The Code On Wages 2019!!
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Compliance with labour and employment laws have become one of the most important issues that many establishments in India have to deal with. Many of the employment disputes result in litigation and takes a prolonged time for effective conclusions. Karma Global is an Indian HR, Payroll and Compliance Firm advising clients worldwide on local, regional and global regulatory compliances in relation to their business goals, business strategies and resolving disputes.
It gives valuable suggestions and advice to Corporates, Investors, Institutions, Contractors, Establishments, Industries etc. on the need for lowering employment risk across all levels and adhering to the laws of the land. It has a lot of expertise on employment-related compliance issues, as well as day to day support for the Human Resource Services with in-house Counsels.
Karma Global is also into employment agreements and policies, structuring of compensation and benefits, employment aspects of merger and takeover, etc.
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THE CODE ON WAGES 2019!!!
What is it all about?
- The Code on Wages, 2019 was introduced in Lok Sabha by the Minister of Labour, Mr. Santosh Gangwar on July 23, 2019. It seeks to regulate wage and bonus payments in all employments where any industry, trade, business, or manufacture is carried out.
- The Code replaces the following four laws: (i) the Payment of Wages Act, 1936, (ii) the Minimum Wages Act, 1948, (iii) the Payment of Bonus Act, 1965, and (iv) the Equal Remuneration Act, 1976.
- Coverage: The Code will apply to all employees. The central government will make wage-related decisions for employments such as railways, mines, and oil fields, among others. State governments will make decisions for all other employments.
- Wages include salary, allowance, or any other component expressed in monetary terms. This does not include bonus payable to employees or any travelling allowance, among others.
- Floor wage: According to the Code, the central government will fix a floor wage, taking into account living standards of workers. Further, it may set different floor wages for different geographical areas. Before fixing the floor wage, the central government may obtain the advice of the Central Advisory Board and may consult with state governments.
- The minimum wages decided by the central or state governments must be higher than the floor wage. In case the existing minimum wages fixed by the central or state governments are higher than the floor wage, they cannot reduce the minimum wages.
- Fixing the minimum wage: The Code prohibits employers from paying wages less than the minimum wages. Minimum wages will be notified by the central or state governments. This will be based on time, or number of pieces produced. The minimum wages will be revised and reviewed by the central or state governments at an interval of not more than five years. While fixing minimum wages, the central or state governments may take into account factors such as: (i) skill of workers, and (ii) difficulty of work.
- Overtime: The central or state government may fix the number of hours that constitute a normal working day. In case employees work in excess of a normal working day, they will be entitled to overtime wage, which must be at least twice the normal rate of wages.
- Payment of wages: Wages will be paid in (i) coins, (ii) currency notes, (iii) by cheque, (iv) by crediting to the bank account, or (v) through electronic mode. The wage period will be fixed by the employer as either: (i) daily, (ii) weekly, (iii) fortnightly, or (iv) monthly.
- Deductions: Under the Code, an employee’s wages may be deducted on certain grounds including: (i) fines, (ii) absence from duty, (iii) accommodation given by the employer, or (iv) recovery of advances given to the employee, among others. These deductions should not exceed 50% of the employee’s total wage.
- Determination of bonus: All employees whose wages do not exceed a specific monthly amount, notified by the central or state government, will be entitled to an annual bonus. The bonus will be at least: (i) 8.33% of his wages, or (ii) Rs 100, whichever is higher. In addition, the employer will distribute a part of the gross profits amongst the employees. This will be distributed in proportion to the annual wages of an employee. An employee can receive a maximum bonus of 20% of his annual wages.
- Gender discrimination: The Code prohibits gender discrimination in matters related to wages and recruitment of employees for the same work or work of similar nature. Work of similar nature is defined as work for which the skill, effort, experience, and responsibility required are the same.
- Advisory boards: The central and state governments will constitute advisory boards. The Central Advisory Board will consist of: (i) employers, (ii) employees (in equal number as employers), (iii) independent persons, and (iv) five representatives of state governments. State Advisory Boards will consist of employers, employees, and independent persons. Further, one-third of the total members on both the central and state Boards will be women. The Boards will advise the respective governments on various issues including: (i) fixation of minimum wages, and (ii) increasing employment opportunities for women.
- Offences: The Code specifies penalties for offences committed by an employer, such as (i) paying less than the due wages, or (ii) for contravening any provision of the Code. Penalties vary depending on the nature of offence, with the maximum penalty being imprisonment for three months along with a fine of up to one lakh rupees.
CONCLUSION – When change happens, benefits like PF and Gratuity will be calculated on 50% of the total remuneration!!
This change will impact the basis for calculation of wages for the purpose of contribution towards benefits like PF and gratuity. Earlier employers would structure their salaries into base wage and other perks so as to ensure that benefits are being paid on the base wage only. However, given this change, benefits will now have to be calculated on at least 50% of the total remuneration of an employee. This will in turn also reduce the take home salary of employees.
However, once the Code comes into effect, (basic salary will stand increased to INR 15,000 as per the new definition of “wages”) and this will lead to an escalation in PF contributions (for both the employee and employer), reducing the take home salary of the employees.
Neither employees nor employers appear to be happy with the change to the definition of wages.
For employees, anything that impacts take home salary and changes their tax outcome is not welcome.
Similarly, for India Inc. to change its pay structure across the board will be a herculean task.
Further, the amounts to be paid to PF will also stand increased thereby resulting in a higher compliance burden for all companies.
Given the reduced take home salaries, employees will demand hikes in emoluments such that their cash in hand is not affected.
Given the strong pushback from all involved, the coming into effect of the Code is therefore constantly being deferred by the government.
Proprietary blog of Karma Global Tech Management LLC
This blog has been collated and compiled by the internal staff of Karma Global with the knowledge and expertise that they possess, besides adaptation, illustration, derivation, transformation, collection from various sources, for its monthly newsletter Issue 11 of May 2023 and in case of specific or general information or compliance updates for that matter, kindly reach out to the Marketing Team – Kush@karmamgmt.com / email@example.com