Wage Code Bill 2019 – Ramifications on employers, workers and the Indian economy

Last Updated at: Sep 07, 2020
Wage Code Bill 2019 - Ramifications on employers, workers and the Indian economy
The Code on Wages 2019, which paves the way for the introduction of mandatory minimum wages at the national level for 50 crore workers, has become a reality now.


The Periodic Labour Force Survey 2018 reported unemployment at all time high rate of 6.1%. Currently, 30.9 million unemployed persons are present in the Indian economy and with a majority of unemployed ( almost 68%) in the age group of 15 – 29 years. Amidst this rising concern facing the Indian economy, the government of India passed the Wage Code Bill, 2019 to regulate wages, and as a corollary, arrest the rising unemployment and disincentives to workers. In this post, we understand the significance of this legislative enactment, while also highlighting its spillover effects on employers and workers in the days to come.

Need for a Code on Wages – Consolidation and social equity

The Code on Wages seeks to regulate wages and bonuses for all workers employed by any industry, trade, business or manufacturer. It replaces four laws — the Payment of Wages Act, 1936; the Minimum Wages Act, 1948; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976. These different acts along with state amendments made compliances, determination of a specific minimum wage and regulation of workers pay rather complex. With one single act, the government intends to make payment of wages – an essential facet of household savings, taxation and demand for goods and services, more comprehensible and efficient.

Minimum wages – Need and parameters for adjustment

  • Minimum wages in every economy, whether emerging or highly developed are a crucial way of addressing income equality, recognising efforts of the lowest level of working hands and a structured way of increasing demand and contribution to macroeconomic stability. Erosion of purchasing power at the poorest levels threatens consumption patterns and business growth. This erosion of wealth is also one of the speculated reasons behind the withholding of results of the Consumer Expenditure Survey 2017-18.
  • In India, the minimum wages have not been uniform across states, by virtue of the fact that Labour is a concurrent list subject in India. While States like Kerala and New Delhi stand as ideal examples of high wages – ₹600 a day in Kerala and 14,842 a month in Delhi, the national average remains low. In this context, the Code on Wages recognises the setting of a floor wage is to ensure “minimum living standards” for workers. These minimum standards of living are in consonance with a Supreme Court directive that specifies the following –
  1. Net calorific needs for a working-class family (defined as the earning worker, spouse and two children or the equivalent of three adult consumption units) set at 2,700 calories per day per consumption unit,
  2. Annual clothing requirements at 66 metres per family,
  3. House rent expenses assumed at 10% of food and clothing expenditure, as well as expenses on children’s education, medical needs, recreation and contingencies.
    • Under the Code on Wages, the central government will fix a floor wage, taking into account the living standards of workers and judicial guidelines. It simplifies the methodology to fix minimum wage by doing away with the type of employment as one criterion. The minimum wage fixation would primarily be based on geography and skills, and the government can set different floor wages for different geographical areas.

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How does the code on wages impact employers, workers and the economy at large?

  • The most significant facet of The Code on Wages is it’s coverage without reference to wage ceilings, thus, applying to all workers. It is expected to benefit over 50 crores employees across the country, with its focus on enhancing minimum wages.
  • By removing duplicity in definitions, interpretations and state-wise standards, the Code makes the system of payment of wages efficiency, easier and speedier.
  • Uniform application across sectors along with deadlines on timely payments to workers would reduce excessive labour litigation.
  • The Code on Wages, akin to the Code on Industrial Relations treats fixed-term, contract workers at par with regular workers on the payroll, ensuring dignity, equality in wages and respect to all workers.
  • Workers are benefited from the provisions that allow state governments to fix a higher wage than what is established by the central government. Also, if the state’s wage is higher than the nationally determined minimum wage, it cannot be lowered to the detriment of workers.
  • Promoting digital forms of payment through cheques and online transfer is likely to extend the benefits of digitisation to lowest levels of workers and offer social security, while also making wage regulation and supervision process more efficient for businesses and government.
  • Gender discrimination in the payment of wages and regionalism that allowed for variance in wages for the same skill in different parts of the country would be reduced

Crucial concerns with the proposed code on wages

The Central Government has not made public the rules that would govern how the skills and geographical factors would be taken into account to formulate a minimum wage. The provision of an arbitrary deduction of wages based on performance, damage or loss, advances may also be used unfairly by management having absolute control on disbursement. This fear of deductions from wages could also dissuade workers from protesting for their rightful claims.

Way Forward – Increasing disposable incomes and economic prosperity, but at what cost?

Employers would certainly be encouraged to increase wages for their workers, and the increased compliance cost may lead to some initial unrest. However, with rising disposable incomes in the hands of the workers, the government intends to empower the poorest of workers while also encouraging a large chunk of the unemployed workforce to join the formal economy at competitive rates. This not only adds to the alleviation of poverty but also ensures social justice, equality and better living standards for an emerging economy like India. The balance, however, between fostering equality and encouraging businesses in India has to be delicately navigated.

Avani Mishra is a graduate in law from the National Law Institute University, Bhopal. She qualified the Company Secretary course with an All India Rank 1 and is a recipient of the President’s Gold Medal for her academic distinctions. She also holds a B.Com degree with a specialization in Corporate Affairs and Administration.