Parliament recently promulgated the Code on Wages, 2019 (Code) which received the assent of the President on 8 August 2019. The Code will come into effect on a date notified by the Central Government in the Official Gazette. The objective of the Code is to amend and consolidate the laws related to wages, bonus and matters connected therewith and incidental thereto. This is in keeping with the Indian Government’s endeavour to distil the existing 44 labour laws into 4 codes, dealing with (i) Wages; (ii) Industry Safety and Welfare; (iii) Industrial Relations; and (iv) Social Security.

The Code replaces 4 existing labour laws (i) Payment of Wages Act 1936 (PWA); (ii) Minimum Wages Act, 1948 (MWA); (iii) Payment of Bonus Act, 1965 (PBA); and (iv) Equal Remuneration Act, 1976 (ERA).

Unlike the previous statutes which each apply to a restricted set of establishments, the Code applies to any place where any industry, trade, business, manufacture or occupation is carried on and includes Government establishments (any office or department of the Government or a local authority). This is significant because the Code now encompasses all commercial and governmental establishments.

Employer and Employee:

The Code defines an “employer” inter alia as a person who employs, whether directly or through any person, one or more employees in his establishment and where the establishment is of the Central Government or State Government, the authority specified by the head of the relevant department. The definition includes (i) the occupier or designated manager of a factory; (ii) for any other establishment, the person or authority who has ultimate control of the affairs of the establishment which would be the managing director or manager where control has been delegated; (iii) a contractor; (iv) legal representative of a deceased employer.

“Employee” is defined as any person (other than an apprentice) employed on wages by an establishment to do any skilled, semi-skilled or unskilled, manual, operational, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of employment be express or implied and includes an employee of the appropriate Government but excludes armed forces personnel.

Salient features of the Code:
  • The Code prohibits discrimination in any establishment or any unit thereof among employees on the ground of gender in matters relating to wages by the same employer in respect of the same work or work of a similar nature done by the employee. Further, an employer is prohibited from discriminating on the basis of sex while recruiting any employee.
    • Under the Code, no employer shall pay to any employee wages less than the minimum rate of wages notified by the appropriate Government. Under the Code, the appropriate Government is the Central Government for certain establishments and the State Government for all other establishments. Wages is defined to mean “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”, including (i) basic pay; (ii) dearness allowance; and (iii) retaining allowance, if any. Components like employer’s contribution towards pension or provident fund, house rent allowance, overtime allowance, conveyance allowance, etc. are not considered as “wages”, unless payments made under these components exceed 50% of all remuneration payable as “wages” under the Code.
    • The appropriate Government is required to fix the minimum wage taking into account the skill levels of workers or geographical area of work or both, provided the number of minimum rates of wages may as far as possible be kept at a minimum by the appropriate Government. In this regard, the Central Government is required to fix a floor wage, taking into account the minimum living standards of a worker, in such manner as may be prescribed. The minimum rates of wages fixed by the appropriate Government cannot be less than the floor wages and if the earlier rate of minimum wages fixed by the appropriate Government is more than the floor wages, then such minimum rate cannot be reduced.
  • Under the Code, the employer is required to fix the wage period for employees, either as daily, weekly, fortnightly, or monthly, provided that no wage period in respect of any employee shall be more than a month. For employees engaged on a daily basis, wages must be paid at the end of the shift. For those engaged on a weekly basis, wages must be paid on the last day of the week before the weekly holiday. For those on a fortnightly basis, wages must be paid before the end of the second day after the end of the fortnight. And for those on a monthly basis, wages must be paid before the expiry of 7th day of the succeeding month.
  • Under the Code, every employee drawing wages not exceeding such amount per mensem as determined by notification by the appropriate Government who has put in at least 30 days work in an accounting year must be paid an annual minimum bonus of 8 and 1/3rd % of the wages earned by the employee or Rs 100, whichever is higher, whether or not any employer has any allocable surplus in the previous accounting year. Allocable surplus is to be calculated based on a specified percentage of the available surplus which is computed based on the adjusted gross profits of the establishment.

    Where in respect of any accounting year, the allocable surplus exceeds the amount of minimum bonus payable to the employees, the employer shall, in lieu of such minimum bonus, be bound to pay to every employee in respect of that accounting year, bonus which shall be an amount in proportion to the wages earned by the employee, during the accounting year subject to the maximum of 20% of such wages.
  • The Code provides for a single authority, viz. the Inspector–cum–Facilitator, who is responsible for inspection of establishments assigned to him / her with respect to all compliances under the Code.
  • Claims under the Code are adjudicated and determined by an authority appointed by the appropriate Government. An application for adjudication of a claim arising under this Code can be filed before the relevant authority within a period of three years from the date on which the claim arises. Under the Previous Statutes, this time limit varied from few months to a year.
  • Stringent penalties are imposed by the Code for non-compliance with its provisions including fines and imprisonment for continuing or multiple offences.

MHCO Comment: Streamlining Indian labour laws has been an oft-quoted demand of investors and other stakeholders since the liberalisation of the Indian economy in 1991. The myriad and often confusing existing labour laws in India has also been a factor in India’s low position on the “Ease of Doing Business” matrix developed by the World Bank. The Code is a step in the right direction and shows the Government’s commitment to a new labour law regime in India which should bolster foreign investment while ensuring that the labour force in India is duly protected. However, the implementation of the Code is dependant on the rules and circulars issued by the appropriate Government on matters requiring prescription under the Code. Considering the political implications of balancing the interests of employers and employees in India, it remains to be seen whether the steps taken by the Government will fructify into a comprehensive law which achieves such balance.

This update was released on 04 Nov 2019.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or for any assistance.

Legal Update Team
Advocates, Solicitors and Notaries
T: +91 22 40565252
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