Decoded: The Code on Wages 2019 (Part 2)

Part 1 of Decoded: The Code on Wages 2019 broke down key compliance definitions that will be altered by the new Code on Wages. In this edition, we explain the Code’s impact on employee remuneration, employment law, and how it differs from the governing salary payment structure of the previous Acts.

Minimum Wage

The new Code gives the Central Government the power to fix a National Floor Minimum Wage. No such reference or provision was given under the Minimum Wages Act, 1948.  Geographical location will also determine the wage cap. Therefore, employers need to practice extra caution regarding minimum wages for their operational areas. Understanding local laws and regulations will become crucial.

For part-time employees, the minimum wage structure will remain the same. The current Sec. 15 of the 1948 Minimum Wages Act has been replicated as Section 10 of the Code on Wages. The revision period of minimum wage—5 years—also remains the same as the previous Act. However, the new Code has removed HRA out of the equation. 

There is also an increase in normal working hours. Workers will have a maximum of eight-hour shifts plus one-hour breaks.  Overtime wages will be doubled according to the new Code. 

Payment of Wage

Earlier, the Payment of Wages Act 1936 governed only employees and establishments where the monthly wages exceed INR 24,000 a month. The new code has removed the INR 24,000 per month ceiling for wages. 

The time limit for wage payment has also been fixed across all establishments. Wages should be disbursed by the 7th of the following month. Payment of wages through wallets or electronic mode will be introduced. For voluntary and involuntary termination, payment has to be made within two working days of termination by removal, dismissal, resignation or closure of the establishment. 

Other major changes include:

• Deductions cannot exceed 50% of the wages for a wage period
• Approvals are mandatory for fines to be levied
• Wages period for payments should not exceed 30 days

The Code on Wages has also given strict directives on equal remuneration. Section 3 of the Code has strictly prohibited discrimination amongst employees with regards to gender and nature of work. Experience has also been added to the parameters deciding wages. Employers may need to pay equal remuneration to workers with similar experience.

Bonus Payments

The directives regarding payment of bonuses apply to establishments employing 20 or more employees. Even if the present worker count doesn’t reach this number, if 20+ employees were employed in one accounting year, a bonus needs to be paid. 

Minimum bonus rates are 8.33% and maximum bonus rates are 20% (of the salary or wage earned during one accounting year). The wage threshold for eligibility of this bonus is to be notified by the appropriate government. 

An employee can also be disqualified from receiving bonus payments if they are dismissed on grounds of:

• fraud
• riotous or violent behaviour on work premises
• theft, misappropriation or sabotage of organisational property 
• a conviction for sexual harassment

Under the Payment of Bonus Act 1965, only the Central Government had the power to frame these rules. The Code on Wages has extended this authority to the State Governments. If an employer operates in multiple locations, it will be crucial for them to keep tabs of the different bonus structures and labour compliance norms.

Summary

From April 1, 2021, employers will be entering uncharted territories, directed by the Code on Wages. While ‘compliance management uncertainty’ is predicted to reduce because of the reduction in governing laws, the Code contains numerous grey areas. 

The onus is on the employers to flawlessly navigate these areas. The new Code also makes the employer more liable and accountable with increased fines for non-compliance. It will be critical for employers to ensure timely payments of wages, maintain proper electronic register maintenance, and issue payslips on-time.

To find out if your present salary structure is compliant with the new Wage Code, reach out to us.