Articles

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.[1] 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[2] 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[3], 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.

 

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[4] 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[5]. 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.

 

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’[6]. The concept of wage ceiling / threshold as provided for in the PW Act[7] 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’[8] as against the existing definition under the MW Act[9] 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’[10]. 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’[11], 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’[12].  

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’[13], 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.

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.

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[14]. 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[15].

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[16]. 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[17]. 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.

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[18], the eligibility criteria under the Code shall be dependent upon such wage which shall be notified by the Appropriate Government[19]. 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[20].

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[21].

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[22]. 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[23].  

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[24]. Consistent with the existing enactments, the Code also provides for compounding[25] 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.   

 

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.