages of such employee.

Minimum Wages

In India, we have the workers from unorganized sectors in majority who are by and large not covered under the present Minimum Wages Act. The MWA is applicable to the scheduled employment. The Code eliminates the concept of scheduled employment giving extensive coverage bringing in the workforce of unorganized sectors to the ambit of minimum wages to provide economic justice.

As per the Code, the Central Government will fix the floor wage. The various states and union territories (UT) have to ensure that their respective minimum wages slab should not be less than this floor wage. In the cases where the existing minimum wages are higher than the prescribed floor wage, such higher wages shall continue. The minimum wages slab will be based on the geographical location and the skills of the employee.

The employers and establishments are obligated to pay their workforce not less than the prescribed minimum rate of wages.

The wages slab is fixed either on the basis of time work or piece work and in order to pay, the wage period is calculated either by the hour or by the day or by the month.

The minimum wage shall consist of any of the following:

  • The basic rate of wages with an appropriate cost of living allowance; or
  • In cases where the cost of living allowance is not considered, there shall be the basic rate of wages and cash value of the concessions in respect of essential commodities supplies; or
  • An all-inclusive rate allowing the basic rate, the cost of living allowance, and the cash value of concessions if any.

The Code in detail provides the procedural requirements to fix and revise the minimum wages, fixing hours of work for a normal working day, minimum time rate wages for piece work, computation of wages for employees working less than normal working hours, or works for two or more classes of work, wages for overtime, etc.

Payment of Wages

The Code is applicable to all the employees and has removed the threshold which is provided under the Payment of Wages Act, applicable to the employees drawing wages less than Rs. 24,000 per month.

The employers are accountable for:

  • Structure the wages.
  • Timely disbursement of wages i.e. before the 7th day of the succeeding month.
  • For the employees through contractors, the wages should be disbursed to the contractor well before the 7th day so that the contractor shall disburse it on time to the employees.
  • Settle the full and final payments within 2 working days to the employee who is either resigned, removed, dismissed, retrenched, or becomes unemployed due to the establishment closure

The Code allows the employer to fix the wage period either as daily, weekly, fortnightly or monthly and pay the wages as per the timelines prescribed in it.

The employer is authorized to have apply deductions from the wages for certain aspects viz., imposing permissible fines, absence of duty, causing damage or loss, for services such as any applicable standard deductions, recovery of advances, loans paid, etc.

The total amount of deductions for the services in any wage period from the wages of an employee shall not exceed 50% of such wages. If it exceeds, it may be recovered in such a manner as may be prescribed. The employer is accountable for the statutory remittances.

Payment of Bonus

The provisions of bonus payment will be applicable to the establishments employing at least 20 employees on any day in that accounting year. The appropriate government will notify the salary threshold of employees who will be eligible for the bonus payment. The Payment of Bonus Act is applicable to the employees earning less than Rs.21,000 per month.

The annual bonus payable should be in the range of minimum 8.33% to a maximum of 20% of the wages earned by the employee or Rs.100/- whichever is higher. The amounts payable as bonus should be paid by the employer within 8 months from the date of close of the accounting year.

An employee dismissed from the services on the following grounds, disqualify from receiving the bonus:

  • Fraud; or
  • Riotous or violent behavior while on the premises of the establishment; or
  • Theft, misappropriation or sabotage of any property of the establishment; or
  • Conviction for sexual harassment.

The Code provides in detail for the computation of working days, proportionate deductions, payment of bonus from allocable surplus, computation of gross profits, sums deductible from gross profits, direct tax payable by employer, adjustment of customary or interim bonus against bonus payable, non-applicability of the bonus provisions to certain establishments, etc.

Equal Remuneration

The concept of gender equality, equal pay for equal work is enshrined in our Constitution to prevent the gender discrimination. The Code prohibits discrimination amongst employees on the grounds of gender, in matters relating to payment of wages by same employer and in respect of same work or work of similar nature.

Advisory Boards

The Central and State Governments will have their respective Advisory Boards to decide on:

  • Fixation or revision of minimum wages and other related matters.
  • Providing employment opportunities for women.
  • Any other matter relating to this Code

Disbursement of dues and claims

Dues

The Code mandates the employers to pay all the applicable wages, remuneration, bonuses and other dues, if any, to their employees promptly as per the prescribed timelines.

In cases of employee’s demise or whereabouts being not known before the payment of such dues, the employer should pay the dues to the nominee of such employee; if there is no nomination or for certain reasons due to which the dues cannot be paid to the nominee, the employer shall deposit the dues amount with the designated authority in the manner that may be prescribed. The designated authority shall disburse the dues to the dependent(s) of the deceased in prescribed manner.

Claims

The disputed claims will be redressed by the appointed Authorities.

The application shall be filed within 3 years from the date of such claim arising, before such Authority either by:

  • The employee concerned; or
  • A registered Trade Union of which the employee is a member; or
  • The Inspector-cum-Facilitator.

The appointed Authority will hear the claim and while deciding may order compensation up to ten times of the claim determined in addition to the claim, subject to the circumstances under which such claim arises. The Authority is directed to decide the claims within a period of 3 months.

In cases where the employer fails to pay the determined claim/compensation amount, the Authority shall issue a certificate of recovery to the District Collector or District Magistrate where the establishment is located. The claim/compensation will be recovered as arrears of land revenue and remitted to the Authority for disbursement to the concerned employee.

Inspector-cum-Facilitator

The Inspector-cum-Facilitators will be appointed by the appropriate Government to inspect the establishments, registers, records and may advise the employers and employees, workers relating to compliance. The Government may conduct web-based inspections calling for information electronically and assign Inspectors from other jurisdictions to conduct such inspections.

Offences and Penalties

If the employer pays less than the due amount to any employee, shall be punishable with fine that may be up to Rs.50,000; The employer convicted for this offence if found guilty again repeating such offence within 5 years, shall be punishable with imprisonment that may be up to 3 months or a fine up to Rs.1,00,000 or both.

The employer who contravenes any other provisions of the Code, shall be fined up to a Rs.20,000. Repetition of such offence within 5 years shall attract imprisonment up to 1 month or a fine up to Rs.40,000 or both.

The employer will be fined up to Rs.10,000 for non-maintenance or improper maintenance of records.

Records, Returns and Notices

The employer of the establishment to which the Code apply, in the prescribed manner, shall maintain registers containing:

  • Details of persons employed.
  • Muster roll.
  • Wages, and other details

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.

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

These provisions are not applicable to the 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.

Draft Rules

The Central Government has notified the Draft Code on Wages (Central) Rules, 2020. It shall come into force after the date of their final publication in the Official Gazette, on the date of the commencement of the Code on Wages, 2019.

The Draft Rules, when becomes effective will supersede:

  • Payment of Wages (Procedure) Rules, 1937;
  • Payment of Wages (Nomination) Rules, 2009;
  • Minimum Wages (Central) Rules, 1950;
  • Minimum Wages (Central Advisory Board) Rules, 2011;
  • Ease of Compliance to Maintain Register under various Labour Laws Rules, 2017 to the extent these rules are made in exercise of the powers conferred by section 13 of the Equal Remuneration Act, 1976 (25 of 1976), section 29 and section 30 of the Minimum Wages Act, 1948 (11 of 1948) and section 26 of the Payment of Wages Act, 1936 (4 of 1936) and applicable accordingly;
  • Payment of Bonus Rules, 1975;
  • Equal Remuneration Rules, 1976; and
  • Central Advisory Committee on Equal Remuneration Rules, 1991

FAQs

Code on Wages - FAQs

Key Definitions

Employee

Employee includes all employees engaged on wages to do skilled, semi-skilled, unskilled, operational or manual work including managers, supervisors and administrative staff. The term includes a person declared to be an employee by the appropriate government.

However, it does not include apprentices engaged under the Apprentices Act, 1961 and members of the Armed Forces of the Union.

Employer

Employer means a person who employs direct or indirect employees (through contractor) in his establishment and where the establishment is carried on by any department of the Central Government or the State Government, the authority specified, by the head of such department, in this behalf or where no authority, is so specified the head of the department and in relation to an establishment carried on by a local authority, the chief executive of that authority, and includes,—

  • in relation to an establishment which is a factory, the occupier of the factory as defined in clause (n) of section 2 of the Factories Act, 1948 and, where a person has been named as a manager of the factory under clause (f) of sub-section (1) of section 7 of the said Act, the person so named;
  • in relation to any other establishment, the person who, or the authority which, has ultimate control over the affairs of the establishment and where the said affairs is entrusted to a manager or managing director, such manager or managing director;
  • Contractor; and
  • legal representative of a deceased employer.

Establishment means any place where any industry, trade, business, manufacture or occupation is carried on and includes Government establishment.

(the above definition is broad enough to cover all the establishments, unless the Code exempts certain establishments from the applicability of the specific provisions)

Contractor

Contractor in relation to an establishment, means a person, who—

  • undertakes to produce a given result for the establishment, other than a mere supply of goods or articles of manufacture to such establishment, through contract labour; or
  • supplies contract labour for any work of the establishment as mere human resource and includes a sub-contractor.

Contract Labour means a worker who shall be deemed to be employed in or in connection with the work of an establishment when he is hired in or in connection with such work by or through a contractor, with or without the knowledge of the principal employer and includes inter-State migrant workers.

It does not include a worker (other than part-time employee) who –

  • is regularly employed by the contractor for any activity of his establishment and his employment is governed by mutually accepted standards of the conditions of employment (including engagement on permanent basis), and
  • gets periodical increment in the pay, social security coverage and other welfare benefits in accordance with the law for the time being in force in such employment.

Worker

Worker includes any person employed in any Industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward. It also includes ‘working journalist’ and ‘sales promotion employees’ and for the purposes of any proceeding under this Code in relation to an industrial dispute, includes any such 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.

It does not include any such person:

who is subject to the Air Force Act, 1950, or the Army Act, 1950, or the Navy Act, 1957; or

  • 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 exceeding Rs.15,000 per month or an amount as may be notified by the Central Government from time to time; or
  • who is an apprentice engaged under the Apprentices Act, 1961.

Same work or work of a similar nature means work in respect of which the skill, effort, experience and responsibility required are the same, when performed under similar working conditions by employees and the difference if any, between the skill, effort, experience and responsibility required for employees of any gender, are not of practical importance in relation to the terms and conditions of employment.

References

Code on Wages, 2019

Code on Wages Rules, 2020 (DRAFT)(includes Forms & Schedules)

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