For a country with a growing labour force and bright economic prospects, India has more than 44 Acts that together constitute the labour and employment laws. Making matters complex is the fact that each of these Acts has further rules that define the various applicable procedures and vary from state to state.
In a bid to simplify the existing legal structure for wages and provide a unified Law for organisations to follow, the Parliament of India passed the Code on Wages, 2019 (Code). The Code on Wages encompasses the elements of four existing laws ‒ Payment of Wages Act, 1936, Minimum Wages Act, 1948, Payment of Bonus Act, 1965, and Equal Remuneration Act, 1976.
Easing compliance for businesses and ushering in transparency
In terms of applicability to various levels in an organisation, the Code on Wages covers every employee, from blue-collared workers to the managing director, and addresses all their wage-related concerns. With the introduction of an Appellate Authority, any claims can be addressed to a single Authority rather than having multiple – regulatory bodies involved, – as is the case with the current regime under various labour laws .
In addition, without compromising employee rights or inconveniencing companies, the Code on Wages provides for accounts audited by chartered accountants to be fair and not require further scrutiny. Finally, with an instructor-cum-facilitator allocated to every organisation, proper guidance will be provided via a web-based system, and periodical inspections carried out to ensure compliance by the employer.
Provides for a unified wage structure with a well-defined floor
Unlike the concept of scheduled employment as provided by the Minimum Wages Act, 1948, the Code on Wages applies minimum wages to all employees in an organisation and fixes the lowest wage that can be paid in a particular region. Decided by the government, this floor wage will also be revised periodically to reflect the increase in the cost of living and will be applicable to private or public sector organisations without any distinctions. However, with basic wages capped at 50% of the total remuneration under the Code, organisations anticipate an increase in their Provident Fund contributions and higher gratuity payments due to a higher basic wage, as applied to existing pay structures prevalent across the different employee levels.
Promotes gender equality with equal remuneration and employment opportunities
. Equal Remuneration Act does not allow discrimination but insists on providing equal remuneration to both men and women. Code on Wages goes a step further and makes it gender neutral removing the terms men and women. Additionally, the Code authorises organisations to remit all payments related to wages, bonuses, and reimbursements directly into the employee’s bank account, eliminating the need to handle cash payments and the subsequent maintenance of manual records.
For any payment-related discrepancies, an employee can also file a claim within 3 years, with all proofs to be provided by the employer. This is a big improvement from the previous provision of a 12-month period for filing such claims and absolves the complainant from the need to furnish details or documents substantiating his/her claim.
Need for organisations to undergo restructuring of internal processes
The Code on Wages not only subsumes four laws into one holistic and comprehensive framework, but also reduces the number of sections to just 69 from the 150 sections across the previous regime. For HR managers, this means a more simplified structure to be followed and allows them to implement all provisions gradually.
There are still some areas concerning the lack of an overtime threshold limit and the absence of a well-defined compliance strategy to ensure revised wage structures are in sync with the Code. However, employers can always consult with the inspector-cum-facilitator and take a conscious call if they prefer a one-time restructuring instead of a piecemeal approach.
Compared to the existing laborious and often confusing provisions, the Code on Wages will make internal processes revolving around payroll, employment, and management hassle-free. With clear descriptions of what is included and excluded under the wages definition. The Code will help India’s large formal sector align with international best practices and make the task of managing a large workforce a more logical affair.