Code of wages, 2019
Code on Wages, 2019
A Visual Guide to Minimum Wages in India
A Monumental Labour Reform
The Code on Wages, 2019, streamlines and consolidates four major labour laws related to wages. Its primary goal is to ensure dignified living standards for every worker by simplifying wage structures and extending coverage to all employment sectors.
This legislation marks a significant shift towards universal minimum wage, impacting a vast portion of India’s workforce and ensuring that no worker is left behind.
What is a ‘Minimum Wage’?
Under the Code, the minimum rate of wages is a baseline amount fixed by the government that employers must legally pay to their workers. It’s a fundamental right designed to provide a basic standard of living and protect against exploitation.
This rate cannot be reduced by any employer, and it applies to all employees across every industry, formal or informal.
Types of Minimum Wage Rates
The government can fix minimum wage rates in several ways to suit different types of work and employment structures.
Time Rate
A wage rate fixed based on the time worked, such as by the hour, day, or month. This is the most common method.
Piece Rate
A wage rate based on the quantity of output produced by the worker (e.g., per item manufactured or task completed).
Guaranteed Time Rate
Applicable to piece-rate workers, this ensures a minimum time-based wage even if their output-based earnings fall short due to factors beyond their control.
How Minimum Wages are Fixed
The process of fixing minimum wages is a structured exercise undertaken by the appropriate government (Central or State), considering multiple factors to ensure fairness and adequacy.
(Central or State)
Considers Key Factors
Core Pillars of the New Code
The Code on Wages, 2019 is built on several foundational principles aimed at creating a more equitable and efficient wage system for the entire country. These pillars address long-standing issues of complexity, limited reach, and lack of a unified baseline.
By introducing concepts like a universal floor wage and simplifying definitions, the code aims to reduce disputes and improve compliance, ultimately benefiting both workers and employers.
Minimum Wages, Claims, and Employee Rights
A Unified Framework for Fair Wages
The Code on Wages, 2019, simplifies and consolidates complex labor laws to ensure every worker receives a just minimum wage. It establishes clear procedures, introduces protective concepts, and empowers employees with robust mechanisms for redressal.
How Minimum Wages Are Determined
The government employs two structured, consultative methods to fix and revise minimum wages, ensuring a data-driven and fair process.
1. The Committee Method
2. The Notification Method
Your Right to Claim a Fair Wage
The Code simplifies the process for employees to file claims for underpayment, delayed wages, or unauthorized deductions.
Who Can File?
- βThe employee concerned
- βA registered Trade Union
- βAn Inspector-cum-Facilitator
Where to File?
Before a government-appointed Authority (not below Gazetted Officer rank), which holds the powers of a civil court.
When to File?
Within 3 years from the date the claim arises, providing ample time to seek justice.
Justice Delivered: Remedies & Enforcement
The Code provides strong remedies to ensure compliance and offers a clear path for enforcement and appeal.
Potential Compensation
If a claim is successful, the authority can order payment of the due amount plus compensation up to 10 times the original claim.
Adjudication and Enforcement Path
Concept of Bonus
Bonus Aspects under Code on Wages, 2019
Who is Eligible for a Bonus?
Eligibility for receiving an annual bonus is determined by two main factors as laid out in the Code. These criteria ensure that employees who have contributed meaningfully throughout the year are rewarded.
Salary Threshold
Employees earning a salary up to a specific government-notified amount are eligible. Currently, this is often interpreted based on previous legislation at βΉ21,000 per month.
Minimum Service Period
An employee must have worked in the establishment for not less than 30 working days in that financial year to be eligible for the bonus.
The Bonus Calculation Engine
The journey from company profits to employee bonus follows a structured three-step process. This ensures transparency and fairness in calculating the amount available for distribution.
Step 1
Compute Gross Profit
Step 2
Calculate Available Surplus
Step 3
Determine Allocable Surplus
Gross Profit: Calculated as per the schedules in the Code, based on the company’s profit and loss account.
Available Surplus: This is the Gross Profit minus certain deductions like depreciation and direct taxes.
Allocable Surplus: This is the share of the available surplus for bonus distribution. It is 60% of the Available Surplus for companies and 67% for other establishments.
Bonus Payment Limits
The Code on Wages sets a clear floor and ceiling for the annual bonus percentage. This ensures employees receive a minimum bonus even in lean years and protects companies from excessive payouts.
The Carry Forward Mechanism: Set On & Set Off
When the allocable surplus is more than the maximum bonus payable (Set On) or less than the minimum bonus payable (Set Off), the excess or deficit is carried forward to the next year. This system balances out profits over a multi-year period.
Disqualification and Recovery
While the bonus is an employee’s right, certain actions can lead to disqualification. The Code specifies clear grounds for this, typically related to employee misconduct.
Fraud
Proven fraudulent activity.
Riotous Conduct
Violent or riotous behavior on premises.
Theft or Misappropriation
Stealing or damaging company property.
Conviction
A conviction for sexual harassment.
Understanding Bonus Recovery
An employer cannot simply ask for a bonus back. Recovery is strictly limited to situations where an overpayment occurred due to specific, verifiable errors. It is not a tool to penalize employees retroactively.
β Permitted Recovery
- Clerical/Arithmetic Errors: If a bonus was miscalculated and overpaid due to a clear mathematical or data entry mistake.
- Inaccurate Financials: If a bonus was paid based on financial statements that were later found to be false or inaccurate, leading to a lower profit calculation.
β Prohibited Recovery
- Poor Performance: An employee’s subsequent poor performance is not a valid reason to recover a bonus already paid.
- Company Losses: If the company incurs losses in a later year, it cannot recover bonuses paid during profitable years.
- Employee Resignation: An employer cannot demand bonus repayment if an employee resigns after receiving it.
