Authored By – Shahana khan
INTRODUCTION
The Code on Wages, 2019, attained its official law status on August 8, 2019, with the objective of establishing standardized and fair wage regulations to safeguard all sectors of the Indian workforce. This wage protection mechanism was enhanced through the Code, which amalgamated four significant labor laws: the Payment of Wages Act (1936), the Minimum Wages Act (1948), the Payment of Bonus Act (1965), and the Equal Remuneration Act (1976). By integrating these laws, the Code ensures comprehensive protection for workers in both organized and unorganized sectors.
The Code defines “basic minimum wage” as the standard minimum pay applicable to all jobs, ensuring that workers do not receive wages below the legally set limit. This provision particularly benefits workers engaged in the daily wage system, contractual employment, and the informal sector, where wage exploitation is prevalent. Moreover, the Code mandates that state authorities set wages above the minimum floor wage, preventing any downward revision that could negatively impact workers’ livelihoods.
One of the Code’s significant features is its explicit prohibition of discriminatory wage payment based on gender. By enforcing fair pay for equal job responsibilities, the Code promotes gender equality in workplaces, ensuring improved employment opportunities for female workers. Additionally, it prevents sex-based hiring discrimination, fostering a fair and inclusive work environment.
Another crucial aspect is the mandatory bonus system, which provides financial assistance to employees earning below government-mandated wage levels. Employees who have worked for over thirty days in an accounting year are entitled to an annual bonus exceeding ₹100, with a minimum bonus amounting to 8.33% of their salary. This provision offers direct monetary relief to low-income employees.
The Code introduces a single, streamlined framework for wage compliance and dispute resolution, replacing fragmented wage-related laws. This simplifies payroll management for businesses while ensuring timely resolution of wage disputes for workers. Since labor laws fall under the Concurrent List of the Indian Constitution, both central and state governments have the authority to establish wage regulations aligned with their respective economic conditions.
The Code consists of 67 sections, distributed across nine chapters, covering key aspects such as wage determination, bonus payments, gender equality enforcement, and dispute resolution mechanisms. Notably, Section 3 prohibits gender discrimination, while Section 4 empowers authorities to determine work equivalence to protect against discriminatory practices.
Keywords: Code on Wages Act 2019, Minimum wage, workforce, gender equality, wage exploitation, labor rights.
HISTORICAL BACKGROUND
The Code on Wages Bill was first introduced in Parliament by Minister Santosh Gangwar on August 10, 2017, during his tenure as the Minister of State for Labor and Employment (Independent Charge). The primary objective of the bill was to consolidate all wage-related labor laws in India under a comprehensive and unified system.
The bill was subsequently examined by a Parliamentary Standing Committee, which deliberated on it between August 21, 2017, and December 18, 2018. Out of 24 recommendations made by the committee, 17 were incorporated into the final bill. However, the bill lapsed due to the dissolution of the 16th Lok Sabha before the 2019 general elections.
With the formation of the 17th Lok Sabha, the Code on Wages Bill, 2019, was reintroduced on July 23, 2019. Extensive discussions took place among government representatives, employer bodies, trade unions, and the general public. According to Santosh Gangwar, the Code aimed to extend wage protection to workers across all sectors, including the unorganized workforce, which previously lacked comprehensive wage-related legal protection.
The bill received Lok Sabha approval on July 30, 2019, followed by Rajya Sabha approval on August 2, 2019. After securing Presidential assent from Ram Nath Kovind on August 8, 2019, it was officially published in the Gazette of India.
On July 7, 2020, the Union Ministry of Labor issued draft implementation rules for Section 67, inviting public feedback for a period of 45 days. While several provisions of the Code became effective on December 18, 2020, certain sections are pending official notification in the Gazette.
KEY PROVISIONS OF THE CODE ON WAGES, 2019
1. Consolidation of Wage-Related Laws
The Code on Wages, 2019, integrates four existing labor laws:
- The Payment of Wages Act, 1936
- The Minimum Wages Act, 1948
- The Payment of Bonus Act, 1965
- The Equal Remuneration Act, 1976
By consolidating these laws, the Code standardizes wage regulations and eliminates inconsistencies that previously existed. This ensures better protection of employees’ wages across various sectors.
2. Coverage and Applicability
Unlike previous wage-related laws that covered only specific sectors, the Code applies universally to all workers, including those in both organized and unorganized sectors.
The authority to regulate wages is divided between the Central Government and State Governments:
- The Central Government oversees wage regulations in railways, mines, and oil fields.
- The State Governments regulate wages in other industries and employment sectors.
This dual governance structure ensures that organizations maintain consistent wage practices while allowing states the flexibility to tailor wage regulations according to regional economic conditions.
3. Definition of Wages
The Code defines “wages” as the sum of an employee’s salary, allowances, and monetary benefits. However, certain components are excluded, such as:
- Bonuses
- Travel allowances
- Housing benefits
By standardizing wage definitions, the Code eliminates ambiguity in wage calculations, making salary structures more transparent for both employers and employees.
4. Minimum Floor Wage Mechanism
One of the most significant features of the Code is the introduction of a minimum floor wage, which acts as a base limit below which wages cannot be set. The Central Government determines the national floor wage, while State Governments must set minimum wages above this threshold. This mechanism safeguards workers from wage exploitation.
5. Prohibition of Gender-Based Wage Discrimination
The Code strictly prohibits wage discrimination based on gender. It mandates equal pay for equal work, ensuring that female workers receive fair compensation. Additionally, it prohibits sex-based discrimination during hiring to promote gender inclusivity in workplaces.
6. Mandatory Bonus System
The Code ensures that employees earning below a specific wage threshold receive an annual bonus. If an employee has worked for more than 30 days in an accounting year, they are entitled to a bonus amounting to 8.33% of their salary or more. This provides financial assistance to low-income workers.
7. Simplification of Wage Compliance and Dispute Resolution
The Code replaces multiple wage-related laws with a single, streamlined framework, making it easier for businesses to manage payroll and comply with wage regulations. Additionally, the dispute resolution process is simplified, ensuring that workers receive timely redressal of wage-related grievances.
Floor Wage and Minimum Wages
The Code implements floor wages to ensure that minimum payments allow workers to meet their basic needs. The Central Government sets the minimum wage floor, which may be adjusted based on varying cost-of-living rates across different regions. An established floor wage becomes the minimum standard that State Governments must apply to their regional minimum wages. A state government cannot reduce its present minimum wage rates if they surpass the established floor wage levels.
Both the national government and state authorities must revise minimum wage standards at least once every five years. When establishing minimum wages, governments should analyze workplace difficulty and worker skill levels to provide reasonable compensation across all industries.
Working Hours and Overtime Provisions
According to the Code on Wages, both Central and State governments have the authority to establish employee working hours. Workers exceeding the prescribed working hours are entitled to proper overtime compensation under the fundamental provisions of the Code. The Code mandates that employees receive at least twice their regular wage rate for overtime work, ensuring fair compensation for extended working hours.
Payment of Wages and Mode of Payment
The Code specifies payment standards that allow employers to deliver wages through multiple methods, including:
- Coins or currency notes
- Cheques
- Bank transfers
- Electronic payments
Employers can select wage periods ranging from daily, weekly, fortnightly, or monthly, depending on employment type. The Code provides clear provisions ensuring timely wage payments, protecting workers from financial hardships and delays.
Deductions from Wages
The Code permits wage deductions under specific conditions while ensuring protected earnings for workers. Permissible deductions include:
- Fines imposed for misconduct
- Deductions for absence from duty
Wages may also be reduced through employer-offered facilities such as accommodation and other provided amenities. Employees can recover monetary advancements or loans provided by the employer.
Bonus Entitlement and Profit Sharing
Organizations enhance worker financial stability through the bonus compensation directives established by the Code. Every wage-earning employee falling under minimum wage criteria is entitled to receive an annual bonus of at least ₹100 or 8.33% of their earnings.
Additionally, businesses must allocate a portion of total annual profits to employees as part of their participation in company gains. This system ensures that workers receive bonus payments reaching up to 20% of their yearly salary, boosting employee productivity while maintaining economic fairness.
Gender Equality in Wages and Employment
The Code implements crucial measures to eliminate gender-based discrimination. It contains clear regulations preventing wage discrimination and recruitment biases, ensuring equal pay for men and women performing equivalent work.
Work similarity under the Code refers to roles requiring the same skill levels, comparable effort, experience, and responsibilities. This provision fosters social equality in workplaces and enhances economic empowerment for women.
Advisory Boards and Policy Recommendations
These boards consist of:
- Employers
- Employees (equal representation as employers)
- Independent experts
- State Government representatives (for the Central Board)
Notably, one-third of the members must be women, ensuring diverse representation and a focus on gender-inclusive policies. The Advisory Boards provide recommendations on minimum wage fixation and strategies to enhance employment opportunities for women, playing a crucial role in shaping labor policies.
Penalties for Non-Compliance
The Code enforces strict penalties for employers who violate wage payment laws. Non-compliance may result in:
- Fines up to ₹1,00,000
- Imprisonment for up to three months, depending on the severity of the offense
These penalties serve as deterrents against worker exploitation and ensure that employees receive their rightful wages.
Significance of Labor Rights and Its Impact on Workforce Productivity
The Code on Wages, 2019, represents a significant labor law reform in India, consolidating various wage-related laws to establish a more transparent and worker-centric wage payment system. The impact of this Code extends across labor rights, workforce productivity, and employer-employee relations.
Strengthening Labor Rights
a) Universal Wage Coverage
Before the Code’s implementation, wage regulations applied selectively to specific industries and worker groups. The new Code ensures that all employees, regardless of industry or minimum pay amount, are entitled to wage protection. This universal coverage helps prevent wage-related social injustices and reduces economic inequalities.
b) Floor Wage for Basic Economic Security
The new minimum wage policy mandates that all workers receive at least the basic cost of living. By defining wage thresholds based on local living expenses, the Code protects workers—especially in unorganized sectors—from wage exploitation.
c) Gender Equality in Wages and Employment
The Code prohibits employers from discriminating against workers based on gender. Women and men performing identical or equal positions must receive the same pay. This provision strengthens female labor rights and enhances workplace gender equality.
d) Protection Against Unfair Deductions and Delayed Payments
Employers cannot deduct more than 50% of an employee’s wages, ensuring that workers retain a substantial portion of their earnings. The Code also mandates prompt wage payments, reducing financial instability among employees.
e) Mandatory Bonus and Profit Sharing
Every employee earning within the prescribed wage threshold is entitled to an annual bonus of at least 8.33% of their total pay. Businesses must distribute their operating profits among employees as per the Code’s guidelines.
Enhancing Workforce Productivity
a) Incentivizing Skill Development and Fair Pay
Minimum wages under the Code consider skill levels and work complexity. This encourages skill development, leading to enhanced workforce productivity.
b) Standardized Overtime Provisions
Workers now receive double their regular pay for overtime work. This standardized approach prevents employee burnout while improving workplace morale.
c) Better Employment Stability
Consistent and transparent wage payment practices enhance job satisfaction, reducing employee turnover and improving workforce stability.
d) Encouraging Female Workforce Participation
Equal wage policies and better working conditions attract more women into the workforce, leading to higher national economic productivity.
Economic and Business Impact
a) Formalization of Wages in the Unorganized Sector
The Code facilitates formal wage structures, providing better financial security for unorganized sector workers.
b) Boosting Consumer Spending and Economic Growth
Higher wages and timely payments increase consumer spending, stimulating economic growth.
c) Encouraging Compliance Among Employers
By simplifying wage laws, the Code reduces wage-related legal disputes, fostering better employer-employee relations.
Challenges & Criticism
- Lack of Clarity in Wage Definition – The Code’s broad interpretation of wages creates uncertainty regarding allowances and deductions, leading to legal disputes.
- State vs. Central Wage Authority – Critics argue that centralizing minimum wage determination reduces state autonomy.
- Uniform Minimum Wage Concerns – A single nationwide wage standard disregards regional cost-of-living differences.
- Impact on SMEs – Small and medium enterprises (SMEs) may struggle with increased wage costs, potentially leading to layoffs.
- Weak Implementation Mechanism – Digital inspections may reduce regulatory oversight, increasing wage violations.
- Bonus Payment Issues – The Code does not reform bonus eligibility criteria, leaving many workers excluded.
- Gender Pay Parity Challenges – Despite legal provisions, deep-rooted biases and weak enforcement hinder gender pay equality.
- Ambiguity in Penalty Framework – Employers are uncertain about compliance penalties, reducing enforcement effectiveness.
Recommendations
- Strengthen Implementation and Compliance – Introduce better monitoring, regular inspections, and stricter penalties.
- Enhance Awareness and Education – Conduct mass campaigns to educate both workers and employers on their rights and obligations.
- Strengthen Wage Determination Mechanism – Adjust minimum wages based on economic conditions and regional disparities.
- Encourage Workforce Productivity – Promote skill-based wages and fair overtime regulations.
- Focus on the Unorganized Sector – Incentivize digital wage payments and extend wage protections to gig workers.
- Promote Gender Equality – Enforce equal pay laws and create workplace policies supporting women.
Conclusion
The Code on Wages, 2019, is a landmark labor law reform that improves wage regulation, enhances payment systems, and strengthens labor productivity. It establishes fair wage structures, enforces timely payments, and promotes social equity, particularly for women and unorganized sector workers. However, effective implementation depends on strong enforcement mechanisms, periodic reviews, and awareness programs. With proper execution, the Code will enhance worker well-being, drive business growth, and contribute to India’s economic development.
References
- National Board for Workers Education & Development, Ministry of Labor & Employment, Govt of India
- The Code on Wages Act, 2019 – Wikipedia
- The Code on Wages Act, 2019 – Bare Act
- The Code on Wages Act, 2019 – PRS Legislative Research
