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Agenda

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Background Structural Changes General Changes Equal Remuneration Minimum Wages Payment of Wages Payment of Bonus

Presented by - Govindaraju NS

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Background • The Second National Commission on Labour, recommended to amalgamate the Labour Laws into 5 Codes in 2002. (a) Industrial Relations; (b) Wages; (c) Social Security; (d) Safety; and (e) Welfare and Working Conditions. • After various deliberations, now the Labour Laws will be codified into four codes. (a) Industrial Relations; (b) Wages; (c) Social Security; (d) Occupations Safety, Health and Working Conditions (OSH Code) All rights are reserved by the Author

Code on Wages • The bill was introduced in the Lok Sabha on August 10, 2017, lapsed as the 16th Lok Sabha dissolved. • The bill was reintroduced in the 17th Lok Sabha on 23rd July 2019 after incorporating the suggestions of Parliamentary Standing Committee. • The Parliament cleared the Bill and also received the assent of President. • The Code on Wages is now notified as an Act. • The effective date or appointed date for its implementation and notification of Rules are pending.

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Disclaimer

The analysis and interpretation expressed in this presentation are based on my experience and knowledge and the views expressed are my personal views and do not represent any company or individual

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Structural Changes • The wage code consolidates 4 legislations – Minimum Wages, Payment of Wages, Payment of Bonus and Equal Remuneration. • The objective of the code is to amalgamate, simplify and rationalize the relevant provisions of the four central legislations. • Arranged in 9 chapters with 69 sections. • Preliminary, Advisory Board, Payment of Dues, Claims and Audit, Inspector-Cum-Facilitator, Offences and Penalties, Miscellaneous are common chapters applicable to all the topics of the Code. • Separate Chapters for Minimum Wages, Payment of Wages and Payment of Bonus are provided. • The provisions related to Equal remuneration are included in two sections of the first chapter.

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Structural Changes • 115 sections of all the four legislations are now brought under 69 sections. • All applicable definitions for the Code are brought together in the first chapter. • This means a single definition holds good for the entire Code.

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General Changes  Application of the Code

• The Code does not have any specific section to explain the application of the Code. • It applies to all establishments, employees and employers unless exempted specifically in the provisions of the code. • The Code does not make any distinction between the organized sector and unorganized sector.

 Appropriate Government

• Appropriate Government for the establishment of contractors who work for Public Sector Undertakings or where the Central Government is the appropriate Government – Clarity is brought. • Now it is clear that the Central Government is the appropriate Government for such establishments (Section 2(d) of the Code).

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General Changes  Employer, Employee, and Worker • “Employer" means a person who employs, whether directly or through any person, or on his behalf or on behalf of any person, one or more employees in his establishment and includes Occupier and Manager (in case of Factory), Contractor and Legal Representative of the deceased employer (Section 2(l) of the Code). • There is a distinction made between ‘employee’ and ‘worker’ (section 2(k) and 2(z) of the code). • The employee definition covers all employees including supervisory, managerial and administrative category employees without any wage ceiling. • The worker definition in the code excludes persons employed mainly in a managerial or administrative capacity. All rights are reserved by the Author

General Changes  Employer, Employee, and Worker • The Supervisors are included in the definition of worker. • However, if the monthly wages exceed 15k or amount as notified by the Central Government, such supervisory staff are excluded from the worker definition (Similar to the definition in the Industrial Disputes Act 1947). • The word ‘worker’ is used only in defining industrial dispute, fixation of minimum wages, fixing the floor wages by Central Government and in explaining the duties of ‘Inspector-Cum-Facilitator’. • The worker definition includes working journalists and sales promotion employees. • The apprentices engaged under the Apprentices Act 1961 are excluded from the definition of employee and worker. All rights are reserved by the Author

General Changes  Contractor & Contract Labour  The definition of ‘Contractor’ and the ‘Contract Labour’ is introduced in the Code.  The ‘Contractor’ definition under CLRA Act 1970 is adopted with a minor change (Section 2(f) of the Code). - ‘Contractor’, in relation to an establishment means, a person, who – (i)Undertakes to produce a given result for the establishment, other than a mere supply of goods or articles of manufacture to such establishment, through contract labour; or (ii)Supplies contract labour for any work of the establishment as mere human resource and includes a sub-contractor.

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General Changes  Contractor & Contract Labour  There are two parts in ‘Contract Labour’ definition – Inclusion and Exclusion.  The inclusion part of the ‘Contract Labour’ definition is similar to the CLRA Act 1970. But now the Code includes Inter-State migrant worker as Contract Labour.  The exclusion part excludes (Section 2(g) of the Code) – - employees regularly employed by the contractor for any activity of his establishment and on mutually accepted conditions of employment and - Who gets periodical increment in the pay, social security coverage and other welfare benefits. All rights are reserved by the Author

General Changes  Contractor & Contract Labour • The legislation intends to make a difference between the contract labour supplied to other establishments by the contractor and the employees for any activity of his own establishment and excludes his own employees from the definition of Contract Labour.

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General Changes  Establishment 2(m), Factory 2(n) & Government Establishment 2(o) • Establishment definition covers any place where any industry, trade, business, manufacture or occupation is carried on and includes Government establishment. • It may appear very simple but intends to cover all trades, occupations, professions or commercial activities irrespective of whether it is an organized sector or unorganized sector. • Factory definition is linked to the Factories Act 1948. • Government establishment means any office or department of the Government or Local Authority. All rights are reserved by the Author

General Changes  Salary or Wage (Section 2(y) of the Code) • A single wage definition is provided in the Code. • “Wages" means all remuneration whether by way of salary, allowances or otherwise, expressed in terms of money or capable of being so expressed which would, if the terms of employment, express or implied, were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment. • The wage definition specifically includes Basic Pay, Dearness Allowance, and Retaining allowance if any. • However, retaining allowance is not defined. • Remuneration paid in kind which does not exceed 15% of the total wages shall be deemed to form part of the wages.

General Changes  Salary or Wage (Section 2(y) of the Code) Exclusions from the Wage Definition •

Bonus under the Code.

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Value of any amenity or service like house accommodation, the supply of light, water, medical attendance etc.

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Contribution to PF or Pension Fund.

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Conveyance Allowance or value of any travelling concession.

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Any sum paid to defray special expenses which may entail on the employee due to his nature of employment.

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House Rent Allowance (HRA).

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Remuneration payable under any award or settlement.

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Over time allowance.

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Any commission payable.

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The Gratuity payable on the termination of employment.

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Retrenchment compensation, retirement benefit or any exgratia paid on termination of employment.

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General Changes  Salary or Wage (Section 2(y) of the Code) • Note the specific change on “HRA” – The HRA was included in Minimum Wages Act and now the Code excludes. • The legislation intends to put a restriction of 50% on excluded components of the wages. • If the excluded remuneration exceeds (other than a gratuity, retrenchment compensation, retirement benefit or exgratia) one-half or such other per cent as may be notified of all the remuneration covered in the inclusion part, then such excess should be treated as remuneration/wages of the inclusion part. This condition was not part of all the four legislations. • The Conveyance Allowance or value of any travelling concession, House Rent Allowance (HRA), Remuneration payable under any award or settlement and any Over Time Allowance shall be counted as wages for the purpose of equal wages to all genders.

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General Changes  Salary or Wage (Section 2(y) of the Code) • The Salary structure of the employees may need a review in view of these changes.

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General Changes  Advisory Boards and Gender Diversity (Chapter V) • The advisory boards earlier were constituted under the Minimum Wages Act 1948. • Now, the advisory boards have been given additional responsibilities of advising appropriate Government on other matters relating to the Code. • One-third of the members of the board should be women. • Providing advice on fixation or revision of minimum wages and other connected matters is continued as it is. • It shall also advise on providing increasing employment opportunities for women.

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General Changes  Advisory Boards and Gender Diversity (Chapter V) • It shall also advise on the extent to which women may be employed in any establishments or employments. • Now there is a possibility that the State Government may give direction to increase the employment for women in private establishments. However, inviting representations from such establishments is necessary before issuing any directions in this regard (Section 42(9) of the Code, Chapter V).

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General Changes  Dues, Claims and Audit (Chapter VI) • The employer is responsible to pay all the payments of employees including dues if any.  Payment of Dues or amounts in case of death or in case of whereabouts not known (Section 44 of the Code). • To be paid to the nominated person. • If no nomination or unable to pay to the nominated person, deposit with the authority notified. • On deposit with the authority, the employer is discharged from his liability. • This is similar to the provisions detailed in section 25-A of the Payment of Wages Act 1936.

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General Changes  Dues, Claims and Audit (Chapter VI)  Claims • An application for a claim can be made by employee, Trade Union or the Inspector-Cum-Facilitator before the notified authority (Section 45 of the Code). • The appropriate Government will notify the authorities to hear and determine the claims (Section 45 of the Code). • The application for claim to be made within a period of 3 years from the date claim arises. The limitation was earlier ranging from 6 months to 2 years in the legislations. • The authority under the Code may order ten times of the claim as compensation in addition to the actual claim amount and it applies to all dues – wages, bonus etc. All rights are reserved by the Author

General Changes  Dues, Claims and Audit (Chapter VI)  Claims • The aggrieved person by an order of the authority under the Code can file an appeal before the appellate authority appointed under the Act. The appeal should be made within 90 days from the date of the order of the authority (Section 49 of the Code).

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General Changes  Registers, Returns & Display (Chapter VI) • Muster Roll and Wage registers to be maintained. • Abstract of the Code to be displayed. • Category wise wage rates, wage period, day or date and time of payment of wages, name and address of the Inspector-CumFacilitator to be displayed. • Wage slips to be issued to the employees. • Register of Fines and Deductions to be maintained. • Notice specifying acts and omissions which attract imposition of fines should be displayed. All rights are reserved by the Author

General Changes  Inspector-Cum-Facilitator - the Combined approach of Inspection and Facilitation (Chapter VII) • The legislation intends to combine the facilitation and inspection rather than only policing or inspection. • The Inspector is renamed as an Inspector-Cum-Facilitator. • The appropriate Government may establish an inspection scheme which may provide for generation of web-based inspection and calling of information relating to inspection electronically. • This means it is aimed at digitizing the inspection mechanism. • However, it is left to the discretion of the appropriate Government.

General Changes  Inspector-Cum-Facilitator / the Combined approach of Inspection and Facilitation (Chapter VII) • The appropriate Government may confer jurisdiction of randomized selection of inspection for the purpose of the Code to the InspectorCum-Facilitator. • This means the inspectors will continue to inspect the establishments based on randomized selection. • This can also mean – getting away from the jurisdiction based inspectors. Inspectors will be allotted based on the randomized selection through web based system. • Now, the Inspector has the responsibility of advising employers and workers relating to compliance with the provisions of the code. All rights are reserved by the Author

General Changes  Industrial Disputes • The Industrial Disputes definition is introduced in the Code. • “Industrial Dispute" means,— (i) any dispute or difference between employers and employers, or between employers and workers or between workers and workers which is connected with the employment or non-employment or the terms of employment or with the conditions of labour, of any person; and (ii) any dispute or difference between an individual worker and an employer connected with, or arising out of, discharge, dismissal, retrenchment or termination of such worker; (Section 2(q) of the Code). • The definition is borrowed from the Trade Union Act 1926 and Industrial Disputes Act 1947 (Section 2(k) and 2-A of ID Act 1947 and section 2(g) of the Trade Union Act).

General Changes  Industrial Disputes related to payment of Bonus • Any dispute arises between an employer and his employees with respect to—  (a) fixation of bonus or eligibility for payment of bonus under the provisions of this Code;  (b) the application of this Code, in respect of bonus, to an establishment in public sector; then, such dispute shall be deemed to be an industrial dispute within the meaning of the Industrial Disputes Act, 1947 (Section 46 of the Code).

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General Changes  Offences and Penalties (Chapter VIII) • The Code provides for graded penalty for different types of contraventions. • Any payment less than the amount due is punishable with fine which may extend to 50K. • Similar offence within five years attracts imprisonment for a term which may extend to three months or with fine which may extend to one lakh rupees, or with both. • Any other contravention is punishable with fine which may extend to 20K. • Similar offence within five years attracts imprisonment for a term which may extend to one month or with fine which may extend 40K, or with both. All rights are reserved by the Author

General Changes  Offences and Penalties (Chapter VIII) • The employer shall be punishable with fine which may extend to ten thousand rupees for Non-maintenance or improper maintenance of records in the establishment, • An opportunity to the employer to comply with the provisions of the code by way of a written direction before proceeding on the prosecution to be provided. • If the employer complies with the direction within the time frame given, the Inspector-Cum-Facilitator shall not initiate such prosecution proceeding. • However, if similar violations repeated within a period of five years, the prosecution shall be initiated in accordance with the provisions of the Code (Section 54(3) of the Code). All rights are reserved by the Author

General Changes  Offences and Penalties (Chapter VIII)  Compounding or Composition of offences  Offence not being punishable with imprisonment only, or with imprisonment and also with fine, may, on an application of the accused person, either before or after the institution of any prosecution, be compounded by a Gazetted Officer, as the appropriate Government may, by notification, specify, for a sum of fifty per cent of the maximum fine provided for such offence. • However, this will not be available for a subsequent offence committed within 5 years from the earlier offence or if convicted for similar offence earlier (Section 56 of the Code).

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General Changes  Miscellaneous/Others (Chapter IX)  Direction to State Governments • The Central Government may, for carrying into execution of the provisions of this Code in the State give directions to the State Government, and the State Government shall abide by such directions (Section 65 of the Code). • There is a compulsion on the State Governments to abide.  Power to Make Rules • Both Central and State Governments have the power to make rules for implementation of the Code. • It was confined only to the Central Government earlier under the Payment of Bonus Act and Equal Remuneration Act.

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General Changes  Miscellaneous/Others (Chapter IX)  The burden of Proof • When a claim is made by any employee on account of nonpayment or less payment of wages or bonus or unauthorized deductions, the burden to prove that the payments have been made and no unauthorized deductions have been made lies with the employer (Section 59 of the Code).

Employers is required to retain proper records

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Equal Remuneration • The provisions of the Act are covered in one definition and two sections (section 2(v), 3 & 4 of the Code). • Definition of ‘Same work or work of a similar nature’ in the Equal Remuneration Act 1976 addressed the gender equality issues (section 2(h) of the Act). • Now the definition under the Code seems to have the intention of addressing much more than the gender equality. • It talks about equality between employees when the skill, effort and responsibility are the same and also when performed under similar working conditions.

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Equal Remuneration • The Code retains the prohibition on discrimination in wages on the ground of gender (section 3 of the Code). • The Code also retains prohibition on discrimination while recruiting men and women, service conditions like promotions, training or transfer.

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Minimum Wages Key Changes • Minimum Rate of Wages will be notified by the appropriate Government as per the Code. • The Code has done away with the Scheduled employments. No schedule is appended. • While fixing the minimum wages, the appropriate Government shall primarily account the skill of workers required for working under the categories of unskilled, skilled, semi-skilled and highly-skilled or geographical area or both. • The appropriate Government may consider arduousness of work like temperature or humidity normally difficult to bear, hazardous occupations or processes or underground work while fixing the minimum wages.

This specific direct guideline was not available in the Minimum Wages Act 1948.

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Minimum Wages Key Changes • The Code intends to cover all employees irrespective of whether it is organized sector or unorganized sector. • This means the Government has to fix the minimum wages for all employees. • Class and Category of employees are used interchangeably. However, definitions are not clarified.  Floor Wages • The Central Government now has the responsibility to fix national floor wages taking into account minimum living standards of the worker. • The Central Government may consult Central Advisory Board and State Governments before fixing such floor wages. • The floor wage may be fixed for different geographical areas. • The State Governments cannot fix the minimum wages less than the national floor wages.

Minimum Wages Retained Provisions • The employer is not permitted to pay anything less than the minimum wages fixed. • The review or revision in minimum wages at an interval not exceeding five years. • Fixing minimum wages for time work or piece work. • Guaranteed time rate in the case of piece-rate. • Fixing basic rate and dearness allowance or all-inclusive rate (Section 7 of the Code). • The method followed during fixation or revision of minimum wages not altered (Section 8 of the Code) - Procedure for fixing minimum wages through notification method or based on recommendations of the committees. All rights are reserved by the Author

Payment of Wages Key Changes • Wage ceiling for applicability of payment of wages is no longer exists. • Payment of wages in the case of monthly rated employees before the expiry of 7th day of the succeeding month. • Payment of wages in case of termination/dismissal/retrenchment – the 2nd working day is retained. In addition, the separation due to resignation is added (Section 17(2) of the Code). • The maximum ceiling on deductions in any wage period is restricted to 50% of the wages (Section 18(3) of the Code). • The deduction towards LIC premium, contribution to welfare fund constituted by employer or trade union, insurance premia towards Fidelity Guarantee Bonds have been dropped. All rights are reserved by the Author

Payment of Wages Retained Provisions • Mode of payment of wages. • No wage period shall be more than a month. • Most of the authorized deductions. • Deductions towards damages and losses. • Provisions related to the imposition of fines. • Deduction of wages up to 8 days if 10 or more employees acting in concert absent themselves without due notice. • Non-applicability of the provisions to Government Establishments.

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Payment of Bonus Key Changes  Applicability of the Payment of Bonus (Section 40(2) of the Code) • Application to establishments having 20 or more employees is retained. However, the number of employees in an accounting year is the matter. • There is no binding on the employer to continue the provisions if the number of employees is reduced. • Moreover, the appropriate Government could have covered the establishments having less than 20 employees. There is no such provision now.

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Payment of Bonus Key Changes  Rationalization of Definitions • A single accounting year commencing on the 1st day of April. • Allocable Surplus and Available surplus are explained inside the Code instead of definition section. • A single definition of establishment is provided and some of the definitions have been dropped.  Wage Ceiling for Calculation of Bonus (Section 26(2) of the Code) • The rule is retained. However, the exact amount of Rs.7000 is not appearing in the Code. Instead, the specified amount per month will be as fixed by the appropriate Government (Section 26(2) of the Code). All rights are reserved by the Author

Payment of Bonus Key Changes  Wage Ceiling for eligibility of Bonus (Section 26(1) of the Code) • The rule of wage ceiling for applicability of Bonus is retained. • The appropriate Government will notify the wage ceiling from time to time. • There is a possibility that every appropriate Government can fix this ceiling.  Exemption based on the profit-sharing scheme (Section 41(1)(i) of the Code) • The appropriate Government now can exempt any establishment having regard to any other scheme of profit-sharing available in such establishments. All rights are reserved by the Author

Payment of Bonus Key Changes  Payment of Bonus linked to production or productivity (Section 26(5) of the Code) • Previously, there was a possibility to enter agreement or settlement on payment of bonus linked to productivity or production subject to the assurance of minimum bonus of 8.33% (Section 31A of the Act). • There is a similar provision in the new code (Section 26(5) of the code) in a revised manner. - A demand for more than 8.33% can be determined by an agreement or settlement. - However, the maximum bonus shall not exceed 20% of the wages earned by the employee. All rights are reserved by the Author

Payment of Bonus Key Changes  Disqualification from receiving the bonus if dismissed from service (Section 29 of the Code) • Previously (section 9 of the Act), there was a possibility to disqualify from receiving the bonus if dismissed for fraud or riotous or violent behaviour while on the premises of the establishment or theft, misappropriation or sabotage of any property of the establishment. • Now ‘Conviction for sexual harassment’ is added.

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Payment of Bonus Key Changes  Manner of arriving at Bonus percentage • The manner of arriving at Bonus percentage by calculating available surplus, allocable surplus are all retained. • However, the guiding schedules on set on and set off (4th Schedule), Computation of Gross Profits (1st and 2nd Schedule), sums deductible from gross profits (3rd Schedule) have been dropped and the power to prescribe guidelines now rests with the Central Government. • The deduction of development rebate or investment allowance as prior charges from the gross profits as allowed under section 6 of the Payment of Bonus Act 1965 has been dropped. However, the Central Government may prescribe such other sums as prior charges. All rights are reserved by the Author

Payment of Bonus Key Changes  Confidentiality if the balance sheet is called for by the authority notified (Section 31(3) of the Code) • The authority notified may call upon the employer to produce balance sheet when there is a dispute regarding the quantum of bonus. However, the authority shall not disclose any information contained in the balance sheet unless agreed to by the employer. • However, a provision is inserted under section 47(2) of the code which talks about clarification on any item in the balance sheet or profit and loss account. The trade union or employees can make an application seeking the clarification and if the authority satisfied with the request, then it can order to supply such clarification to the corporation or company. All rights are reserved by the Author

Payment of Bonus Key Changes

• Now the question is if the balance sheet or contents of the balance sheet are not disclosed, where is the question of clarification? These are two contradicting provisions.

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Payment of Bonus Key Changes  Payment of Bonus in case of dispute for payment at the higher rate (Section 39(2) first proviso of the Code) • The employer is obligated to pay 8.33% bonus within the statutory time limit of 8 months from the close of the accounting year. There was no such direct provision earlier.  Mode of Payment of Bonus (Section 39(1) of the Code) • Previously, there was a possibility to pay the bonus by cash (section 19 of Act). Now, the code mandates that the bonus shall be paid by crediting it in the bank account of the employee.

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Payment of Bonus Retained Provisions • Calculation of Bonus which is linked to the minimum wages or a ceiling amount whichever is higher. This logic is retained. • The 30 days working criteria for bonus eligibility is retained. • No change in the Minimum and Maximum Bonus percentage. • The exemption of 5 years for the new establishments is retained. • Set on and Set off concept is not modified. • Adjustment of Advance, customary or puja bonus is intact. • Proportionate deduction of bonus in case of guilty of misconduct causing financial loss to the employer is retained without any changes. However, the deduction should be from the Bonus payable to that accounting year only. All rights are reserved by the Author

Payment of Bonus Retained Provisions • Provisions related to an exemption for establishments in the public sector is intact. • The provision related to payment of bonus if the establishment sells goods or provides service in competition with the private sector and income from such sale or service is not less than 20% of the gross income, then the provisions of the code apply in case of payment of bonus. • The exemptions granted under Bonus Act for different category of institutes or organizations like, LIC, Red Cross, universities and education institutes, hospitals which are not for profit etc., are retained. • No change in the time limit for payment of bonus.