Article (May-2021)


A stich in time saves nine

G.M. Saini

Designation : -   Advocate

Organization : -  Labour & Employment Law, New Delhi


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Consolidation and simplification of 29 existing archaic legislations in labour laws into just 4 new labour codes is a long awaited and a welcome step, which is expected to encourage ease of doing business, better compliances and a conducive industrial governance to boost the overall economic growth of the country. 1025 sections in the existing labour legislations under repeal have been reduced to just 480 sections, and 335 definitions in the said 29 legislations under repeal have been reduced to just 226 definitions only. There is not much ado about 225 new definitions in the forthcoming new labour codes, but just for one definition, which is bothering all stakeholders in the entire business community, i.e., the employers and the employees. This contentious definition is the new definition of "wages" as specified in section 2(y) of the Code on Wages, 2019; and repeated in other three codes.

Everyone in the industry was expecting positively with great hope that in the historic exercise of consolidation and simplification of the existing archaic labour legislations, the provisions in the seriously contemplated and meticulously drafted new labour codes will be simple to understand and easy to implement, particularly the provisions which are the most commonly disputed, because of their different definitions under different existing legislations. One very prominent of them is the term 'wages'. It was expected that under the new labour codes, the definition of the term 'wages' will be simplified and unified. The new definition of wages as provided in the Code on Wages, 2019, and repeated in other three Codes, is short of meeting the expectation, for the simple reason that the new definition is ambiguous, knotty and impractical to comply with. The new definition of wages may again lead to frequent litigations as there seems ample possibility of different interpretations and faulty compliance, particularly because of zigzag complex provisos and explanation added to the definition of wages in the new labour codes. When this definition will be introduced, authorities may find fault in compliance which may lead to prosecution of employers for wrong and improper compliance. Employers in general are feeling dissatisfied and confused with the new definition of wages, not only because they find it impractical to implement it, but more for the reason that it will substantially increase their pay-out and jeopardise their business economics. Higher labour cost may further shrink employment fabric, which is already contracted due to aftermath of Covid-19, and even otherwise. Higher labour cost may also upsurge inflation. Those employees will also be unhappy whose take-home package will get reduced down when the new definition of wages will be implemented. Erosion of take-home wages may not stop here. It may have some other side effect also. Wage structure is normally designed keeping in view tax planning of employees within the available legitimate parameters of tax laws. When Basic pay will be imposed to be kept higher at 50% of all remuneration, tax liability of employees will increase and actual take-home wages of employees will go down further.

The situation needs urgent attention before it creates avoidable chaos in the industry. Since the enforcement of new labour codes has been delayed, let this opportunity be used to correct the fault, before it is finally introduced. It is medically and legally advisable to abort in time a known (X-rayed) deformed and defective fetus rather than allowing it to develop full term and deliver a severely handicapped and abnormal baby, which may not survive for long time; and if survived, cannot lead a normal life, and will remain critically dependent on regular medical support, and will be a permanent liability and burden on the parents as well on the baby himself. Thus, the impractical and abnormal definition of wages in the Code on Wages, 2019 inevitably needs immediate correction before it is made legally enforceable. Important abnormality in the definition of wages in Code on Wages, 2019, inter alia, is as below:-

1. Exclusion of the most important component of any wage structure, i.e., House Rent Allowance, from the definition of wages is quite surprising. It may have adverse effects. House Rent Allowance should be allowed to continue to be integral part of main wages slot in its present form, and it should not be excluded.

2. The first proviso to section 2(y) of the definition of wages in Code of Wages, 2019, about importing amounts from expressly excluded components; from (a) to (i), which exceed 50% of all remuneration in wages slot, or of the per cent as notified by the Central Government; back in the main wages slot like through back door, is self-contradictory. Once some components are held to be excluded from the main definition of wages, there seems no necessity or logic of undoing the exclusion and create complexity. Similarly, there is a second proviso about counting some portion of such excluded components in the name of equity between the genders of employees. Another tricky issue is the explanation to the definition of wages which provides for adding 15% of wages paid in kind, back to the main wages slot. The said two provisos and the explanation to the definition of wages are being seen as devoid of reasonability, practicality, necessity and logic; and are likely to open floodgate of their different interpretations and calculations when introduced. Employers are already facing difficulties in re-designing their new wage-structures in tune with new definition of wages, more particularly where a pre-agreed CTC system is involved or where other components of wages are linked to Basic pay on per cent basis.

G.M. Saini - Advocate, Labour & Employment Laws, New Delhi

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