India Codifies and Consolidates Its Labor Laws on Wages

After lengthy negotiations, the Code on Wages, 2019 has been passed by the upper and lower houses of the Indian Parliament and has also received the assent of the president of India. The Code on Wages is now awaiting its effective date notification to become law.

The Code on Wages consolidates four major federal-level labor laws pertaining to wages paid by an employer: the Payment of Wages Act, 1936 (POWA); the Minimum Wages Act, 1948 (MWA); the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976. Once the Code on Wages is enacted, these four laws will be repealed.

Certain salient features of the Code on Wages are as follows:

Expansion of applicability: The ambit of the applicability of the law has been expanded to cover a broader working population by removing the concept of scheduled employments under the MWA and the applicability wage threshold under the POWA.

Floor wage: The federal government has been tasked with creating a “floor wage,” a new concept introduced by the Code on Wages, after taking into account the minimum living standards of workers and their geographical areas. The minimum wages prescribed by the state governments cannot be less than the floor wage.

Definitions: Multiple and overlapping definitions of various terms under the four laws have been standardized to eliminate confusion. For example, the multiple definitions of “wages” under the four laws have been consolidated under the Code on Wages, with the new definition providing for a specific and expanded list of components that are excluded from the definition.

Payment of wages: Digital/electronic modes for crediting wages in the bank accounts of the employees have been introduced. Further, the time limit of two working days for payment of wages to an employee in the case of termination of employment has been extended to cases relating to voluntary resignations as well.

Facilitators vis-a-vis inspectors: The Code on Wages provides for appointment of an inspector-cum-facilitator (instead of mere inspector under the previous laws) who would serve the dual role of providing compliance advisory to employers and workers in addition to conducting inspections.

Offenses and penalties: The penalties for offenses committed under the Code on Wages are much higher than they were under the previous laws, with the maximum penalty being a fine of INR 100,000 and/or imprisonment of 3 months.

Comment

In order to facilitate doing business, the codification and consolidation of multiple federal-level laws has been on the Indian government’s agenda for some time now, and the Code on Wages is the first in the list to see the light of day. Once the Code on Wages is enacted, employers will be required to ensure compliance with the various provisions thereunder. Therefore, employers may want to develop an understanding of the nuances and obligations under the new law. Delegated legislation under the Code on Wages (i.e., rules) is currently at the consultative stage and is expected to provide greater clarity on some of the moot aspects under the Code on Wages.

Written by Archita Mohapatra and Ajay Singh Solanki of Nishith Desai Associates and Roger James of Ogletree Deakins

© 2020 Nishith Desai Associates and Ogletree, Deakins, Nash, Smoak & Stewart, P.C.