Code On Wages 2019: A Leap Forward
This is the second article in a two-part series on The Code on Wages, 2019.
Overall, the Wage Code is a significant move forward in its attempt to cut through four large statutes and condense them into a more concise law with just 69 sections. Employers will also hopefully be spared the effort of maintaining multiple records and registers under each of these laws.
For the most part, the Wage Code has shied away from making any drastic or substantive changes that better reflect current market practices. That said, some of the modifications are commendable.
Gender-Neutral Equal Remuneration
The Wage Code has now made the provisions on equal remuneration gender neutral. Section 5 of the Equal Remuneration Act currently only protects women against discrimination in matters of recruitment or other post-employment service conditions like promotions, training and transfers.
The Wage Code proposes a neutral approach and disallows “any discrimination on the grounds of sex” in matters of recruitment for same or similar work or in the conditions of employment.
It further expands the definition of ‘same or similar work’ to account for experience of the individual as well, in addition to skill, effort and responsibility.
New Definition Of Contract Labour
The Wage Code has proposed a new definition of ‘contract labour’ which excludes individuals who are regularly employed by the contractor under mutually accepted conditions of employment, and who get periodic increments in pay, social security benefits, etc.
A similar definition appears in the Occupational Safety, Health and Working Conditions Code 2019 as well. This has been the demand of the industry for the longest time (a proposed amendment to the CLRA Act on this has languished for some time now), which will ease compliances to a great extent.
This definition allows organisations to not treat staff of well-established service providers, who hire employees for their ongoing business needs and not necessarily for just a client project, as contract labour.
The definition of ‘employer’ includes a ‘contractor’ too, which appears to indicate that a contractor would also need to independently comply with all the obligations in the Wage Code viz.-a-viz. employees and workers, thereby safeguarding the interest of the employees.
Decriminalisation Of Offences
The Wage Code has decriminalised all offences except where it is a repeat of a similar offence within 5 years. It also allows compounding of the first offence, which means that the organisation can pay a composition fee to settle the matter and avoid lengthy court proceedings.
On the other hand, it also prescribes larger fines for non-compliance, and the compensation payable for any default in payment of wages, minimum wages, bonus, etc. could be up to 10 times the claim determined by the relevant authority.
While this is a positive move, the Wage Code could have gone a step further to stipulate imprisonment only for more serious offences, if they are repeated, and done away with any sort of imprisonment for mere procedural non-compliance.
The Wage Code states that the appropriate government must lay down an ‘inspection scheme’ which may also provide for web-based inspection and calling of information, thereby excluding the potential harassment organisations undergo in physical inspections. Further, labour inspectors have been given the dual role of a ‘facilitator’ as well. The Inspector-cum-facilitator must first give the employer an opportunity to cure the non-compliance (provided it’s not a repeat offence) within a stipulated period, and only on failure to do so, should prosecution be initiated. This would go a long way in mitigating needless prosecution for unwitting/unintentional non-compliances.
Definition Of A Floor Wage
A key feature of the Wage Code, which has been debated most extensively, is the provision allowing the central government to stipulate a ‘floor wage’ (which may vary based on geographical areas), based on advice from the Central Advisory Board.
While state governments retain the authority to stipulate their own minimum wages, these cannot be lower than the floor wage stipulated set by the Central Government. This provision has met with some pushback, as it takes away a state’s autonomy in determining the wages for its workforce based on its own regional and economic conditions.
To try and achieve balance, the Wage Code has revised the composition of the Central Advisory Board to now also include five representatives of state governments nominated by the central government.
The Wage Code further expects the government to stipulate as few number of minimum wage rates “as far as possible”. Currently, each state stipulates several hundred rates of minimum wage based on the nature of industry, zone, nature of employment, level of skill, education, etc. Fewer rates of minimum wage, guided by the floor rate stipulated by the central government, will hopefully make compliance simpler and also make it easier for the actual beneficiaries to know what wages they deserve.
While the law around this remains largely unchanged, there is scope for aligning it with market practices through this new code. Here’s another suggestion that lawmakers should consider. While all workers deserve to be compensated for overtime, the market reality very often (especially in the services sector) is that employees’ wages far exceed the minimum wages stipulated for their jobs or positions. In such scenarios, to further burden the organisation with overtime related expenditure acts as a huge deterrent to employment generation and India’s attractiveness as a business destination.
It would be advisable for the Wage Code to consider including a specific exemption from overtime provisions for employees who earn above a (comfortable) wage threshold, that can be specified.
To avoid employee burnout and health concerns for such individuals, there can be reasonable limits imposed on the total number of overtime hours in a week, month or quarter (for example, Maharashtra recently stipulated a 125 hours overtime limit in a quarter under its Local Shops Act). This would help ensure that employees at the lower end of the wage spectrum are duly compensated for extra effort, and at the same time employers are not burdened with incremental overtime cost for those who are already well-compensated.
It is important for the government to use the opportunity to revamp Indian labour laws to not just reduce the number of laws or the number of sections in them. Most labour laws are from the independence era and there is a drastic need to make substantive changes to make sure they align with market realities. No doubt, the unions will oppose changes since all labour laws have historically been pro-worker, but an opportunity to make such large scale changes does not come often. The revised laws must not just reflect present practices, but also be equipped to deal with the realities and challenges of the future such as increasing automation, artificial intelligence, use of technology for compliance monitoring, etc. The Wage Code and the other proposed codes can and should go above and beyond their current form.
The first article in this series can be read here.
Atul Gupta is a labour and employment law specialist and a Partner with Trilegal. Views are personal.
The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its editorial team.