LexCognito

In India, labour laws have always been a complex subject due to various factors such as archaic laws, multiplicity of laws and regulatory authorities, central v/s state legislation and so on. This has been a key bottleneck in making India a manufacturing hub globally. In order to attract more foreign investment, augment domestic capital, there was an urgent need to consolidate, simply and codify entire set of labour laws. Hence, the Government has undertaken an exercise of rationalizing 44 Labour laws by framing 4 labour codes viz. Code on Wages, Code on Industrial Relations, Code on Social Security and Code on Occupational Safety, Health and Working Conditions. The aim is to increase productivity and build required flexibility for the employers keeping in mind the interest of working class engaged in.

While other 3 codes are at different stages of legislative process, the Code on Wages, 2019 (“Code on Wages”) is the first code which has been notified on 8 August, 2019. However, the Government is yet to notify the date for its enforcement. The need for codifying and implementing a uniform Code on Wages arose owing to the fact that currently, there are close to 12 different definitions for wages, which is one of the primary reasons for labour litigations in the country. It introduces a single and simplified definition for wages, which will significantly reduce litigation as well as compliance burden for employers.

The Code on Wages aims to amend and consolidate laws relating to wages and bonus and matters connected therewith or incidental thereto, and it will subsume following 4 central laws after it is enforced:

Minimum Wages Act, 1948 - This Act provides for fixing minimum rates of wages in certain employments to prevent exploitation of labour / workers.
Payment of Wages Act, 1936 – This Act was enacted to ensure that the employers make the payment of wages to workers within the prescribed time limit without making unnecessary deductions.
Payment of Bonus Act, 1965 – This Act provides for payment of bonus to employees working in any factory / other establishment in which 20 or more persons are employed on any day during the accounting year on the basis of profits and loss or production or productivity.
Equal Remuneration Act, 1976 – This Act provides for payment of equal remuneration to men and women workers and preventing discrimination on the ground of gender against women.

The Ministry of Labour and Employment released the draft of the Wages (Central) Rules, 2019 (“Draft Central Rules”) on 1 November 2019 for inviting public comments.

Key highlights of Draft Rules vis-a-vis Code on Wages

1. Manner of calculating minimum rate of wages:

Under the Draft Central Rules, the minimum wages shall be fixed considering worker's family of 3 and estimated expenditure on account of Net intake of 2,700 calories per day, 66-metre cloth per year for the whole family, 10% of food and cloth as house rent expenditure, 20% of minimum wages as expenditure on electricity, fuel, children’s education and miscellaneous expenditure, and 25% of minimum wages as expenditure towards children education, medical requirements, recreation and contingencies.

2. Norms for fixing minimum rate of wages:

Under the Draft Central Rules, while fixing the minimum rate of wages, the Central Government shall divide the geographical area into 3 categories: metropolitan area, non- metropolitan area and rural areas. The minimum wages will be fixed for 4 categories of occupations of employees i.e. unskilled, semi-skilled, skilled and highly skilled.

3. Manner of fixing floor wages:

Under the Code on Wages, the Central Government shall fix a “floor wage” which will act as the floor below which no State Government will be allowed to fix minimum wage. The Draft Central Rules lays down the manner for fixing such a floor after taking into account minimum living standards equivalent to 3 adult consumption units including worker of family comprising of food, clothing, housing and other factors. The Central Government can revise the basic rate of floor wage at an interval not exceeding 5 years and undertake adjustment for variation in the cost of living periodically. At present, it is not clear whether the State Government which has fixed minimum wages considering the floor wage will be able to revise the same after any revision is done by the Central Government in the floor wage.

4. Working Hours, Weekly day of rest & Night shifts:

Under the Draft Central Rules, a period of 9 hours has been prescribed as a normal working day which is required to be so arranged that the spread over after including rest intervals shall not exceed 12 hours in any day. This rule shall not affect the provisions contained in the Factories Act. It will be interesting to examine the implication of similar provisions contained in the state specific Shops and Establishment Acts which do not find any mention here. In case of any work of emergency, intermittent job and other exceptions, actual work hours (excluding rest intervals and periods of inaction) cannot exceed 9 hours while spread-over (including rest intervals and periods of inaction) would be limited to 16 hours.

Amongst other things, it also provide for one day of rest every week, which shall ordinarily be Sunday but employer may fix any other day provided employee who has worked for a continuous period of not less than 6 days is entitled to 1 day as rest under information to the employees. Where an employee works on a night shift extending beyond midnight, the holiday shall be of 24 hours starting from the time when the shift ends.

5. Payment of Wages and Deductions:

Under the Code of Wages, an employee's wages may be deducted on certain limited grounds including: (i) fines, (ii) absence from duty, (iii) accommodation given by the employer, or (iv) recovery of advances given to the employee, among others. These deductions should not exceed 50% of the employee's total wages. The Draft Central Rules provides that in case authorized deductions exceed 50% of wages, the excess shall be carried forward and recovered from wages of the succeeding wage periods in installments so that recovery in any month do not exceed 50% of the wages. It also provides that the employer will be required to explain deductions for any damages or loss to the employee personally and also in writing and give employee an opportunity to offer explanation.

6. Form of single application: The joint application of claims by the employees may be filed under the Code on Wages in Form- II as prescribed in the rules on behalf of or in respect of any number of employees employed in an establishment. The application may be filed within a period of 3 years from the date on which such claims arises.

7. Records, Returns and Registers:

The employer is required to maintain a register in Form- IV containing details of persons employed muster roll, wages and other prescribed details. The notice containing abstract of the Code on Wages, category-wise wage rates of employees, wage period, etc. is required to be displayed on the notice board at a prominent place of the establishment. The wage slip is required to be issued in Form - V. All fines and deductions and the realizations thereof is required to be prepared in Form I.

8. Offences and penalties: The Code on Wages has brought a new provision for compounding of those offences which are not punishable with imprisonment. In this regard, the Draft Central Rules provides that an application in Form VI will be required to be made by the employer to the Gazetted Officer. Such compounding may be allowed by the prescribed officer for a sum of 50% of the maximum fine provided for the relevant offence.

CRI Comment:

The Code on Wages read with the draft rules is expected to be taken as one of the significant policy decisions of the Indian government. Amongst several benefits, it shall remove the multiplicity of definitions and authorities and shall make it easier for employers to understand concepts and compliance requirements and thereby making the compliance easier. It is expected to ensure statutory protection for minimum wages and timely payment of wages to approximately 50 crore workers of organized as well as unorganized sector which has been brought under the ambit of the Code on Wages. Also, implementing a national level floor wage for minimum wages could result in a path breaking steps towards ensuring a fair minimum wages to the common laborers.

Once the Code on Wages gets notified and Draft Central Rules comes into force, various organizations would be required to adapt its policies and procedures with the new law to be legally compliant.

This issue of LexCognito, which in Latin means 'awareness about law', seeks to provide you an insight into significant legal and regulatory developments that have taken place very recently in India.