What is the Code on Wages, 2019?

In 2015, the Government of India began planning to combine India's 44 labor

laws into four codes. The intention was to make India's labor laws easier to

understand and facilitate ease of doing business. To streamline and

rationalize these laws, the Central Government has combined them under

four Codes. Four Labor Codes now exist as a codification of the labor Laws.

The four codes have been categorized as:

 The Code on Wages, 2019

 The Industrial Relations Code, 2020

 The Occupational Safety, Health and Working Conditions Code, 2020

 The Code on Social Security, 2020.

The Rajya Sabha passed the wages bill on Aug. 2, 2019. President Ram Nath

Kovind signed the bill into law on Aug. 8, 2019. The Code on Wages seeks to

provide a more comprehensive and unified framework for regulating wages

and bonuses in India. Collectively, these laws represent a significant

overhaul of India's labor laws. The revamp was done with the idea of

providing greater protection and security to workers, while also promoting

the growth and development of the country's economy.

Which Laws Will Be Subsumed Under the Code on

Wages, 2019?
The Code on Wages is a central legislation in India that consolidates the laws

relating to wages and bonuses. The code will bring together the following

pre-existing Acts:
  Payment of Wages Act of 1936

 The Minimum Wages Act of 1948

 The Payment of Bonus Act of 1965

 The Equal Remuneration Act of 1976

What Is the Applicability of the Code on Wages,

2019?
The Code on Wages covers both the organized and unorganized sectors and
applies to all establishments employing more than 10 workers. It applies to

both public and private sector establishments and covers all workers,

including regular, casual, temporary, contractual, and sub-contractual.

The Code applies to all industries, including agriculture, manufacturing,

construction, and service sectors. It covers all types of workers, including

manual workers, clerical workers, and supervisory workers. Further, it applies

to the whole of India, except the state of Jammu and Kashmir, which has its

own separate laws on wages. The Code on Wages also applies to Indian

citizens working in foreign countries, if the employer is an Indian company or

if the work is financed by the Indian government.

When Will the Code on Wages Come Into Effect?

The Central Government will announce the date that the Code will go into

effect and be operational in the Official Gazette. A single date may be set to

make the entire Code operative, or various dates may be earmarked for

implementing multiple provisions.

What Are the Key Provisions of the Code on Wages,

2019?
The Code on Wages, 2019, is a comprehensive set of laws that covers a wide

range of provisions related to wages and benefits for workers in India. Some

of the key provisions covered under the Code on Wages include:

1. Minimum wage

The Central Government will set a floor wage for different geographical

areas. Before setting the floor wage, the central government may ask the

Central Advisory Board for advice and talk to the governments of the

states.

The Code on Wages establishes a minimum wage that must be paid to

different categories of workers, regardless of their skill level or the type of

work they do. The minimum wage is reviewed and updated periodically to

ensure that it remains fair and reflects the cost of living in India.

The state governments must make sure that the minimum wage is not set

lower than the floor wage set by the Central Government. If the central or

state governments have already set minimum wages that are higher than

the floor wage, they cannot lower those wages.

2. Overtime payment

 The maximum number of overtime hours has been increased from 50

hours to 125 hours in a quarter across all industries.

 Extra work for durations between 15 and 30 minutes will be counted as

overtime for 30 minutes. The current rule does not consider extra work
of fewer than 30 minutes as overtime.
  Workers who work more than the normal number of hours per day or
week are entitled to receive overtime pay at a rate that is twice their
regular wage.

 Employers need to seek employees’ consent for overtime.

3. Payment of wages

The Code on Wages covers provisions related to the payment of wages,

including the frequency of wage payments and the methods that can be

used to pay wages. The payment needs to be made according to the period
of payment in the following manner:

Daily wages: At the end of the shift.

Weekly wages: On the last working day of the week.

Fortnightly basis: On the second day after the end of the fortnight.

Monthly basis: Before the end of the seventh day of the succeeding month.
4. Full and final settlement

In case of dismissal, including resignation, the settlement of wages must be

done within 2 working days from the date of relieving the worker. The
settlement of wages can include an unpaid monthly wage or other payment

towards, say, unavailed leave or impending bonus, if any.

5. Components of wages

The employee's basic salary must be at least 50% of their gross

salary. Wages will constitute a) basic pay, b) dearness allowance c)

retaining allowance. Other components such as bonuses, overtime, house

rent allowance (HRA), gratuity, retrenchment allowance, and Employers’

Contribution to the provident fund (PF) won’t be included in wages. Further,

at least 50% of the total remuneration must be considered 'wages' for

calculating social security contributions.

6. Deductions from wages

The Code on Wages sets out the circumstances under which deductions can

be made from an employee's wages and the maximum amount that can be

deducted. Deductions can be made in cases such as fines, being absent from

work, accommodation provided by the employer, or retrieval of advances

that were given to the employee. These deductions shouldn't take more than
half of the employee's pay.
7. Payment of bonus

According to the Code on Wages, in establishments employing at least 20

employees on any day in that accounting year, an employer will be required

to pay a bonus to an employee who has worked in the establishment for at

least 30 working days in the accounting year. The bonus is calculated as a

percentage of the wages earned by the worker during the year. The

maximum bonus that can be paid is equal to 8.33% of the wages earned by

the worker during the year, or a maximum of INR 100, whichever is higher.

The Code on Wages also provides for the payment of ex-gratia to workers in

certain circumstances. Ex-gratia is a payment made by an employer to a

worker in addition to the wages and bonuses due to the worker. The ex-

gratia is paid at the discretion of the employer and is not a legal obligation.

The Code on Wages also contains provisions for the payment of productivity-

linked bonuses to workers in certain circumstances. The productivity-linked

bonus is calculated as a percentage of the increase in production or

productivity of the establishment over a certain period of time. The

productivity-linked bonus is paid in addition to the wages and bonus due to

the worker.
8. Records and inspections

Employers are required to maintain records related to the wages and

benefits of their employees, and these records may be inspected by

authorized officials to ensure compliance with the Code on Wages. The code

provides for the appointment of labor inspectors to enforce the provisions of

the code.
9. Equal pay

The code requires employers to pay equal wages to men and women for the

same or similar work and prohibits discrimination on the basis of sex in the

matter of wages.
10. Grievance redressal

The Code on Wages includes provisions for the resolution of grievances

related to wages and other employment issues. The code also provides for

the filing of complaints by workers or their representatives and for the

resolution of disputes through conciliation and arbitration.

11. Penalties

The Code on Wages includes provisions for penalties and fines in cases of

non-compliance with the laws, with a three-month prison sentence and a fine

of up to one lakh rupees as the highest penalty.

The Way Forward for Organizations

The new labor codes in India represent a significant reform of the country's

labor laws. Businesses in India are expected to benefit from the

disentanglement of labor regulations and compliances. The four labor codes

have been designed with the aim of consolidating and simplifying the

existing labor laws and making them more relevant and effective in the

contemporary economic and social context.

Once the codes are enacted, organizations will need to ensure they are in

compliance with the new laws. It will be crucial that the implementation of

the codes is closely monitored and that any issues or challenges that arise

are addressed in a timely and effective manner. HR leaders in organizations

will be expected to spearhead this implementation and while it may seem

challenging, staying on top of these reforms doesn’t have to be a hassle for

your organization.