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How Will The New Wage Code Benefit Employees As Well As Employers?
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Last year, the Parliament passed the Code on Wages Bill, 2019, slated to come into effect from April 1, 2021. It will be a boon for workers who have been struggling since the onset of the pandemic. Each state had different labour laws that the Act aims to consolidate by doing away with earlier wage laws, which focused on bonuses and wages. The new Code consolidates four archaic labour laws, the majority of which are from the British era — Minimum Wages Act, 1948, Payment of Wages Act, 1936, Payment of Bonus Act, 1965, and Equal Remuneration Act, 1976.
The Wage Code comprises four codes —three of which concern industrial and employee relations, social security policies, and worker safety. The laws subsume 29 erstwhile legislations and will affect over 50 crore workers. The aim is to improve India’s ranking on the ease of doing business index and provide a single definition of what wage is — a disputable issue due to laws’ multiplicity.
The law faces its share of controversy, with representatives from FICCI and CII, umbrella industry bodies, pushing for recalling its implementation. They claim the Act will increase deductions in social security, effectively reducing workers’ take-home salary. So, we move on to analyse the implications:
Universal Minimum Wage Which Will Lead To Coverage For Greater Number of Workers
The existing laws limit the applicability of the Minimum Wage law to employees working in scheduled employments. The amended Code will increase the ambit to include all employees, irrespective of the nature of employment. The government will set a minimum Floor Wage, which shall depend on the geographical area. For instance, it shall be higher in a metropolitan city such as Mumbai vis a vis a rural area. It will be illegal for employers to pay their employees wages below the set floor rate notified for that area.
Moreover, employers cannot discriminate against employees based on gender, provided they are doing the ‘same work or work of similar nature’. The minimum wage will be determined on the basis of geographical area, nature of work and employee’s skill.
Employers Will Bear An Increased Cost
Unification of the definition of what ‘wages’ includes a list of excluded components. In case the aggregate of such components is more than 50% (or a revised percentage) of the total remuneration, the extra will be the ‘wage.’ Employers will calculate employee benefits such as gratuity, compensation for retrenchment, or benefit for maternity on 50% of the monthly remuneration. It will lead to increased costs for the employer.
Revision On Deductions For Employees Within Managerial And Supervisory Roles
Earlier, managerial and supervisory roles were not included in the definition of workers. This authorised employers to negotiate special wage provisions with them. Now that they have been brought into the ambit of the wage code, these clawback adjustments from final payouts, specifically while exiting from employment, will not be possible.
The Code also obliges payment of overtime wages, but only concerning a set of employees i.e. those for whom minimum wage is fixed under this Code. Managerial and supervisory employees are excluded from this categorisation: for them, overtime wage is not a legal obligation on the employer. The State Shops and Establishments Act shall apply to this category of workers.
Rights Of Contract Employees Receive A Boost
Employers will now have to pay contractors in advance. The move will ensure that contract workers hired by the contractor receive their wages timely. Additionally, suppose a contractor defaults and fails to pay minimum bonus to their employees. In that case, the primary employer will be liable to do so upon receipt of a verified written complaint.
Online Inspection
Arbitrariness, vagueness and rampant malpractices during labour inspection will be minimised. An online inspection portal is being introduced and the inspector will have to randomise their checks rather than focus on specific geographical areas. They are also required to electronically seek the required information from employers so that everything stays on record. Thus, physical inspections are being done away with and remote ones are being introduced.
Extended Claim Period For Employees
The period within which employees can file claims has been increased to three years from the previous maximum limit of two years. Additionally, it authorises the body in-charge to consider claims post three years if a legitimate reason is furnished for such delay by the affected employee. This move will give employees more time to protect themselves from exploitation. It also holds employers accountable for a more extended time period.
Increase In Penalty
An increased penalty, which also takes into account repeat offenses, has been put forth. Suppose an employer commits a repeat offense within a rolling period of five years after the previous conviction. In that case, they can face imprisonment, a heavier penalty or both as the matter shall be.
Offenses that do not warrant imprisonment are compounded. Further, offenses not punishable with imprisonment are compoundable only post paying a sum of 50% of the prescribed fine. Compoundable means that the affected worker can enter into a compromise with their employer and drop the charges. A higher penalty will act as a significant deterrent to employers defaulting and not complying.
Conclusion
The Wage Code unifies contradictory laws and introduces multiple benefits for the workers. We are yet to see the law’s effectiveness post its implementation, but it seems promising and a much-needed change. It will lead to an increased rank on the ease of doing business index and go a long way in bolstering confidence within the Indian business ecosystem.
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