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Streamlining Labour Regulations: Assessing The Impacts Of India’s Code On Wages Act

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Streamlining Labour Regulations: Assessing the Impacts of India’s Code on Wages Act

Vishavjeet Singh

“…The reforms will ensure well-being of our industrious workers and give a boost to economic growth. They are also shining examples of ‘Minimum Government, Maximum Governance…”

PM Narendra Modi

Historical Context

Background: The New Wage Code or The Code on Wages was introduced in Lok Sabha by the Ministry of Labour and Employment as one of the four labour codes which are intended to subsume the multitude of pre-existing Labor laws. In 2002, The Second National Commission of Labour submitted its report in which it talked about the multiplicity of labour laws in India and recommended the codification of multiple central level labour laws in 4 to 5 groups.

From 2015 to 2019, the concerned Ministry organised 9 tripartite discussions in which the opinions and suggestions of all the Central Trade Unions, Employers’ Associations, and representatives of State Governments were taken on labour reforms. Finally, the code was introduced in Lok Sabha on 23rd July 2019 and passed by Lok Sabha and Rajya Sabha on 30th July and 2nd August respectively. This code is aimed to subsume the provisions of the following acts:

  • Payment of Wages Act, 1926
  • Minimum Wages Act, 1948
  • Payment of Bonus Act, 1965
  • Equal Remuneration Act, 1976

The code provides a list of minimum wages across employment in both organised and unorganised sectors. It also includes provisions regarding universal floor wages, prohibiting gender discrimination in recruitment and compensation, etc.

Pre-existing Issues: ‘Labour’ is one of the concurrent subjects in India, meaning both central and state governments can formulate laws regarding it. Thus, there were more than 50 central laws regarding labour and more than 150 state laws existed independently before the new labour codes were introduced. This led to a witty remark that you cannot implement Indian labour laws 100 percent without violating 20 percent of them.

This multitude of labour laws and a huge cost of compliance both legally and illegally made the manufacturing sector suffer and prevented its expansion from small to medium and large scale thus the scope of labour-intensive manufacturing goods in the export composition in India remained menial even when India having a comparative advantage in it as it is home of largest labour force around the world next only to China. The new labour code aims to consolidate various major laws which existed before its introduction. 

Key provisions 

Wage rate: Coverage, Protection and Regulation

  • Universal and extended coverage of minimum wage rate to around 50 crore workers. 
  • Introduction of the ‘wage floor’ rate and the minimum wage rates should not fall below the floor rate. 
  • Includes the provision of revision of minimum wage rate every six months to protect the real wage rate of labour from inflation.

Clarity in Definitions and Terms

  • Provides precise and uniform definitions of various terms including wages, remuneration, and employer.

Working hours and overtime

  • Includes provision regarding overtime work wherein the overtime wages should be at least twice the normal wage.
  • Requirement of written consent from the employee before subjecting her to overtime work.

Employers Obligations and Records

  • Includes provisions for timely payment of wages and dues to the employees by promoting digitisation and fixing a time limit for payment of wages for different periods.
  • The employer will be responsible for paying all the dues and the responsibility of proof will lie on the employer.
  • Employers shall maintain proper records, notice boards, and wage slips.

Payment Regulations

  • Provide for the provisions regarding deductions from wages only based on provisions mentioned in the code.
  • Provisions regarding bonus payments wherein the annual minimum bonus must be 8.33% of his wages or Rs. 100 whichever is highest.

Gender Equality and Discrimination Prohibition

  • Prohibition of gender discrimination regarding the matters of wages, recruitment, and conditions of work by employers in the same work or work of a similar nature which is also clearly defined under the code.

Government Oversight Transformation

  • Provides a new approach wherein the government from being a regulator to a facilitator by bringing cultural changes in the inspection system wherein the inspector cum facilitator will play an advisory role as well.
  • The system would be digitised and employers would be provided with the prior opportunity to comply and rectify the violated provisions of the code.

Compliance and Restrictions

  • Include provisions to reduce the compliance burden for employers by rationalising and consolidating the provision under different pre-existing laws.
  • Restrict the cognizance of offences by courts except for complaints by mentioned authorities.
  • Mentions the amount of penalty on employers corresponding to different types of offences.

Challenges and Concerns in Implementation

Ambiguities and Interpretation Challenges: Even after consolidation and rationalisation of various definitions, ambiguities, and scope of different interpretations remain like ambiguities in exclusions and calculations of wages and remuneration that need further clarity.

Awareness and Preparedness Issues: A shock implementation of the codes nationwide without proper awareness among employers and employees especially those working in the unorganised sector might undermine the effectiveness of the laws.

State-level Implementation Challenges: The implementation of the codes by various state governments without proper consultation and cooperation might again lead to a multiplicity of laws and can even add up to the existing state laws regarding labour.

Concerns Regarding Wage Deductions: The deduction in wages based on performance, damage, loss, etc. (up to 50% of the monthly wage) if not kept under proper check can lead to exploitation and reduced bargaining power of the employees under the fear of deductions.

Exclusion of Agricultural Workers: Agricultural workers are not considered under the purview of these codes thus leaving more than 45 percent of the Indian workforce out of its ambit.

Divergence Between Floor Wage and Minimum Wage: There is no concrete basis to estimate the floor wage unlike the minimum wage, thus there is a substantial divergence between them. States would eventually move towards the lower one(floor wage) under the influence of competition.

Enforcement Machinery Dilution: The enforcement machinery is diluted as inspector-cum-facilitators can only conduct inspections as randomly assigned not surprise inspections as earlier even if there is information regarding the violation of the laws and digital inspections without even visiting the factory further dilutes the enforcement procedure.

Roadmap for Effective Implementation and Future Progression

Implementation of the codes has been already delayed and there is a need for the state governments to introduce their laws swiftly and to rationalise and consolidate their state laws as well without compromising the uniformity and commonalities that the codes intend to bring. Apart from that, clarity regarding the ambiguities in the definition should be notified by the central government proactively from time to time as the need arises. The implementation should be kept under check so that provisions do not result in the exploitation of the employees. 

Once, the implementation is done properly regarding the minimum wages, India can move towards the concept of ‘living wages’ as it aims to implement it by 2025. Recent consultations in this regard with ILO are a welcome step in this direction but without proper implementation of the existing labour codes in a uniform and swift manner throughout the country and a strict enforceability of the minimum wages, implementation of ideas like living wages remains a distant cry.

References

  1. Ministry of Labour and Employment GoI, 2019, THE CODE ON WAGES 2019, Bill no. 184 of 2019 as introduced in Lok Sabha https://labour.gov.in/sites/default/files/the_code_on_wages_as_introduced.pdf
  2. Ministry of Labour and Employment GoT, 2019, THE CODE ON WAGES, 2019, Final document https://www.indiacode.nic.in/bitstream/123456789/15793/1/A2019-29.pdf
  3. PIB, 2022, New Wage Code https://pib.gov.in/PressReleasePage.aspx?PRID=1844649
  4. Ministry of Information and Broadcasting GoI, New Labour Code for New India https://labour.gov.in/sites/default/files/labour_code_eng.pdf
  5. The Economic Times, 2023, What managers will not get under the new labour laws https://economictimes.indiatimes.com/wealth/earn/what-managers-will-not-get-under-new-labour-laws/articleshow/104397603.cms?from=mdr
  6. V.V. Giri National Labour Institute, Noida, Code on Wages 2019 https://vvgnli.gov.in/sites/default/files/Code%20on%20Wages%202019.pdf
  7. Second National Commission on Labour, 2003,  REPORT OF THE SECOND NATIONAL COMMISSION ON LABOUR WITH EMPHASIS ON RATIONALIZATION OF LABOUR LAWS AND UNORGANIZED LABOUR https://labour.gov.in/sites/default/files/39ilcagenda_1.pdf
  8. Jagdish Bhagwati and Arvind Panagariya, 2012, India’s Tryst with Destiny, Chapter 8: A Multitude of Labour Laws and Their Reform.
  9. The Economic Times, 2024, India plans to replace minimum wage by living wages by 2025; Here’s what it could it mean https://economictimes.indiatimes.com/news/how-to/india-plans-to-replace-minimum-wage-by-living-wages-by-2025-heres-what-it-could-it-mean/articleshow/108795967.cms?from=mdr
  10. Anamitra Roychowdhury and Kingshuk Sarkar, 2021, Labour Reforms in a Neo-liberal Setting: Lessons from India, Global Labour Journal page 58 https://mulpress.mcmaster.ca/globallabour/article/view/4457/3842

Vishavjeet Singh is a research intern at IMPRI and an undergraduate student of Economics honours at Sri Venkateswara College, University of Delhi with a keen interest in public policy and economics.

Acknowledgment: The author would like to thank Srinitya Kuchimanchi and Aasthaba Jadeja for their kind comments and suggestions to improve the article.

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This article was posted by Vishavjeet Singh, a research intern at IMPRI.

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