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Athena Legal Update – Code on Wages, 2019

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New Delhi: The Code on Wages, 2019 was introduced in Lok Sabha by the Minister of Labour, Mr. Santosh Gangwar on July 23, 2019 wherein it received the assent of the Lok Sabha on 30th July, 2019 and of the Rajya Sabha on 2nd August, 2019. The Code is likely to be implemented soon after taking into consideration the public comments.

The Code has been enacted and replaces the following Acts:

1) The Payment of Wages Act, 1936,

2) Minimum Wages Act, 1948,

3) Payment of Bonus Act, 1965

4) Equal Remuneration Act, 1976

Salient Features

The Code is an essential step towards streamlining labour laws in India. The key features of the Code are provided below:

*Definition of wages has been given uniformity as opposed to 12 different definitions earlier under Section 2(y) of the Code and now means 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, and includes basic pay, dearness allowance; and retaining allowance, if any. However, the Code excludes certain payments covered under the previous legislations, and the same have been provided below.

*With the reduction in multitude of regulators, the inspection environment is expected to become simpler, with faster resolution of the issues in relation to compliance.

* Creation of Advisory Board to advise on key policies: The Central and State governments will constitute advisory boards consisting of employers, employees, independent persons, and five representatives of state governments. One-third of the total members on both the Boards will be women.

*Inspection regime- The appropriate Government can frame an inspection scheme which may provide for a web based information system and call for information electronically as well as assign duties to carry out such inspections based on a random selection.

*Right to rectify- In an event of violation of any provision of Code by an employer, the Inspector-cum-Facilitator shall not initiate action unless, the employer has been granted with an opportunity to rectify the non-compliance within a specified period of time, unless a similar violation has been done within a period of 5 years.

*Inspector-cum-Facilitator- The Code provides for the appointment of an Inspector- cum-Facilitator, whose role is enlarged to encompass not just inspection but also to advise the employers and workers with regard to the various compliances prescribed under the Code.

*Compounding of first offence- Unlike the current legislations, the Code permits compounding of the first offence committed under the Code by paying 50% of the maximum fine provided for such offence. However, if the violation of a similar nature is repeated within a period of 5 years from the date on which the first violation was committed, the subsequent offence cannot be compounded.

*Limitation period for filing claims- The period of limitation for filing claims by an employee under the Code has been fixed at 3 years from the date on which the claim arises. The Code also provides that any dispute regarding fixation of bonus or eligibility for payment of bonus under the provisions of the Code shall be deemed to be an industrial dispute within the meaning of the Industrial Disputes Act, 1947 (“ID Act”). It may be noted that ID Act does not provide for a limitation period.

Compliances under the Code:

Certain compliances which the code prescribes are as follow:

1) Records and Registers- Every employer should maintain a register containing details as to persons employed, wages paid to such employees, muster rolls and such other details in such a manner as may be prescribed. Two registers are required to be maintained: – Employee Register under Form-IV & Register of Wages, Overtime, Fines, Deductions for damage and loss under Form-I.

2) Returns- A single return to be filed that covers all the components under the different enactments.

3) Penalties- Enhanced penalties upto Rs. 1 lakh and also a provision of imprisonment up to 3 months in case repeat offences. If the offence is committed by a Company, every person in charge of business shall deemed to be guilty of the offence as committed The following have been expressly declared as penalties:

(i) Payment to employee of any amount less than amount due to such employee

(ii) Employer being convicted for the above, if found guilty again will be  punished with imprisonment of 3 months or fine of Rs. 1 lakh

(iii) Improper/ Non-maintenance of records by employer can result in fine of upto Rs. 10,000.

  • – Exception – proviso of Section 55 exempts a person from liability if the offence was committed without his knowledge, or if due diligence was exercised by him to ensure prevention of such an offence.

4) Notice- The Code mandates that every employer is required to display a notice on the notice board at a prominent place in the establishment containing the abstract of the Code, category-wise wage rates of employees, wage periods, time for payment of wages etc. The employer is also required to issue a wage slip in such form and manner as would be prescribed.

5) Floor Wage- The Code provides that the floor wage will be computed based on minimum living conditions which would benefit about 50 crore workers across the country. However, the minimum wages decided by the central or state governments must be higher than the floor wage. In case, the existing minimum wages fixed by the central or state governments are higher than the floor wage, they cannot reduce the minimum wages.

6) Liability to pay wages for work done for less than one day- As per the Code, if an employee for whom minimum wage has been fixed under the Code, works for a day or for hours less than those constituting one day, will entitle the said employee to receive wages for one such day, subject to exceptions.

7) Applicability of minimum wages – Minimum wages have been fixed for scheduled employment and for categories of employees as have been covered in the various notifications issued by the relevant Government. Under the Code, however, the appropriate Government is required to fix minimum rates of wages for all the employees irrespective of the industry they are employed in.

8) Daily Working Hours- The Code also provide for eight hours working day under the Code of Wages.

9) Overtime- The Central or State government may fix the number of hours that constitute a normal working day. In case, employees work in excess of a normal working day, they will be entitled to overtime wage, which must be at least twice the normal rate of wages.

10) Bonus- All employees whose wages do not exceed a specific monthly amount, notified by the Central or State government, will be entitled to an annual bonus. The bonus will be at least: (i) 8.33% of his wages, or (ii) Rs 100, whichever is higher. In addition, the employer will distribute a part of the gross profits amongst the employees. This will be distributed in proportion to the annual wages of an  employee. An employee can receive a maximum bonus of 20% of his annual wages.

11) Burden of Proof- In case of claims in relation to failure to pay the correct remuneration or bonus or unauthorized deductions, the burden of proof would be on the employer to prove that dues have been paid.

Changes brought on by the Code:

The Code brings about many changes from the old regime of the legislations with respect to Wages, the key changes are highlighted below:

1) Definition of Wages under the Code now additionally excludes the following which were covered under the Payment of Wages Act, 1936:

a) house rent allowance;

b) remuneration payable under any award or settlement between the parties or order of a court or Tribunal;

c) any overtime allowance; or any amount due for holidays or leave periods;

d) any commission payable to the employee;

e) any retrenchment compensation or other retirement benefit payable to the employee or any ex gratia payment made to him on the termination of employment;

f) any sum to which the person employed is entitled under any scheme framed under any law for the time being in force.

2) The definition of the term ‘employer’ has been broadened to specifically include contractors as well now.

3) The Central Advisory Board has been created under the new Code.

4) The Inspector under the old Act, has now been designated as Inspector-cum- Facilitator. However, new changes have been brought in the inspection scenario including jurisdiction-free inspections, web-based randomised computerised inspection scheme, calling for information electronically, composition of fines, etc.

5) The limit of deductions has been reduced from 75% to 50% under the new Code.

6) The deductions specified under the code exclude the following:

a) Payment of any premium on life insurance policy or purchase of securities of Govt. of India or State Govt.

b) Payment of insurance premium of Fidelity Guarantee Bonds.

c) Deductions for contributions to any insurance scheme framed by the Central Govt. for the benefit of its employees.

7) It is further added that for any deduction made by the employers if not deposited in the account of the trust of Govt. fund as required under law, the employee shall not be responsible.

8) Disqualification from bonus now includes persons who have been convicted for sexual harassment.

9) Minimum bonus has been specified as 8 1/3 % of the wages earned by employee or 100 rupees, whichever is higher.

10) In the previous regime, applicability was limited to employees drawing wages below INR 24,000/- per month, however under the new Code, the same is left to be determined based on geographical areas and on minimum living conditions.

11) Creation of Advisory Board: At both Central and State levels, these Boards will advise the respective governments on various issues including fixation of minimum wages, increasing employment opportunities for women, etc.

Read Also: President Ram Nath Kovind suspends DU Vice Chancellor Prof. Yogesh Tyagi with immediate effect

The Wages Code of 2019 encourages an environment of co-operation between the administrative bodies and the employers by emphasizing on compliance rather than imposition of penal action. The Code further provides for uniformity in wage payment across many different industries and the agencies like the Central Advisory Board and Inspector- cum-facilitator have been further empowered to ensure compliances under the Code and advice on crucial matters like fixation or revision of minimum wages, increasing employment opportunities for women, etc., which were earlier left to the discretion of State Governments, thereby ensuring countrywide uniformity.

By Athena Legal (Law Firm)


The update is intended for your general information only. The information and opinions contained in this document are derived  from  public  sources  which  we  believe  to  be  reliable  and accurate but which, without further investigation, cannot be warranted as to their accuracy, completeness or correctness. It is not  intended to be nor should be regarded as legal advice and  no one should act on such information without appropriate professional advice. Athena Legal accepts no responsibility for any loss arising from any action taken or not taken by anyone using this material.

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