Overview
The Code on Wages, 2019 is a modern legislation enacted by the Indian Parliament as part of an effort to streamline and consolidate India’s numerous labor laws. It amalgamates four previous laws related to wage and remuneration: the Payment of Wages Act 1936, Minimum Wages Act 1948, Equal Remuneration Act 1976, and Payment of Bonus Act 1965. By consolidating these, the Code on Wages aims to remove complexities and inconsistencies between different laws and extend coverage of important provisions (like minimum wages and timely payment of wages) to all employees in all industries. The Code on Wages was passed in August 2019. While it has received Presidential assent, as of the current date, it is expected to come into force once the central and state governments finalize the supporting rules (which has been in progress). This Code is one of the four new labor codes that collectively overhaul India’s labor law landscape.
Key Objectives and Changes
The Code on Wages introduces several key changes and objectives:
• Universal Minimum Wage: Under earlier law, minimum wages were only guaranteed for workers in scheduled employments (specific industries or job categories listed by governments). The Code on Wages ensures that minimum wage provisions extend to all employees in all sectors. It also introduces the concept of a national floor wage – a minimum wage baseline set by the central government for the whole country. States will then fix their local minimum wages at or above this floor. This is intended to reduce huge disparities in wage levels across states and ensure a basic standard of living nationally.
• Consistent Definition of Wages: The Code provides a single, uniform definition of “wages” for the purposes of all components (minimum wages, payment of wages, bonus, etc.). This was important because previously each law defined wages slightly differently (leading to confusion in calculating bonus, or deciding what components are included for minimum wage, etc.). Now, “wages” generally include all remuneration expressed in monetary terms, but exclude certain allowances like bonuses, HRA, conveyance, etc. However, it has a provision that if those exclusions exceed 50% of total remuneration, the excess will be counted as wages – effectively capping how much of the salary can be in form of allowances. This change is significant for payroll structuring and ensures employers cannot evade contributions or minimum wage by showing most of salary as allowances.
• Timely Payment of Wages: The Code carries forward the rules from the Payment of Wages Act, but without the previous salary threshold (earlier, that Act applied only to those earning below a certain amount per month). Now every employee is entitled to timely wage payment. Wages must be paid on a regular pay period (monthly, weekly, etc. as applicable) and within a stipulated time if someone’s employment is terminated (e.g., within two working days of termination). It also limits deductions from wages (such as fines, deductions for absence, etc.) to not more than 50% of an employee’s wage, protecting take-home pay.
• Gender Equality in Wages: The provisions of the Equal Remuneration Act are embedded in the Code. It mandates no gender discrimination in wages. Men and women (and now it also covers transgender persons explicitly) must be paid equally for the same work or work of similar nature. Also, it prohibits gender-based discrimination in recruitment and conditions of employment in matters of wages.
• Bonus: The Payment of Bonus Act’s provisions are retained: certain establishments must pay an annual statutory bonus to employees. Under the Code, the bonus applies to establishments with at least 20 employees, for employees whose wages do not exceed a certain monthly amount (this threshold can be set by the government; previously it was ₹21,000 under the old Act). Eligible employees get a minimum bonus of 8.33% of wages or ₹100, whichever is higher, and up to a maximum of 20% of wages, depending on the allocable surplus/profits of the establishment. The Code simplifies some procedural aspects of bonus calculations, but broadly the rights remain similar.
• Coverage of Unorganized Sector: By making minimum wages universal, even workers in the unorganized sector or small establishments (who were not covered before) will be legally entitled to a minimum wage. This is a pro-worker step. Enforcement mechanisms such as inspectors-cum-facilitators and easier dispute resolution (with claims to be decided within 3 years) are intended to improve actual implementation in informal sectors.
Compliance Requirements
Though the Code on Wages is not fully operational yet (pending rules finalization), employers should be preparing for compliance:
• Review of Wage Structure: Companies will need to ensure their salary structures meet the new definition of wages (i.e., that at least 50% of the CTC qualifies as “wages” after excluding allowances). This might require adjustments to how salaries are broken down, to avoid issues in contributions to PF or other future obligations tied to “wages”.
• Minimum Wage Alignment: Organizations must pay attention to the national floor wage once declared, and the state notifications that will follow. HR should ensure that even entry-level or low-skill workers in their enterprise are paid at or above the applicable minimum wage for their category. If currently anyone is below or if one was excluding some allowances to meet minimum wage, those practices will need revisiting.
• Payroll Process and Deductions: The Code will require that wages are paid on time to all employees, meaning payroll cycles and processes should be tuned for prompt payment (e.g., by 7th of next month for monthly wages, as often stipulated). Any deductions being made (for provided accommodation, loans, etc.) should be reviewed to ensure total deductions don’t cross 50%. If the company has practices like fines or penalties, they must conform to the code’s rules (only as per authorized conditions and limits).
• No Gender Discrimination: It’s always been important, but now explicitly under this law, companies must ensure their compensation policies are gender-neutral. HR should document job roles and ensure that for the same or similar work, there is no wage gap between male and female employees. In recruitment or promotion decisions, bias leading to different pay for similar roles could lead to legal challenges under the code.
• Bonus Calculations: If the establishment is of a type and size that must pay a statutory bonus, the payroll or finance team should calculate the allocable surplus as per the Code (which will be similar to earlier, taking profits and certain set-offs into account) and ensure bonus (at least minimum 8.33%) is paid to all eligible employees within the time limit (within 8 months of financial year close, usually). The threshold for eligibility (the wage ceiling to identify whom to pay bonus) will be set by the government; employers need to watch out for that number and ensure everyone under it gets their due bonus.
• Record-Keeping and Inspections: The Code will expect employers to maintain registers of wages, overtime, fines, etc. in a prescribed format (likely simplified and possibly digitized). Inspectors (to be called Inspector-cum-Facilitators) will have powers to inspect as well as guide employers on compliance. There will also be an increased focus on transparency – possibly giving wage slips to workers, displaying abstract of the Code, etc., similar to older laws. Companies should gear up to follow these once specified.
Overall, the Code on Wages, 2019 is designed to simplify compliance by having one law instead of four. For compliance officers and HR, it means one unified framework to follow. However, until it is brought into force, they must continue abiding by the existing laws it will replace. It’s advisable to already align with the Code’s broad requirements since its enforcement is imminent. Once the Code and its corresponding state rules are in effect, non-compliance could result in penalties such as fines. The Code prescribes penalties for different offences (for example, not paying minimum wages or bonus can incur fines up to ₹50,000 for first offence, and higher penalties or even prosecution for repeat offences). Therefore, understanding and implementing the Code on Wages is a forward-looking compliance step for all employers in India.
