The consolidation, rationalisation and simplification of labour related regulations is on track with the Code on Wages, 2019 receiving Presidential assent on August 08, 2019, after the nod from both Houses of Parliament.This Code is the first of the four labour codes which has now become an Act, and has replaced four labour regulations viz. the Payment of Wages Act, 1936; the Minimum Wages Act, 1948; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976.It is important for the industry at large to understand the key aspects that the Code will impact. Having brought together various previous legislations under a single umbrella, the Code has expanded the definition of “employer” as well as “employee”, resulting in a broad based applicability of the regulations and is now applicable to employees in both organised and unorganised sectors. Further, the provisions of the Minimum Wages Act and the Payment of Wages Act used to apply only to workers drawing wages below a particular ceiling and working in scheduled employments only. However, under the Code, the minimum wages and the payment of wages provisions cover all establishments, employees and employers as defined unless specifically exempt (the member of the Armed Forces of the Union and apprentice engaged under the Apprentices Act, 1961 are specifically excluded from the definition of employee).
With an intent to have a uniform definition of wages across all legislations as well as to minimise litigation, the definition of “wages” has been unified. The definition of wages now has three parts to it- an inclusion part, specified exclusions and conditions which limit the quantum of exclusions. The definition includes basic pay, dearness allowance and retaining allowance. It specifically excludes components such as statutory bonus, value of house accommodation and utilities (light, water, medical etc.), employer contribution to provident fund/ pension, conveyance allowance/ travelling concession, sum paid to defray special work expenses, house rent allowance, remuneration payable under settlement, overtime allowance, commission, gratuity, retrenchment compensation.
The specified exclusions, however may not exceed 50 percent of all remuneration, and in the event of exceeding, such excess amount shall be deemed as remuneration and will be considered as “wages”. This is aimed at ensuring that companies do not adopt compensation structures which result in wages being reduced below 50 percent of the total remuneration.
The central government will set the national floor rate for wages after taking into account the minimum living standards of workers varying across geographical areas; where existing minimum wages are higher than the floor wages, the same shall be retained. State governments will fix the minimum wages for their region which cannot be lower than the national floor rate for wages. The code also provides that there would be a review/ revision of minimum wages at intervals not exceeding five years. Further, the rate of wages for overtime work shall not be less than twice the rate for normal wages.
Provisions relating to equal remuneration now prescribe that no discrimination is permitted on the basis of the gender of said employees. This is slightly wider than the earlier provision which specified no discrimination on the basis of “Men” and “Women”.
Payment of wages
Settlement period for monthly wages has been specified as on the 7th of the succeeding month, as against 10th of the succeeding month. In case the employee is removed, dismissed, retrenched, resigns or becomes unemployed due to closure of an establishment, the wages are required to be paid within two working days. The earlier Act did not provide for any specific timelines for resignation cases. The limitation period for filing the claims for minimum wages, bonus, equal remuneration etc., by workers has been raised to 3 years as against the varying period between 6 months to 2 years.
Payment of Bonus
Similar to the provisions of the Payment of Bonus Act, 1965, the chapter relating to bonus payments under the code shall apply to only those establishments employing at least 20 employees on any day in that accounting year. All employees whose wages do not exceed a specific monthly amount (to be notified by the central or state government) will be entitled to an annual bonus. Bonus is payable on higher of minimum wage or the wage ceiling fixed by the appropriate government for payment of bonus. Minimum bonus prescribed under the Code is 8.33 percent and the maximum bonus payable is 20 percent.
The code provides the appropriate government to appoint Inspectors-cum-Facilitators (in the place of Inspectors), to carry out inspections. Such Inspectors-cum-Facilitators may advise employers and employees for better compliance. This has been done with the objective of removing the arbitrariness and malpractices in inspection. The quantum of penalties specified under the code is also significantly high which varies depending on the nature of the offence. The maximum penalty being imprisonment for three months and/ or with a fine of up to INR 100,000.
It is important for employers, to familiarise themselves with the code and understand the impact on their operations.
The government is also proposing to replace the existing definition of “basic wages” in the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (the EPF Act) with that of “wages” as provided in the code. The impact therefore has to be analysed from a PF perspective as well, especially in respect of employees whose basic salary is currently less than the statutory wage ceiling as well as international workers.
The employers should also analyse the requirement of revision of the salary structure and organization policy with regard to labour contracts and employment terms of services to ensure that their policies are HR friendly and legally compliant. The aggregation of various codes under one umbrella is a welcome measure.
Saraswathi Kasturirangan is Partner; Tarun Garg is Senior Manager; and Shubham Goel is Deputy Manager with Deloitte Haskins and Sells LLP.