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Wednesday, 15 April 2020

Demystifying the Wage Code

The Wage Code finally saw light of day, as it was passed in July 2019. After the lapse of its first iteration in 2017, modifications suggesting by the Standing Committee were taken into consideration, as were the opinions of industry experts, organisations and some trade unions.

This is the first of four proposed codes which now enjoys place as an Act. The new Code on Wages looks to unify the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965, Payment of Wages Act, 1936, and the Equal Remuneration Act, 1976. This move is an attempt to simplify and consolidate regulations and help keep them uniformly implementable. Let us try and understand the key areas of impact under the Wage Code:

Employer and Employee
The wage code has redefined the terms employer and employee as under: -
-          "employee" means, 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, and also includes a person declared to be an employee by the appropriate Government, but does not include any member of the Armed Forces of the Union
-          "employer" means a person who employs, whether directly or through any person, or on his behalf or on behalf of any person, one or more employees in his establishment and where the establishment is carried on by any department of the Central Government or the State Government, the authority specified, by the head of such department, in this behalf or where no authority, is so specified the head of the department and in relation to an establishment carried on by a local authority, the chief executive of that authority, and includes,—
(i) in relation to an establishment which is a factory, the occupier of the factory as defined in clause (n) of section 2 of the Factories Act, 1948 and, where a person has been named as a manager of the factory under clause (f) of sub-section (1) of section 7 of the said Act, the person so named;
(ii) in relation to any other establishment, the person who, or the authority which, has ultimate control over the affairs of the establishment and where the said affairs is entrusted to a manager or managing director, such manager or managing director;
(iii) contractor; and
(iv) legal representative of a deceased employer;

There are two major aspects that are covered through the altered definitions of employer and employee, which include:
(a)    The regulations now being applicable across both the private and public sectors
(b)   Only specially exempted(armed forces and apprentices under the Apprentice Act) are excluded from the defined scope of employer and employee; and all other employees, employers and establishments fall under its scope with regard to the provisions of the Minimum Wages Act and the Payment of Wages Act
The Code aims at unifying the term ‘wages’ so as to reduce ambiguity and inconsistency. In the code, wages have been defined as:
"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, and includes,—
(i)                  basic pay;
(ii)                dearness allowance; and
(iii)               retaining allowance, if any, but does not include––
(a) any bonus payable under any law for the time being in force, which does not form part of the remuneration payable under the terms of employment;
(b) the value of any house-accommodation, or of the supply of light, water, medical attendance or other amenity or of any service excluded from the computation of wages by a general or special order of the appropriate Government;
(c) any contribution paid by the employer to any pension or provident fund, and the interest which may have accrued thereon;
(d) any conveyance allowance or the value of any travelling concession;
(e) any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment;
(f) house rent allowance;
 (g) remuneration payable under any award or settlement between the parties or order of a court or Tribunal;
(h) any overtime allowance;
(i) any commission payable to the employee;
(j) any gratuity payable on the termination of employment;
(k) any retrenchment compensation or other retirement benefit payable to the employee or any ex gratia payment made to him on the termination of employment: Provided that, for calculating the wages under this clause, if payments made by the employer to the employee under clauses (a) to (i) exceeds one-half, or such other per cent. as may be notified by the Central Government, of the all remuneration calculated under this clause, the amount which exceeds such one-half, or the per cent. so notified, shall be deemed as remuneration and shall be accordingly added in wages under this clause: Provided further that for the purpose of equal wages to all genders and for the purpose of payment of wages, the emoluments specified in clauses (d), (f), (g) and (h) shall be taken for computation of wage.
Explanation.––Where an employee is given in lieu of the whole or part of the wages payable to him, any remuneration in kind by his employer, the value of such remuneration in kind which does not exceed fifteen per cent. of the total wages payable to him, shall be deemed to form part of the wages of such employee

There are now three components of wages:
1.       inclusions – basic pay, dearness allowance, retaining allowance
2.       specific exclusions – statutory bonus, house accommodation, utilities, conveyance and travel allowance,  overtime, settlements, retrenchment compensation, special work expenses, PF and pension contribution
3.       conditions pertaining to the quantum of exclusions - These exclusions may NOT add up to over 50 percent of total remuneration. In the event that does exceed, the excess will be considered wages. This is a measure to ensure companies do not formulate structures where wages are less than 50 percent of total remuneration)

Minimum Wages
The following pointers have been instated with respect to minimum wages of states:
-          basis the standard of living within the geography, a national floor rate for wages will be set by the central government
-          Minimum wages will be retained in states where the rates are higher than the floor wages
-          State governments may fix their minimum wages, provided it is not lower than the floor wage rate
-          Wages for overtime may not be less than twice the normal wage rate
-          Minimum wages will be reviewed at periods not exceeding five years

Payment of Bonus
There is now no ceiling on the bonus payable unless notified by the respective State governments. This is opposed to the current ceiling of Rs. 21,000

Equal Pay
Equal remuneration will be given for work, regardless of gender, and there shall be no discrimination

Payment of wages
-          As against the earlier mandate of settling wages on the 10th of every succeeding month, the settlement has now been ordered on the 7th of every succeeding month
-          In the case of resignation, termination, dismissal or retrenchment due to closure of establishment, wages must be released within two working days
-          The limitation period for filing bonuses, claims, equal remuneration and minimum wages has been extended to three years. The earlier window was between 6 months and 2 years

-          The onus of proving compliance with respect to number of days worked, provision of appointment letter etc. now rests with employer. This was earlier the responsibility of the employee
-          Relief to Principal Employer: The Principal Employer is not liable in the Contractor has not been compliant. This is provided he has complied with all necessary provisions and has made all due payments to the Contractor
-          Inspections:  The appointment of inspectors to carry out inspections. Inspectors to advise and guide on better compliance. Maximum penalty of three months and/or fine upto Rs. 1,00,000 for non-compliance

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