India being one of the richest countries in terms of labour potential as a factor of production, has set in motion the much awaited codification of its labour laws with the enactment of The Code on Wages, 2019 (“Code”).
The Code, after being passed by
both the Houses of the Parliament, has recently on 08.08.2019 received the
assent of the President of India. It
can be said to be one of the first Acts (excluding certain amending enactments)
of the Parliament which has received the assent of the President amidst the
controversial withdrawal of special autonomous status of Jammu and Kashmir on
05.08.2019 and upon being notified
shall be applicable as law in whole of India including Jammu and Kashmir.
In India, labour and employment
issues can be broadly categorized into two parts. Firstly, the ones which are
primarily governed by the Central and/or State enactments including municipal
laws, notifications etc. and secondly, the issues pertaining to collective and
/ or individual agreements between the employees and employer. The Code, with
an object to consolidate the law relating to wages and provisions of bonus,
brings a considerable change to a key sub discipline falling in the first
category. This is the first of the four codes which have been proposed to
completely universalize the Labour Laws in the country.
CODIFICATION AND REPEALMENT
The Code comprises of 9 chapters
which together intends to amalgamate, simplify and rationalize the provisions
of four Central enactments. Once the effective date is notified, the Code will
subsume and consequently repeal
the following four Central enactments on Labour Laws:
a)
The
Payment of Wages Act, 1936 (“PW Act”)
b)
The
Minimum Wages Act, 1948 (“MW Act”)
c)
The
Payment of Bonus Act, 1965 (“PB Act”)
d)
The
Equal Remuneration Act, 1976 (“ER Act”)
The Code fundamentally
incorporates the genesis of the abovementioned Central enactments with (what
are claimed to be) necessary additions, amendments, exclusions, diversions and
departures.
Additionally, in order to obviate
any confusion, an overriding effect has been given to the provisions of the
Code. The Code specifically declares all such contracts to be null and void
which purport to remove / reduce the liability of any person to make payments
as per the provisions of the Code and further, the Code provides that it shall
have effect notwithstanding anything inconsistent either in any other law,
award, agreement, settlement or contract of service.
However, an exception has been carved out in the Code itself. The Code shall
not in any manner affect the provisions of Mahatma Gandhi National Rural
Employment Guarantee Act, 2005 and the Coal Mines Provident Fund and
Miscellaneous Provisions Act, 1948.
ANALYSIS: CHANGES AND KEY FEATURES
UNIFORMITY AND APPLICABILITY
The Code will be uniformly
applicable to all the employees working in organized or unorganized sectors
irrespective of the type of employment as against the provisions of MW Act,
which is currently applicable only to ‘scheduled
Employments’.
The concept of wage ceiling / threshold as provided for in the PW Act
has also been scrapped and the minimum wages payable under the Code shall be
applicable to all employees irrespective of the monthly wages drawn by them.
The scope of the Code has been
over all widened with the uniform and extensive definition of “Employee” as against the varied specific
definitions under the existing enactments. Under the Code, the individuals who
are engaged in the middle level management of an establishment including
operational, managerial, administrative, supervisory and technical work shall
also fall within the ambit of ‘Employee’
as against the existing definition under the MW Act
which is largely restricted to the lower level management and non – managerial
work.
Interestingly, the Code
distinguishes between ‘Employee’ and
‘Worker’ by explicitly excluding inter alia (i) persons employed mainly in a managerial or
administrative capacity; (ii) persons employed in a supervisory capacity
drawing a monthly wage exceeding INR 15,000/-; from the definition of ‘Worker’.
It can be conveniently concluded that under the Code, the definition of ‘Employee’ is evidently wider and
inclusive of such persons who are employed as ‘Workers´ in any establishment.
The rational nexus behind such
distinction seems to be the fact that though minimum rate of wages to be paid
under the Code shall be equally applicable to ‘Employee’ and ‘Worker’,
however, the factors to be considered while determining the fixation of the
minimum rate of wages shall only be the ones pertaining to the ‘Worker’.
In consistency with the existing
enactments, both, the Central Government and the State Government have been
entrusted with responsibility of fixing of the minimum rate of wages while
acting as ‘Appropriate Government’.
However, with a more explicit definition of ‘Appropriate
Government’,
the Code has specifically clarified the types of establishment which would
solely fall within the jurisdiction of the Central Government including
railways, oil fields, mines etc.
PROHIBITION OF GENDER DISCRIMINATION
The Code also duly provides for
the concept of non discrimination on the basis of gender, as was prevalent
under the ER Act. Section 3 of the Code prohibits discrimination on the basis
of gender in matters related to payment of wages, employment conditions and
recruitment of employees for the ’same
work or work of similar nature’. Further, Section 2(v) of the Code defines ‘same work or work of similar nature’ to
mean any work for which the skill, efforts, experience and responsibility
required are same.
FLOOR WAGE: A NEW CONCEPT
The Code has introduced a concept
of ‘Floor Wage’ which will directly
impact the fixation of the minimum rates of wages by the Appropriate
Government. The Central Government has been given the responsibility to fix a
floor wage which will act as base-line for the Appropriate Government while
determining as well as reviewing the minimum rates of wages. Section 9 of the
Code prohibits fixation of the minimum rates of wages below the floor wage and
further, it clarifies that if the existing minimum rates of wages fixed by the
Appropriate Government turns out to be more than the floor wage, then the Code
prohibits the Appropriate Government from reducing the existing minimum rates
of wages.
The Central Government, while
fixing the floor rate, shall be required to consider the minimum living
standards of ‘Worker’ and moreover,
the Central Government has the discretion to fix different floor rates
depending upon the geographical areas.
Thereafter, the Appropriate Government shall consider the floor rate fixed by
the Central Government as the base while determination and fixation the minimum
rates of wages in accordance with Section 6 of the Code. Further, the minimum
rates of wages fixed by the Appropriate Government will be required to be
reviewed and revised at intervals not exceeding five years.
PAYMENT OF WAGES
Unlike the existing enactments
including PW Act, the Chapter III of the Code (which deals with the payment of
wages) specifically provides for the wage periods and time lines for different
wage periods to be complied by the employers. This is an exceptional addition
made under the Code as compared to the current practice wherein the payment
periods and time lines are contractually governed between the employees and
their employers. The Code gives an option to the employer to decide the wage
period which can be fixed as daily or weekly or fortnightly or monthly but not
more than monthly.
Section 17 (1) of the Code lays down the time lines within which the payment is
to be made to the employees, depending upon their wage period.
The maximum limit is for the
monthly wage period for which the payment is required to be made before the
expiry of the seventh day of the succeeding month.
Further, the Code also provides for a specific time line of 2 working days for
payment of wages to such employees who are removed / dismissed or retrenched /
resigned / became unemployed due to closure of establishment.
BONUS: DETERMINATION AND PAYMENT
The Code makes a considerable
departure from the provisions of PB Act with respect to the eligibility
criteria for payment of bonus to employees and computation of bonus. Unlike the
specific wage ceiling / threshold under the PB Act,
the eligibility criteria under the Code shall be dependent upon such wage which
shall be notified by the Appropriate Government.
Further, the bonus to be paid to the eligible employees shall be either 8.33%
of their respective wages or INR 100, whichever is higher. Additionally, a part
of the gross profits shall also be payable as bonus to the employees. However,
total maximum bonus which an employee can receive in a given year is fixed at
20% of his annual wages.
Pertinently, as discussed
earlier, the eligibility criteria is exclusively hinged upon such wage amount
which Appropriate Government may notify, however as per Section 26(2) of the
Code, for the purpose of computation of bonus for the employees whose wages
exceed the notified wage amount, the notified wage amount or minimum rates of
wages, whichever is higher shall be considered. Such provisions may be at
variance with each other creating an arguably avoidable contradiction with
respect to applicability of the provisions of bonus on the employees whose
wages would exceed the notified wage amount.
The parameters for
disqualification of an employee for the purpose of bonus are identical to those
provided under Section 9 of the PB Act, 1965 except an addition which has been
made under the Code to disqualify such employees who have been dismissed from
the services because of being convicted for sexual harassment.
INSPECTOR AND FACILITATOR
One of the key changes introduced
in the Code with respect to compliances and inspection is the concept of ‘Facilitator’ in addition to inspector.
The Code uses ‘Inspector
–cum-facilitator’ as compared to the existing enactments where only ‘inspector’ finds a mention. Now, under
the Code ‘Inspector – cum- Facilitator’ has
been assigned with an additional duty of advising and guiding the employees and
employers with respect to the compliances.
The appropriate Government shall be responsible for appointment of ‘Inspector – cum Facilitator’ and
assignment of jurisdiction of ‘Inspector
– cum – facilitator’ on the basis of geographical limits and / or type of
establishments.
The other noteworthy addition in
the Code pertains to the inspection to be carried out by the Inspection – cum – Facilitator. The Code
provides for a web-based inspection for which the information may also be
summoned electronically.
OFFENCES AND COMPOUNDING
Chapter VIII of the Code provides
for the offences and penalties for non-compliances. The Code mainly categorizes
the commission of offences as (i) when employer pays less than the due amount,
as per the Code, to any employee; and (ii) when employer contravenes any other
provisions of the Code. The penalties attached to the offences are substantial
with maximum penalty which may be imposed (for a particular offence) being fine
of upto INR 1,00,000/- and / or imprisonment which may extend up to 3 months.
Consistent with the existing enactments, the Code also provides for compounding
of the offences, however whether such steep enhancement in the penalties will
act as a deterrent and encourage due compliance or not, is yet to be seen.
BAR ON SUITS AND LIMITATION PERIOD
- The Code explicitly puts a bar on
courts from entertaining any suit filed by any person for recovery of minimum
wages, bonus and ancillary matters which forms the subject matter of the Code
and could have been recovered from the employer as per the provisions of the
Code.
The only remedy which the employees (and other stakeholders) may avail is to
file an application seeking claim as per the provisions of Section 45 of the
Code with such authority, which the appropriate Government may notify.
Pertinently, the limitation period within which such application can be made
has been increased to three years
as compared to existing limitation ranging from six months to two years
(depending upon the claim).
The proposals for codification of
labour laws have been in the pipe line for a long time. What may be considered
as the first effective official step towards codification was the
recommendation made by the Second National Commission on Labour in 2002 to
broadly amalgamate labour laws into five categories: (a) industrial relations;
(b) wages; (c) social security; (d) safety; and (e) welfare and working
conditions.
With Code receiving the assent of
the President, it can be arguably said that India has taken a step forward
towards simplification of all existing labour laws. The changes, additions and
departures made / introduced under the Code with the intent to universalize the
labour laws (pertaining to wages and bonus), will prove to have a major impact
on all stakeholders.
In our opinion, these are
welcoming reforms for a labour intensive country like India that too at the
time when India Inc. is thriving to achieve a greater number of sustainable,
self-reliant and exporting units (including MSMEs) with the support of
digitization. The Code amongst other things has rightly removed the existing
multiplicity of definitions, compliances and authorities. This may result in
reducing the number of litigation and compliance costs for the employers.
However, harmonization of the remaining three proposed codes, an effective ground
level implementation and co-operation from the business houses shall be
indispensible for achieving the real object behind codification.
Published on 08.08.2019 in the extraordinary Gazette
of India with reference no. 48 and issue no. 29 of 2019
See Section 1(3) of The Code on Wages, 2019. The date
of enforcement is yet to be notified.
See preamble of The Code on Wages, 2019
See Section 69(1) of The Code on Wages, 2019
See Section 60 & 61 of The Code on Wages, 2019
Section 2(g) read with Section 27 and the Schedule of
the Minimum Wages Act, 1948 defines ‘Schedule Employment’ and provides for a
list of employments under the given industries which are included under the
said definition
Currently the provisions of the Payment of Wages Act,
1936 is applicable to such employees who draws a monthly wage of up to INR
24,000/-
See Section 2(k) of The Code on Wages, 2019
Currently, under Section 2(i) of the Minimum Wages
Act, 1948, the definition of ‘Employee’ specifically refers to such persons who
are employed in Scheduled Employment, thereby restricting the scope of the
Minimum Wages Act, 1948
See Section 2(z) of The Code on Wages, 2019
See Section 5 of The Code on Wages, 2019
See Section 6(6) and Section 9 of The Code on Wages,
2019
See Section 2(d) of The Code on Wages, 2019
See Section 9(1) and the proviso thereto
See Section 8(4) of The Code on Wages, 2019
See Section 16 of The Code on Wages, 2019
See Section 17 (1) (iv) of The Code on Wages, 2019
At present the Payment of Bonus Act, 1965 is applicable only to such employees
whose wage / salary does not exceed INR 21,000/- per mensem. See Section 2(13)
of the Payment of Bonus Act, 1965
See Section 26(1) of The Code on Wages, 2019
See Section 26(3) of The Code on Wages, 2019
See Section 29 (d) of The Code on Wages, 2019
See Section 51(4) of The Code on Wages, 2019
See Section 51(2) of The Code on Wages, 2019
See
Section 54 of The Code on Wages, 2019
Section 56 of The Code on Wages, 2019 provides for the compounding of offences
on an application by the accused persons either prior to or after institution
of prosecution against him.
See Section 57 of The Code on Wages, 2019
See Section 45(6) of The Code on Wages, 2019