Article (October-2019)

Articles

Overview of the code on wages, 2019

Alok Bhasin

Designation : -   Advocate

Organization : -  Bhasin & Bhasin Associates, New Delhi

01-Oct-2019

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Introduction :

The Parliament has passed the Code on Wages, 2019, which is an Act to amend and consolidate the laws relating to wages and bonus and matters connected therewith or incidental thereto. Broadly speaking, the Code on Wages, 2019 seeks to rationalize, harmonize and amalgamate four enactments, viz., the Equal Remuneration Act, 1976, the Minimum Wages Act, 1948, the Payment of Wages Act, 1936 and the Payment of Bonus Act, 1965. The Code on Wages received the assent of the President on 08.08.2019. It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint. The Central Government may fix different dates for different provisions of this Code for the purposes of enforcement thereof. Rules are yet to be framed under this Code.

Once the Code on Wages, 2019 comes into force, the Payment of Wages Act, the Minimum Wages Act, the Payment of Bonus Act and the Equal Remuneration Act shall stand repealed.

Some Important Definitions :

Before adverting to the salient features of the Code on Wages, as also to the implications of the new legislation on the establishments, it would be relevant to refer to certain important definitions given in the Code.

Definition of "appropriate Government"

Section 2(d) : "appropriate Government" means -

(i) in relation to, an establishment carried on by or under the authority of the Central Government or the establishment of railways, mines, oil field, major ports, air transport service, telecommunication, banking and insurance company or a corporation or other authority established by a Central Act or a central public sector undertaking or subsidiary companies set up by central public sector undertakings or autonomous bodies owned or controlled by the Central Government, including establishment of contractors for the purposes of such establishment, corporation or other authority, central public sector undertakings, subsidiary companies or autonomous bodies, as the case may be, the Central Government.;

(ii) in relation to any other establishment, the State Government.

Definition of "contractor"

Section 2(f) : "contractor", in relation to an establishment, means a person, who -

(i) undertakes to produce a given result for the establishment, other than a mere supply of goods or articles of manufacture to such establishment, through contract labour; or

(ii) supplies contract labour for any work of the establishment as mere human resource and includes a sub-contractor.

Definition of "contract labour"

Section 2(g): "contract labour" means a worker who shall be deemed to be employed in or in connection with the work of an establishment when he is hired in or in connection with such work by or through a contractor, with or without the knowledge of the principal employer and includes inter-State migrant worker but does not include a worker (other than part-time employee) who -

(i) is regularly employed by the contractor for any activity of his establishment and his employment is governed by mutually accepted standards of the conditions of employment (including engagement on permanent basis), and

(ii) gets periodical increment in the pay, social security coverage and other welfare benefits in accordance with the law for the time being in force in such employment.

Definition of "employee"

Section 2(k) : "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.

Definition of "establishment"

Section 2(m) : "establishment" means any place where any industry, trade, business, manufacture or occupation is carried on and includes Government establishment.

Definition of "wages"

Section 2(y) : "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 percent as may be notified by the Central Government, of the all remuneration calculated under this clause, the amount which exceeds such one-half, or percent 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 percent of the total wages payable to him, shall be deemed to form part of the wages of such employee;

Definition of "worker"

Section 2(z) : "worker" means any person (except an apprentice as defined under clause (aa) of section 2 of the Apprentices Act, 1961) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied, and includes-

(i) working journalists as defined in clause (f) of section 2 of the Working Journalists and other Newspaper Employees (Conditions of Service) and Miscellaneous Provisions Act, 1955; and

(ii) sales promotion employees as defined in clause (d) of section 2 of the Sales Promotion Employees (Conditions of Service) Act, 1976, and for the purposes of any proceeding under this Code in relation to an industrial dispute, includes any such person who has been dismissed, discharged or retrenched or otherwise terminated in connection with, or as a consequence of, that dispute, or whose dismissal, discharge or retrenchment has led to that dispute,

but does not include any such person-

(a) who is subject to the Air Force Act, 1950, or the Army Act, 1950, or the Navy Act, 1957; or

(b) who is employed in the police service or as an officer or other employee of a prison; or

(c) who is employed mainly in a managerial or administrative capacity; or

(d) who is employed in a supervisory capacity drawing wage of exceeding fifteen thousand rupees per month or an amount as may be notified by the Central Government from time to time.

Prohibition of discrimination on ground of gender :

Sections 3 and 4 of the Code on Wages, 2019 correspond to the crux of the Equal Remuneration Act, 1976. In a nutshell, Section 3 prohibits discrimination in an establishment among the employees on the ground of gender in matters relating to wages by the same employer, in respect of the same work or work of a similar nature done by any employee.

Minimum Wages :

Chapter-II, which contains Sections 5 to 14, corresponds to the now repealed Minimum Wages Act, 1948. However, the Code on Wages has substantially altered the landscape of the law relating to minimum wages. While the now repealed Minimum Wages Act applied only to certain specific employments that were notified by the Government as a scheduled employment, the Code on Wages, 2019 applies to all employments.

Section 5 of the Code on Wages clearly provides: "No employer shall pay to any employee wages less than the minimum rate of wages notified by the appropriate Government."

Section 6 of the Code obligates the appropriate Government to fix the minimum rate of wages payable to employees in accordance with the provisions of Section 8.

The Code on Wages has also introduced a new feature by providing in Section 9 that the Central Government shall fix floor wage taking into account minimum living standards of a worker in such manner as may be prescribed. Different floor wage may be fixed for different geographical areas. The minimum rates of wages fixed by the appropriate Government under section 6 cannot be less than the floor wage. If the minimum rates of wages fixed by the appropriate Government earlier is more than the floor wage, then the appropriate Government cannot reduce such minimum rates of wages fixed by it earlier.

Largely speaking, the following new features of the law on minimum wages, as introduced by the Code on Wages, 2019 may be noted:

i) The appropriate Government may fix the minimum rates of wages for any employment, as distinguished from the earlier scheme of the now repealed Minimum Wages Act which provided for fixing minimum rates of wages only for the scheduled employments.

ii) The Code on Wages defines "employee" as well as "worker". It would be noted that the Code has introduced a gender neutral expression by providing for definition of "worker", as distinguished from "workman". The definition of "employee" includes even the employees employed to do supervisory, managerial and administrative work, irrespective of the salary drawn by them. However, the definition of "worker" specifically excludes, inter alia, any person employed mainly in a managerial or administrative capacity; or one who is employed in a supervisory capacity and draws wages exceeding Rs. 15,000/- per month or an amount as may be notified by the Central Government from time to time. Section 6 of the Code on Wages requires the appropriate Government to fix the minimum rates of wages payable to employees. It would be noticed that Section 6 uses the term "employees", and not "worker" or "workers". This necessarily implies that under the Code on Wages, it would be open to the appropriate Government to fix the minimum rate of wages even for persons employed on supervisory, managerial or administrative work (apart from those employed to do in skilled, semi-skilled or unskilled, manual, operational, technical or clerical work) for hire or reward.

iii) Further, as regards workers, the appropriate Government, while fixing their minimum rate of wages, shall primarily take into account the skill of workers required for working under the categories of unskilled, skilled, semi-skilled and highly skilled or geographical area or both. In addition thereto, the appropriate Government may, for certain category of workers, take into account their arduousness of work like temperature or humidity normally difficult to bear, hazardous occupations or processes or underground work.

iv) Section 9, which provides for fixing of floor wage by the Central Government, uses the term "worker", and not "employee". This implies that as regards floor wage, the same can be fixed by the Central Government only for an employee who falls within the definition of "worker". In other words, the Central Government cannot fix a floor wage for persons employed mainly in a managerial or administrative capacity or those employed in a supervisory capacity drawing wages exceeding Rs. 15,000/- per month or an amount as may be notified by the Central Government from time to time.

v) The definition of "wages" has been substantially altered by the Parliament under the Code on Wages, 2019. As per the new definition, "wages" means, all remuneration and includes basic pay, dearness allowance and retaining allowance, if any. However, "wages" does not include the components mentioned in clauses (a) to (k). At the same time, the Proviso to the definition also provides that for calculating the "wages" under this clause, if payments made by the employer to the employee under clauses (a) to (i) exceeds 1½, 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 1½ or the per cent so notified shall be deemed as remuneration and shall be accordingly added in wages under this clause. Further, the Explanation to the definition of "wages" provides that when 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 15% of the total wages payable to him, would be deemed to form part of the wages of such employee. Thus, the entire formula for computing wages for the purposes of determining, inter alia, whether the employer is compliant with the minimum rates of wages has been changed.

Payment of Wages

Chapter-III of the Code on Wages, 2019, which contains sections 15 to 25, largely corresponds to the new repealed Payment of Wages Act, 1936.

The following salient features of the changed landscape of the law relating to payment of wages may be noted:

i) The Payment of Wages Act applied only to 'industrial establishments' as defined there under. As a result, most of the shops and establishments/commercial establishments where no manufacturing work is carried out were not amenable to the provisions of the Payment of Wages Act. However, the Code on Wages, 2019, which also contains provisions corresponding to those in the Payment of Wages Act, applies to all employers/establishments except to Government establishments unless the appropriate Government by notification applies such provisions to the Government establishments specified in such notification.

ii) Under the Payment of Wages Act, employees drawing monthly wages in excess of the amount of wages notified by the Central Government were not covered under the said enactment. The Payment of Wages Act, at the time of its repeal, applied to employees drawing monthly wages up to Rs. 24,000/- per month. However, the Code on Wages, 2019 contains no such limitation. Therefore, the Code on Wages will apply to all employees as defined under the Code.

iii) The Code on Wages mandates that all wages shall be paid in current coin or currency notes or by cheque or by crediting the wages in the bank account of the employee or by the electronic mode. However, the appropriate Government may, by notification, specify the industrial or other establishment whose employer shall pay to every employee the wages only by cheque or by crediting the wages in his bank account (Section 15).

iv) Employees engaged on a daily basis shall be paid wages at the end of the shift; those employed on a weekly basis shall be paid on the last working day of the week, i.e. to say, before the weekly holiday; those employed on fortnightly basis shall be paid their wages before the end of the second day after the end of the fortnight; and those employed on a monthly basis shall be paid wages before the expiry of the seventh day of the succeeding month.

v) An employee who has been removed or dismissed from service or who has been retrenched or has resigned from service or has become unemployed due to closure of the establishment shall be paid wages within two working days of his removal, dismissal, retrenchment or, as the case may be, his resignation.

Payment of Bonus

Chapter-IV of the Code on Wages, 2019, which contains Sections 26 to 41, largely corresponds to the now repealed Payment of Bonus Act, 1965. The following salient features of the Code, with regard to payment of bonus, as contained in Chapter-IV, may be noted:

i) Only such establishment, which employs, or employed, 20 or more persons, on any day during an accounting year, is amenable to the provisions of Chapter IV.

ii) All employees drawing wages not exceeding such amount per month, as notified by the appropriate Government, who have put in at least 30 days' work in an accounting year, shall be paid an annual minimum bonus at the rate of 8.33% of the wages earned by the employees or Rs. 100/- whichever is higher, whether or not the employer has any allocable surplus during the previous accounting year [(Section 26(1)].

iii) It would be pertinent to mention here that under the Payment of Bonus Act the Central Government would notify the wage limit for coverage of employees. Payment of Bonus Act being a central enactment, such wage limit was uniform all-over India. However, the Code on Wages, 2019 provides for such wage limit to be notified by the appropriate Government, which could be either the Central Government or the State Government. Therefore, if for an establishment the appropriate Government is the State Government, this could potentially mean that for a PAN India establishment, different State Governments may notify different wage limits for the purposes of coverage of employees for payment of bonus.

iv) For the purpose of calculation of the bonus, where the wages of the employee exceed such amount per month, as notified by the appropriate Government, the bonus payable to such employee shall be calculated as if his wages were such amount, so determined by the appropriate Government or the minimum wages fixed by the appropriate Government, whichever is higher [(Section 26(2)]. Even this provision may entail different amounts of bonus payable to employees employed on same or similar position, but posted in different States, by a PAN-India establishment for which the appropriate Government is the State Government.

v) Section 26(3) of the Code also provides for payment of bonus up to the maximum of 20% of wages. This provision is similar to the corresponding provision of the Payment of Bonus Act. The Code on Wages also provides for bonus in excess of the minimum bonus of 8.33%, but which shall not exceed 20% of the wages earned by the employee in an accounting year, either based on production or productivity, to be determined by an agreement or settlement between the employer and the employees. It may be mentioned that similar provision also existed in the now repealed Payment of Bonus Act, 1965.

vi) All amounts payable to an employee by way of bonus under this Code shall be paid by crediting it in the bank account of the employee by his employer, within a period of eight months from the close of the accounting year.

vii) The Code on Wages (Chapter IV) also contains other provisions which existed in the Payment of Bonus Act, as for instance giving infancy benefit to new establishments for the first five accounting years if the employer does not earn any profit; provisions pertaining to set-on or set-off of the allocable surplus; proportionate reduction in bonus in certain cases; disqualification for bonus; adjustment of customary or interim bonus against bonus payable under this Code; deduction of certain amounts from bonus payable to an employee who is found guilty of misconduct causing financial loss to the employer; non-applicability of Chapter-IV of the Code to certain establishments or employees, etc.

Payment of Dues, Claims And Audit :

Chapter-VI of the Code on Wages, which contains Sections 43 to 50, deals with payment of dues, claims and audit. The following salient features of Chapter-VI may be noted:

i) Section 43 of the Code obligates every employer to pay "all amounts required to be paid under this Code to every employee employed by him". However, the Proviso to Section 43 clearly stipulates that where such employer fails to make such payment in accordance with this Code, then, the company or firm or association or any other person who is the proprietor of the establishment, in which the employee is employed, shall be responsible for such payment. For the purposes of Section 43, the expression "firm" shall have the same meaning as assigned to it in the Indian Partnership Act, 1932.

ii) While we would await any judicial interpretation of section 43, but one possible or plausible interpretation of the provision is that if a contractor fails to pay any amount required to be paid under this Code to his employee, in that event the principal establishment in which such employee is employed shall be responsible for such payment.

iii) If any amount payable to an employee under this Code could not or cannot be paid on account of his death before payment or on account of his whereabouts not being known, such amount will be paid to the person nominated by such employee in this behalf in accordance with the rules made under this Code. However, where no such nomination has been made or where for any reasons such amounts cannot be paid to the person so nominated, such amount shall be deposited with such authority, as may be prescribed by the rules. The said authority shall deal with amounts so deposited in the manner as may be prescribed. Once the amounts payable to an employee in the above circumstances are paid by the employer to the employee's nominee or are deposited by the employer with the authority referred to above, then, the employer shall be discharged of his liability to pay those amounts (Section 44).

iv) The appropriate Government may, by notification, appoint one or more authorities, not below the rank of a Gazetted Officer, to hear and determine the claims which arises under the provisions of this Code. The authority, while deciding the claim, may order, having regard to the circumstances under which the claim arises, the payment of compensation in addition to the claim determined, which may extend to ten times of the claim determined. The authority shall endeavour to decide the claim within a period of three months. In the event of the failure of the employer to pay the claim determined and compensation ordered to be paid, the authority shall issue a certificate of recovery to the Collector or District Magistrate of the district (where the establishment is located) who shall recover the same as arrears of land revenue and remit the same to the authority for payment to the concerned employee (Section 45, sub-sections (1) (2) and (3).

v) An application making claim by or on behalf of an employee from the employer may be filed before the authority within a period of three years from the date on which the claim arises. However, the authority may entertain the application after three years on sufficient cause being shown by the applicant for such delay.

vi) Any person aggrieved by an order passed by the authority may prefer an appeal to the Appellate Authority appointed by the appropriate Government within ninety days from the date of such order. However, the Appellate Authority may entertain the appeal after ninety days if it is satisfied that the delay in filing the appeal has occurred due to sufficient cause.

vii) Notwithstanding anything contained in this Code, any dispute between an employer and his employees with respect to fixation of bonus or eligibility for payment of bonus or the application of this Code in respect of bonus to an establishment in the public sector shall be deemed to be an industrial dispute within the meaning of the Industrial Disputes Act, 1947.

viii) Chapter-VI of the Code also contains provisions as to presumption about accuracy of balance sheet and profit and loss account of corporations and companies; audit of account of employers not being corporations or companies; maintenance of records; and display of notices and submission of returns by the employer.

ix) Section 50(1) of the Code on Wages requires every employer of an establishment to which this Code applies to maintain a register containing the details with regard to persons employed, musters roll, wages and such other details in such manner as may be prescribed.

x) Section 50(2) of the Code requires every employer to display a notice on the notice board at a prominent place of the establishment containing the abstract of this Code, category-wise wage rates of employees, wage period, day or date and time of payment of wages, and the name and address of the Inspector-cum-Facilitator having jurisdiction.

xi) Section 50(3) of the Code requires every employer to issue wage slips to the employees in such form and manner as may be prescribed.

xii) Section 50(4) of the Code states that the provisions of sub-clauses (1) to (3) referred to above (pertaining to maintenance of records, displaying of notice and issuance of wage slip) shall not apply in respect of the employer to the extent he employs not more than five persons for agricultural or domestic purpose. The expression "domestic purpose" in this regard means "the purpose exclusively relating to the home or family affairs of the employer and does not include any affair relating to any establishment, industry, trade, business, manufacture or occupation."

Inspector-cum-Facilitator :

Chapter-VII of the Code, which contains Section 51, deals with the appointment and duties and powers etc., of Inspector-cum-Facilitator who would be appointed by the appropriate Government.

Offences and Penalties :

Chapter-VIII of the Code, which contains Section 52 to 56, deals with offences and penalties. The following salient features of Chapter-VIII of the Code may be noted:

i) Section 52 of the Code authorizes not only the appropriate Government or an officer authorized in this behalf to file a complaint before a criminal Court for any offence punishable under this Code, but also an employee or a registered Trade Union or an Inspector-cum-Facilitator. Consequently, it is now open to an aggrieved employee or a registered Trade Union also to file a complaint against the employer before a criminal Court for any offence punishable under this Code. Section 52(2) of the Code provides that no Court inferior to that of a Metropolitan Magistrate or Judicial Magistrate of the first class shall try the offences under this Code.

ii) However, notwithstanding the above provision, the Code authorizes the appropriate Government to appoint any officer not below the rank of Under Secretary to the Government of India or an officer of equivalent rank in the State Government to hold enquiry for the purposes of imposing penalty: (i) on any employer who pays to any employee less than the amount due to such employee under this Code; or (ii) any employer who contravenes any other provision of this Code or any rule made or order made or issued there under. In such cases, the officer may impose fine which may extend to Rs. 50,000/- in the scenario (i); and a fine which may extend to Rs. 20,000/- in the scenario (ii).

iii) An employer who having been convicted of an offence of paying less amount than the amount due to an employee and who is again found guilty of a similar offence within five years from the date of the commission of the first or subsequent offence shall, on the second and the subsequent commission of the offence, shall be punishable with imprisonment for a term which may extend to three months or with five which may extend up to Rs. One lakh, or with both.

iv) However, in the matter of imposing penalties on the employer, punishment by imprisonment can be levied only by a criminal Court and not by the officer appointed by the appropriate Government. It may also be noted that for the offences of non-maintenance or improper maintenance of records in the establishment, the employer shall be punishable with fine which may extend to Rs. 10,000/- (Rupees ten thousand only). Such fine may be imposed by the officer appointed by the appropriate Government. Further, any person who fails to comply with an order made by such officer, shall be punishable with a sum equivalent to 20% of the maximum fine provided for the offence, in addition to such fine.

v) Chapter-VIII of the Code also contains provision with regard to compounding of certain offences.

Miscellaneous :

Chapter-IX of the Code contains certain miscellaneous provisions (Sections 57 to 69).

(i) In particular, it may be noted that Section 59 of the Code provides that where a claim has been filed on account of non-payment of remuneration or bonus or less payment of wages or bonus or on account of making deductions not authorized by this Code from the wages of an employee, the burden to prove that the said dues have been paid shall be on the employer.
(ii) Section 60 states that any contract or agreement whereby an employee relinquishes the right to any amount or the right to bonus due to him under this Code shall be null and void, in so far as it purports to remove or reduce the liability of any person to pay such amount under this Code.

(iii) Section 61 of the Code states that the provisions of this Code shall 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.