Labour Laws - Code on Wages Act - 2019.pdf

Code on Wages
Act,2019
Analysis by SBC LLP

2
What is the Code on Wages,
2019 ?
http://www.steadfastconsultants.in/
The labour law regime in India has historically consisted of multiple Central and State legislations, each reflecting a set of compliances unique
to the subject matter covered by that legislation. This has led to a system of governance whereby administration and compliance with labour
laws, due to its inherent inconsistencies, has been cumbersome and taxing on employers.
The stated objective of the Code is to amend and consolidate the laws relating
to wages, bonus and related matters.
The legislative intent behind the Code, that has been repeatedly communicated,
is to create a uniform system of governance to ensure a compliance regime that
can be easily and effectively implemented and enforced.
CODE ON WAGES
ACT, 2019
Wages
Bonus
Equal
Remuneration

3
Legislations subsumed
The Payment of
Wages Act, 1936
The Payment of
Bonus Act, 1965
The Equal
Remuneration
Act, 1976
To ensure payment of wages
to employees are disbursed
on time and no undue
deductions are made
To enable fixing of
minimum rates of wages
in certain employments
To provide for payment of
bonus to persons
employed in certain
establishments on the
basis of profits or
production or productivity
To mandate equal
remuneration and to
prevent gender
discrimination in
employment matters
The Minimum
Wages Act, 1948

4
Definitions of Wages
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, andincludes,—
a) Basic pay;
b) Dearness allowance; and
c) Retaining allowance, if any.
Statutory bonus Value of house accommodation/supply of
water,light, medical attendance or other
amenity
Employer’s contribution to Provident
fund, pension and interest accrued
thereon
Conveyance allowance/ value of
travelling concession
Sum paid to defray special
expenses
House Rent Allowance Remuneration payable under award
or settlement
Overtime Allowance
Commission Gratuity payable on termination Retrenchment Compensation and Other Retiral Benefits/Ex-gratia
Specified Exclusions
• Exclusions – other than highlighted components - capped at 50% of total remuneration
• Remuneration in kind to be upto 15% of total remuneration

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Employee and Worker
Employee Worker
Covers any person (other than an apprentice engaged
under the Apprentices Act, 1961), employed on
wages by an establishment to do any skilled, semi-
skilled or unskilled, manual, operational, supervisory,
managerial, administrative, technical or clerical work
for hire or reward, whether the terms of employment
be express or implied
Covers any person (except an apprentice under the
Apprentices Act, 1961), employed in any industry to
do any manual, unskilled, skilled, technical,
operational, clerical or supervisory work but does not
include any person :
» who is employed mainly in a managerial or
administrative capacity: or
» who is employed in a supervisory capacity
drawing wage of exceeding INR 15,000 / 18,000
per month or an amount as may be notified by
the central Government from time to time
Covers only non-managerial
/ non-supervisory staff
Covers all irrespective of
role / level / nature of
duties / salary

6
Who employs:
» Whether directly or
» Through any person
And includes a contractor
Employer and Contractor
Contractor
Employer Contract Labour
Worker who is hired in or connection with the
work of the establishment by or through a
contractor but dots not include a worker who:
» is regularly employed , by the contractor and
employment is governed by mutually
accepted standards of the conditions of
employment: and
» gets periodical increment in the pay, social
security coverage and other welfare benefits
» Undertakes to produce a given result
through contract labour
» Supplies contract labour for any work
of the establishment as mere human
resources

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Right to Equal Treatment
Prohibition of gender discrimination
Unlike the ERA, which ensured pay parity for female employees, the Code
mandates that pay parity should be ensured for all genders. The Code does
not define the term gender. However, since the Supreme Court has recognized
transgenders as forming the third gender, the Code ensures protection now to
not only female employees and male employees, but also to transgender
employees.
As per the Code, experience, too, would have to be considered while
determining the question of pay parity and conditions of service for work
which is same or of similar nature. Therefore, the Code recognizes that
experience and expertise, too, could be a reasonable differentiator when
answering questions as to whether an employer is involved in any
discriminatory practices.

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Minimum Wages
Particulars Under the Code on Wages Comments
Applicability All employments – Not restricted to Scheduled
Employment
Wider coverage – all entities would get impacted.
Concept of scheduled employment done away with
Wages Wide definition with specific exclusions - HRA
covered under exclusions
The minimum wages act prevalent currently includes
HRA
Rest day / Normal working hours Rest day for every period of seven days
Rules to specify the hours of work which would
constitute a normal work day
Draft rules indicated 8 hours of work plus aggregate
rest period of one hour.
Overtime wages Applicable beyond normal working hours at
twice normal wages
Relevant for employees for whom minimum rate pf
wages has been fixed under the code – broad based?
Criteria for determining minimum wages Skill sets, Geography or both
Arduousness of work, working environment
Change from existing act which focuses on fixing
minimum wages employment wise – lesser number of
categories
National Floor Wages Concept of Floor wages brought under the
Code itself. Central Govt. to fix National
Minimum Wage (or Floor Wage).
Minimum wages cannot fall below the floor rate
Revision of minimum wages Minimum wages be revised at-max within 5-
year intervals
Provision is similar under the current Act

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Payment of Wages
Applicability
 No wages threshold as against INR 24,000 in the current Act
 All establishments covered as against specified industries/ factories under the current Act
Meaning of wages
 Conveyance allowance/ travelling concession, HRA, remuneration payable under any award or
settlement or order of Court/Tribunal, any overtime allowance will be included as Wages for this
chapter - specific exception to the exclusion
Quantum of deductions
 Permissible deductions are specified and similar grounds like fines, absence from duty, amenities
provided by the employer, recovery of certain advances to the employee etc. – aggregate deductions
cannot exceed 50%
 includes PF and Pension contributions, tax withholdings, advances, fines,
Timelines for wage payment
 Daily wage period – At the end of the shift
 Weekly wage period – On last working day of the week
 Fortnightly wage period – by end of the second day after expiry of fortnight
 Monthly wage period – by seventh day of the succeeding month
Wage period  Cannot exceed a month
Final settlement for removal, resignation,
dismissal, retrenchment
 Extremely short timeline of 2 working days introduced – no defined timelines in the current
Act
Changes from provisions in Payment of Wages Act

10
Payment of Bonus
Applicability  Applicable to establishments employing 20 or more persons
Rate of Bonus
 Provisions relating to minimum and maximum rate of bonus remains the same as 8.33% and 20%
respectively
Wage Threshold
 Currently The applicability of the PBA was however, limited to employees drawing wages not exceeding INR
21,000 per month.
 Under the Code Wage threshold for eligibility of employees/ computation of bonus – to be notified by the
appropriate Government from time to time.
Disqualification for bonus
 Under the PBA, bonus can be withheld in certain specific situations such as fraud, riotous or violent
behaviour or theft, misappropriation or sabotage of any property of the establishment
 The Code also includes an express provision whereby employee would stand disqualified to receive
statutory bonus in case the employee is dismissed from service on account of conviction for committing
sexual harassment.
Amount of allocable surplus for
payment of bonus.
 Under the Code, the allocable surplus is treated as 67% instead of previous 60% of the available surplus for
all establishments except banking companies for which the allocable surplus would be 60% of the available
surplus.
Changes from provisions in Payment of Bonus Act

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Payment of Bonus
Time limit and mode of payment
 The time period for payment of bonus under the Code remains the same as 8%, however, the Code
specifies that bonus is to be credited into the bank account of the employee (as opposed to being
paid in cash).
Delay in Payment of Bonus
 Further, under the PBA, the payment of bonus could have been delayed if there was a dispute pending.
 However, the Code clarifies that if the dispute relates to payment of bonus at a higher rate, then the
employer is still required to pay 8.33% of the wages earned by the employee within a period of 8 months
from the close of the accounting year and
 The excess, if any, within 1 month of the date of the award or settlement arrived at during the
adjudication.
Liability in case of default of contractor
 Principal employers liable to pay statutory bonus in case of any default by the contractor subject to
conditions
Changes from provisions in Payment of Bonus Act

12
Other salient features
Emphasis on ensuring compliance and not on penalizing an employer
The thrust of the Code is to ensure compliance and various measures have been introduced to achieve this objective, which are unique to this
Code:
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.
Inspection regime
The appropriate Government can frame an inspection scheme that may provision for web based information and calling for information
electronically as well as assign duties to carry out such inspections based on a random selection. If properly framed, it could cut down on abuses
that are rampant in the inspection regime currently in place.

13
Equal Remuneration
Applicability Remuneration/ Wages Employee
 Applicable to all establishments;
 Reference changed from Male /
Female to Gender
 No discrimination to be done on
the ground of sex for work of same
or similar nature – term
“experience” included in addition
to skill, effort and responsibility
 Wider definition – now covers all
remuneration;
 Conveyance allowance/ travelling
concession, HRA, remuneration
payable under any award or
settlement or order of Court/
Tribunal, any overtime allowance
excluded subject to threshold
 Basis for determining equal wages
to all genders
 Specific definitions for employee
and worker;
 Employee refers to individual
employed in an establishment and
worker to one employed in an
industry

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Offences and Penalties
01 02 03 04
Prosecution proceedings
may be initiated after
providing opportunity of
being heard; No
opportunity will be
provided for repetition of
violation within five years
from the date on which
first violation was
committed
Fine upto INR 10,000
First instance – Fine upto
INR 20,000
Second and subsequent
commission –
Imprisonment upto one
month and/or fine upto
INR 40,000
First instance – Fine upto
INR
50,000
Second and subsequent
commission –
Imprisonment up to three
months and/or fine upto
INR 100,000
Non-compliance of
the provision of the
Code after the
timelines under the
directions from
Facilitator Cum
Inspector
Non-maintenance
or improper
maintenance of
records
Contravention of any
other provision or rules
under the Code
Payment of wages less
than the prescribed
amount under the
Code

15
The key aspects of the
Code
Particulars Under the Code on Wages
Overriding effect The provisions of this Code will have effect, notwithstanding anything inconsistent therewith
contained in any other law for the time being in force or in the terms of any award, agreement,
settlement or contract of service.
Preservation of actions taken under existing laws Once the Code is notified, the corresponding legislations will stand repealed. However, any actions
taken under those enactments will be in force to the extent they are not contrary to the provisions of
this Code or until they are repealed.
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.
Time bound decision and appeal process
Under the Code, the authorities hearing such claims (other than in relation to bonus) are required to
put reasonable efforts to decide the claim within a period of 3 months. Parties aggrieved by such an
order can now file an appeal against such an order within 90 days from the date of the order.
Compensation Authorities deciding aforementioned claims could, in addition to granting the claim sought, award
compensation which could extend to ten times of the claim determined. If an employer fails to pay
the claim determined and compensation awarded, the same could be recovered as arrears of land
revenue.

16
Limitation period for filing
claims
 Under the existing legislations the maximum limitation period was
restricted to 1 year.
 The period of limitation for filing claims by an employee under the
Code is higher, at 3 years from the date on which the claim arises.
 Similar to the PBA, the Code 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 Industrial Disputes Act, 1947 does not provide
for a limitation period.

17
Conclusion
The Code is an essential step towards streamlining labour laws in India. With the reduction
in multitude of regulators, the inspection environment can also be expected to become
simpler, with faster resolution of issues in relation to compliance.
The Code also covers both the organized and the unorganized sector, thus paving the way
for a large proportion of the workforce being afforded protection from any discriminatory
practices and for ensuring that a fair wage is paid to all.
The Code is expected to not only reduce employer-employee disputes, but also disputes
between the implementing agencies and the employers.
One of the stated objectives of the Code, as reflected in its statement of objects and
reasons, is to bring the use of technology in its enforcement and to bring in transparency
and accountability.
Any measure that facilitates ease of compliance of labour laws will stimulate growth, and
will hopefully act as a catalyst in boosting employment in India.

Draft Code on Wages (Central) Rules,
2020 – Key provisions

19
Manner of calculation of minimum wages Norms for fixation of minimum wage rate Time Intervals for revision of DA
• Broadly, 6 criterion have been prescribed
• Standard working class family to comprise
of 4
members equivalent to 3 adult
consumption units.
• Yardsticks for food, clothing, shelter
specified
• Expenses on utility, healthcare, education,
recreation etc. factored
• CG to divide the concerned geographical
area into 3
viz. metropolitan, non-metropolitan and rural
area
• CG to also categorise employee occupations
into 4 viz. unskilled, semi-skilled, skilled and
highly skilled.
• Occupations specified in Schedule E to the
rules, with a provision for modification/
addition/ deletion therein.
• The rules specify cost of living adjustment
(COLA) and cash value of concessions to
be computed once before April 01 and
October 01 every year
• Would impact DA payable to the
employees

20
Number of hours of work Rest Day Recoveries from Wages
• Normal working day to comprise of 8 hours
of work with an aggregate rest period of 1
hour
• Work day inclusive of rest intervals not to
spread over more than 12 hours on any day
• Employee to be allowed a day of rest every
week
• Preferred rest day to be Sunday – but
employer can fix any other day as a weekly
rest day
• Substituted rest day if employee works on
stipulated day of rest.
• For working on a rest day employee to be
paid at overtime rates and for substituted
rest day at normal rate.
• Where deductions from wages exceed 50%
- excess to be carried forward and
recovered from succeeding wages of the
wage period
• For imposition of fines, Deputy Chief
Labour
• Commissioner (Central) shall be the
authority
• Employee to be given an opportunity to
offer an explanation – for recoveries
relating to damages or loss

21
Payment of Dues and Claims Forms, registers and wage slips Other Provisions
• In death cases, dues to be paid to the person
nominated or to be deposited with the
specified authority (being deputy chief
labour commissioner (central)) within 3
months/ 6 months
• Rules prescribe a maximum timeframe of
seven years for disbursement of dues.
• Possible to file a combined application by
employees for claiming dues
• Rules permit filing of forms, maintenance of
• registers and issuance of wage slips
electronically.
• Fines/ deductions and realisations thereof
to be recorded in a register prescribed in
Form I.
• Form for composition of offense can be filed
in a
• prescribed Form VI.
• Need for modification to systems /
technological updates to ensure compliance
• Inspection scheme under the code to be
formulated
• by the Chief Labour Commissioner
(Central).

In view of all the above said amendments in labour
laws and social security fund, SBC can help in:
Impact Analysis Revision of existing contracts/
formats
Payroll function outsourcing Employee benefits/
Review performance
KMP tax structuring
and review
Compensation structure planning Filing of Income tax return of
KMPs and employees
Review of employee
investments and declarations

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