THE CODE ON WAGES, 2019: UNDERSTANDING THE KEY

CHANGES TO WAGES, REMUNERATION AND BONUS

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, mmedical 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.

Minimum wages:

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

Equal remuneration:
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 payable is 20 percent  ..

Other provisions:

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.