The world of HR never ceases to surprise us. Each time we feel something significant has taken place and we focus and align ourselves, there is something lurking and waiting to pounce on us. The latest among the most discussed issues has been the introduction of the Minimum Wages Code Bill. It has been extremely significant in the changes that it purports to bring about, and also the impact that it will have on employees covered and wage rates introduced. Needless to say, ERP Corporation Pvt. Ltd. will be right where all the action is.
MINIMUM WAGE CODE BILL
On 26th Day July of 2017, the Union Cabinet approved the new minimum wage code bill. The bill is expected to be introduced in the Parliament during the ongoing monsoon session which will conclude on 11th Day of August 2017. The proposed legislative change is projected to benefit over 4 crore employees across the country by ensuring a minimum wage across all sectors through the integration of four related labor laws. The new minimum wage norms would be applicable for all workers irrespective of their pay. At present, the minimum wages fixed by the Centre and states are applicable to workers getting up to Rs 18,000 pay monthly and does not cover workers getting a monthly wage of more than Rs 18,000.
If the bill is approved by the Parliament, workers getting a monthly pay of higher than Rs. 18,000 would also be legally entitled to a minimum wage. Also, until now the central government was the decision maker for fixing wages in its own sphere and the States were responsible for their areas leading to non-uniformity. The lack of proper methodology to arrive at the wages of unskilled workers added to the woes. This wage code bill could solve all of these to some extent.
Background of Bill
The Wage Bill is a part of the Government of India initiative of reducing myriad labour & employment laws to 4 major codes namely, wages; industrial relations; social security and welfare and occupational safety, health & working conditions. The Wage Bill consists of four chapters ensuring equal remuneration, minimum wages, payment of wages and payment of bonus.
Highlights of the Wage Bill are as follows:
• Minimum wage limit: Currently, State Governments set the minimum wage limit under the Minimum Wages Act, 1948. It appears that the Wage Bill now proposes a universal minimum wage to workers to be set by the Central Government across all States and sectors. States must implement the minimum wage limit set by the Wage Bill but are at liberty to set a higher minimum wage in their respective jurisdictions.
• Applicability: Currently the Payment of Bonus Act, 1985 is applicable only to workers earning wages below INR 21,000 per month. Similarly, the Payment of Wages Act, 1936 applies to workers earning monthly wages of INR 18,000. Further, certain labour laws are restricted in their application to employees only in scheduled industries or specific establishments. The Wage Bill entitles all workers to equal remuneration and a universal minimum wage regardless of their wages and type of industry. It provides for payment of bonus to every employee drawing wages less than the amount notified by the Central Government. Payment of bonus further has exclusions for employees of certain Governmental organizations, educational institutions, institutions established not for purposes of profit and employees of any other establishment notified by the appropriate Government.
• Wages: The Wage Bill provides for a uniform definition of wages as opposed to different definitions of wages or remuneration under the extent labour laws. Wages under the Wage Bill are defined as all remuneration (whether by way of salary, allowances or otherwise) expressed in terms of money or capable of being expressed which would be payable to a person employed in respect of his employment on the fulfillment of terms of employment, whether express or implied. It, however, excludes bonus, the value of any house accommodation, or of the supply of light, water, medical attendance, contribution to pension and provident fund by the employer, traveling allowance and gratuity.
• Payment of wages: The current Payment of Wages Act 1936 requires payment of wages primarily in cash, and through bank only upon a specific request by the employee. Post demonetization, the Payment of Wages Act was amended to state that all wages shall be paid in current coin or currency notes or by cheque or by crediting the wages in the bank account of the employee. The Wage Bill now mandates every employer to make payment of wages electronically (bank transfer) or by cheque unless notified otherwise by the Government.
• Claims under the Wage Bill: The Wage Bill requires the relevant State Government to appoint one or more authorities and an appellate authority to hear and decide the claims arising out of non-payment of wages, deduction in wages made in contravention of the Wage Bill, payment of wages below the minimum wages, non-payment of wages for the leave period, non-payment of overtime, non-payment of equal remuneration to employees.
• Statutory Registers and Returns: The Wage Bill mandates every employer to maintain a single register (preferably electronic) containing the details of persons employed, wages and other details prescribed by appropriate Government. Employers are also required to file Annual Returns under the Wage Bill. This is expected to ease the compliance burden of the employers.
• Facilitators: Currently, the Payment of Wages Act, 1936, and the Payment of Bonus Act 1965 provide for labour “inspectors” to conduct inquiry and investigation to check compliance with the Payment of Wages Act, 1936. The Wage Bill provides for “facilitators” instead of “inspectors”, who in addition to powers of inquiry and investigation, are also empowered to provide the employers and workers with advice regarding effective means of complying with the law.
Some of the benefits this new wage code bill will bring to us are:
• A multiplicity of definitions will be removed through this change.
• There will be ease of compliances which in turn will incentivize setting up of more enterprises.
• The role and designation of the inspector will change from mere inspection to that of the facilitator who would guide and advise the employers as well as the worker class.
• The move will be popular among trade unions and those currently employed.
• Historically, the wage conditions of unskilled workers who are outside the central sphere are dismal. Hence this Bill will be the harbinger of good news to them.
After the goods and services tax (GST) implementation, the ability to offer Value Added Tax (VAT) stops by the State Government has already reduced. And with this new change now, the capacity of states to attract investments on the basis of lower wage rates too will take a hit. The latest Economic Survey points to the fact that 78% of Indian firms employ less than 50 workers. Just 10% employs more than 500 workers. The comparable figures for China are 15% and 28% which speaks for itself. Countries like Brazil too had suffered regional income disparities as a result of the implementation of a similar minimum wage law in the past.
Let us look at more challenges which this new wage bill may bring for us:
– This law will affect the competitiveness of trade and industry.
– The Bill may lead to wide regional income disparity due to some low-income states suffering current de-industrialization.
– This new change will ensure that more of the organizations remain in the informal sector where policing wages is difficult.
– The applicability of current act is restricted to scheduled establishments due to which a sizeable number of workers are left out. If Parliament approves the code, the minimum wage will be applicable to all classes of workers. This will certainly make it more difficult for smaller companies to function efficiently.
– The unorganized sector will eventually find ways around to bypass the law if economics tells them that they can’t afford it. The good news is that the Indian Government is in full swing to bring in reforms with the aim of creating a more effective, rationalized, transparent and user-friendly Labour law system in the country. But with this higher, uniform minimum wages across the country in the offering, there seems to be a possibility of low-income states suffering de-industrialization, leading to wide regional income disparity. On one hand, due to such changes technology and mechanization will move a step ahead leading to higher productivity.
However, if not tackled correctly may lead to a fall in employment level across all industries. Post getting approval for above bill, any person engaged in any work at any place whether its metro or Rural or village, the employer would be liable to pay the minimum wages of Rs.18000 plus statutory dues. For example, if you are engaging a peon in your factory/office at a remote place or any metro cities, you are liable to pay CTC of Rs.2,84,338. (Calculations are done for Maharashtra State and it may vary from state to state). Accordingly, even employers would be forced to revise the CTC of their on-roll employees who are drawing CTC less than Rs.2.85 lacs per annum.
The Wage Bill expands the scope of application of existing labour laws concerning wages to all establishments without any monetary limit (except in case of bonus), ensuring adequate coverage and protection of workers in relation to their wages. It seeks to reduce statutory compliance’s for employers by requiring the filing of a single register and return. Largely, it seeks to consolidate and rationalize existing laws on wages in India by providing further clarity on thresholds, record maintenance, mode of wage payment and so on.
Manager – Statutory Compliance
ERP Corporation Pvt. Ltd.