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Project Report ON: The Amendments in Wage Code Act of India Industrial Relations Shantanu Sachin Dhavale (HR)

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PROJECT REPORT

ON
THE AMENDMENTS IN WAGE CODE ACT OF INDIA
IN THE COURSE
INDUSTRIAL RELATIONS
SUBMITTED BY
SHANTANU SACHIN DHAVALE
ROLL NO
TYBMS (HR)
(SEMESTER V)
UNDER THE GUIDANCE OF
Dr. Blessy Easo
ACADEMIC YEAR
2022 - 2023

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CERTIFICATE

This is to certify that Mr. Shantanu Sachin Dhavale, roll


number 04 of Third Year BMS (HR) Semester V (2021 -
2022) has successfully completed the Project on The
Amendments In Wage Code Act Of India as per the
guidelines of KES’ Shroff College of Arts and Commerce,
Kandivali(W), Mumbai-400067.

Teacher In-charge Principal


Name & Signature Dr. L.
Bhushan

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INDEX
Sr.No. Topic Page No
1 Introduction 4
2 Review of Literature 5
3 Impact of Code on Wages Act 7
4 Bibliography 14
5 Conclusion 15

Introduction

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The Code on Wages, 2019 was introduced in Lok Sabha by the Minister of Labour, Mr.
Santosh Gangwar on July 23, 2019. It seeks to regulate wage and bonus payments in all
employments where any industry, trade, business, or manufacture is carried out.  The Code
replaces the following four laws:

(i) The Payment of Wages Act, 1936


(ii) The Minimum Wages Act, 1948
(iii) The Payment of Bonus Act, 1965
(iv) The Equal Remuneration Act, 1976

The Code will apply to all employees.  The central government will make wage-
related decisions for employments such as railways, mines, and oil fields, among
others.  State governments will make decisions for all other employments. Wages
include salary, allowance, or any other component expressed in monetary terms.
This does not include bonus payable to employees or any travelling allowance,
among others.

According to the Code, the central government will fix a floor wage, taking into account
living standards of workers.  Further, it may set different floor wages for different
geographical areas. The Code prohibits employers from paying wages less than the minimum
wages.  Minimum wages will be notified by the central or state governments.  This will be
based on time, or number of pieces produced.  The minimum wages will be revised and
reviewed by the central or state governments at an interval of not more than five years.
Under the Code, an employee’s wages may be deducted on certain grounds including: (i)
fines, (ii) absence from duty, (iii) accommodation given by the employer, or (iv) recovery of
advances given to the employee, among others.  These deductions should not exceed 50% of
the employee’s total wage. The Code specifies penalties for offences committed by an
employer, such as (i) paying less than the due wages, or (ii) for contravening any provision of
the Code.

Review of Literature

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1. ‘India: Code on Wages,
2019 – Key Features and
Highlights’, 23
October 2019, PDS Legal
This article highlights briefly,
the changes that have been
made through the
introduction of the code
on wages. The highlights
identified include the
introduction of a centrally
determined floor wage,
increase in the period of
limitation for filing claims,
provisions for inspector
cum facilitators and

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changes made to offences
and penalties. However,
this article analyses a
limited number of changes and
fails to provide a detailed
perspective of the
same. Further, it does not
provide a comparative picture
of the previous legal
landscape that existed prior to
the introduction of the new
code.
2. ‘Code on Wages, 2019-
Ministry of Labour &
Employment’, 02

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January 2020, PRS Legislative
Research
This article was developed by
the think tank PRS India to act
as a primer on
1. ‘India: Code on Wages,
2019 – Key Features and
Highlights’, 23
October 2019, PDS Legal
This article highlights briefly,
the changes that have been
made through the
introduction of the code
on wages. The highlights
identified include the

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introduction of a centrally
determined floor wage,
increase in the period of
limitation for filing claims,
provisions for inspector
cum facilitators and
changes made to offences
and penalties. However,
this article analyses a
limited number of changes and
fails to provide a detailed
perspective of the
same. Further, it does not
provide a comparative picture
of the previous legal

8|Page
landscape that existed prior to
the introduction of the new
code.
2. ‘Code on Wages, 2019-
Ministry of Labour &
Employment’, 02
January 2020, PRS Legislative
Research
This article was developed by
the think tank PRS India to act
as a primer on
1. 'India: Code on Wages, 2019 - Key Features and Highlights', 23
October 2019, PDS Legal

This article highlights briefly, the changes that have been made through the introduction
of the code on wages. The highlights identified include the introduction of a centrally
determined floor wage, increase in the period of limitation for filing claims, provisions
for inspector cum facilitators and changes made to offences and penalties. However, this
article analyses a limited number of changes and fails to provide a detailed perspective of
the same. Further, it does not provide a comparative picture of the previous legal
landscape that existed prior to the introduction of the new code.

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2. 'Code on Wages, 2019- Ministry of Labour & Employment', 02 January 2020, PRS
Legislative Research

This article was developed by the think tank PRS India to act as a primer on the main
legislative changes introduced by the new code. It touches upon the legislative history of
the Code, along with providing a comprehensive list of the provisions of the code.
However, a very limited analysis of each of these provisions has been provided. Further,
no analysis of the changes made in comparison to the erstwhile laws have been provided.

3. The broken promise of decent and fair wages', 25 November 2019, Penguin India,
Chandan Kumar, Chairperson: National Minimum Wage Advisory Board

This article critically examines the provisions of the new code, with special emphasis on
the minimum wage provisions. It stipulates that the Indian government has not taken into
account a plethora of SC judgments that harp on the ILO metric for computation of
minimum wage that the Code does not take into account. It also holds that the code
disproportionately benefits employers, and doesn't provide employees with necessary job
security and hence, has been a failure in its objective of economic and job security.
However, a limited number of provisions have been analysed and the article is rhetoric
heavy.

4. 'Code on Wages and the Gig Economy', 24 August 2019, EPW journal, Vol. 34, Alok
Prassana Kumar

This article analyses the issues with the new code pertaining to the definition of employee
in the context of the gig economy. These employees primarily constitute individuals that
do not fall within the fold of the formal protection of labour laws. However, very limited
analysis on the problems of this definition, and lack of comparative to other laws that
define employee in order to paint a realistic picture

5. Key Takeaways of the Code on Wages 2019, KPMG India

This article comprehensively analyses the main provisions of the Code, and critically
appraises the benefits of the Code, in terms of reforms intended to bring simplicity,

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flexibility and transparency. However, this article does not provide any analysis of the
drawbacks or issues with the new code.

Impacts of Code on Wages Act

Impact on Modern Salary Statements


The four new Labour Codes enacted in 2019 and 2020 are awaiting notification by the central
government and are expected to be notified in 2022. As many as 29 States and Union
Territories have already issued the Draft Rules for one or more of the four Labour Codes.

One of the key changes under the new Labour Codes is the introduction of a uniform
definition of the term 'wage' across all the four Codes., The uniform definition of 'wage'
includes all monetary payments and any benefits provided in kind except for the specified
exclusions. Specified exclusions consist of components such as conveyance allowance, house

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rent allowance (HRA), amounts paid to defray special expenses (e.g., telephone
reimbursements etc.) and contribution to pension and Provident Fund (PF).

Under the new definition of wages, the specified exclusions are to be capped at 50% of the
total remuneration. This means that for the purpose of social security contributions such as
PF, gratuity (accrual and pay-out), etc. at least 50% of the 'total remuneration' shall be
considered. This 'total remuneration' includes wages (as defined in the paragraph above) plus
specified exclusions (e.g. HRA, conveyance).

Generally, employers identify a basket of allowances and leave the choice to the employee to
pick and choose specific components which are relevant to them for inclusion in their salary
structure, within the overall CTC. This helps employees to optimize their taxes. However, a
flexible salary structure could result in complexity in determining "Wages" under the labour
codes, impact retirals such as PF, Gratuity and thereby the take-home pay of employees.

Impact on Career Development

The 4 new Labour Codes aim at standardizing definitions, simplifying procedures and
ensuring wider coverage of the workforce. The new laws, awaiting effective notification date,
will consolidate and replace the current 29 central labour regulations.

One of the codes 'The Occupational Safety, Health and Working Conditions Code, 2020'
('OSH Code") and Rules has introduced specific provisions relating to the issue of
appointment letter and has prescribed formats for the same (section 6 of the OSH Code read
with Rule 7 of the OSH Rules). The 13 existing regulations do not have specific provisions
related to issuance, format of appointment letter.

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Appointment letter: A legal contract
An appointment letter is a legal contract between the employer and the employee. It is
issued by the employer, confirming the job role/position of the employee in the organization
and detailing the terms and conditions of employment.

As indicated above, under the OSH Code, an employer has to mandatorily issue a letter of
appointment in a format that may be prescribed by the appropriate government authority to
every employee on his/her appointment in the establishment.
The OSH Code further states that if any employee has not been issued "such an appointment
letter on or before the commencement of the Code", then the employer should issue one
within three months of the commencement of the Code. This is in contrast with the present
scenario wherein no format is prescribed.

Thus, even if an employee has already been issued an appointment letter, prior to the new
laws coming into effect, then a new appointment letter will have to be issued within three
months of effective date of new law. The new appointment letter will have to be in the format
prescribed by the Code.
Certain aspects such as Aadhaar Number, Labour Identification Number (LIN), Universal
Account Number (UAN), avenue for achieving higher wages/higher position (basis for
increments, promotions etc.), which are not currently included under the appointment letter
will now have to be mandatorily included. Apart from the above, the appointment letter and
the clauses therein will also have to be reviewed with respect to social security, gratuity, etc.
so as to realign and reflect the changes required under the other Labour Codes besides OSH.
Necessary modifications will also need to be made to include and communicate specific
benefits available to women employees and fixed term employees as applicable.
This is a welcome step as it will bring in more transparency and introduce standardization
in the content to be mentioned in an appointment letter.

Further, while issuing an appointment letter the employer should also refer to the OSH Code
and Rules notified by the respective states and any other state laws, such as the Shop and
Establishment Act, to ensure that all applicable provisions are complied with.
One should also take note of the fact that non-compliance with the provisions under the
OSH Code and Rules will attract stringent penalties on the employer, ranging from Rs 2 lakhs
to 3 lakhs. Continued non-compliance would also attract additional penalties of Rs 2,000 for

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each day such contravention continues.

Hence, it is imperative for employers to watch out for the notification of the effective date of
the Labour Codes, identify and understand the changes required under the same, be in a state
of readiness to ensure compliance, and also keep their employees informed.

To revamp the regulations governing employer-employee relationship and reform the labour
laws the government has released four Labour Codes. The newly enacted Labour Codes lay
down an array of reforms relating to wages, social security (pension, gratuity), labour
welfare, health, safety and working conditions (including women). In the ever-changing
globalized corporate world, there was an urgent need to regulate, formalize and rationalize
working conditions, including working hours and leave.

Impact on Working Hours

Currently, working hours and leave (paid/privilege leave) of employees are governed by the
Factories Act, 1948 at the central level and relevant Shops and Establishment Act at the state
level. The major focus of the government is to streamline the working hours and leave of
factory workers as well as service industry in tandem.
Government has tried to fill these gaps by introducing the new Labour Codes. These Labour
Codes would be applicable to every industry. Though, the respective state governments can
still regulate the working hours and leave through the Shops and Establishment Act, but
issuance of state rules on the lines of Labour Codes and the draft central rules suggests that

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state government(s) are aligned with the central government, especially in relation to the
aspects of working hours and leave.

It should be noted that under the new Labour Codes, the government is willing to provide the
benefits to the employees being categorized as workers only. The government have not
touched upon the working hours and leave of managerial, administrative and supervisory
staff, who shall still be governed by the respective Shops and Establishment legislation of the
state government.
The definition of 'workers' under the new Labour Codes are on the lines of definition of
workers as provided under the Factories Act, however, the same does not imply that the
aforementioned benefits are only applicable for blue collar workers, as in the case of
factories.
Keeping in mind the uniform application of new Labour Codes to all industries including
service sector, under the new regime every individual contributor (person not engaged mainly
in managerial/administrative or supervisory role- for supervisor the limit of Rs 18,000 of
wages per month has been prescribed), irrespective of the work assigned to him/her or
remuneration drawn (except in case of supervisor), should ideally qualify as worker under the
new Labour Codes.
For e.g. a software developer, who is an individual contributor having no managerial,
administrative and supervisory duties and having a CTC of Rs 20 Lakh p.a., would likely to
be considered as a worker under the new Labour Codes. Since, the law does not restrict the
definition of workers to factories anymore it would be considered to be applicable to a
software development company as well.
Having said that, there are still factions in the Indian corporates, which does not support
aforementioned view and accordingly, the Government has time and again being requested
from professional/legal firms/industry bodies to provide necessary clarity in this regard.

Under the new Labour Codes, the daily and weekly working hours have been capped at 12
hours and 48 hours, respectively. This has effectively paved way for implementation of a 4-
day work week (assuming 12 working hours every working day in the week).

Additionally, the maximum number of overtime hours for workers has been increased from
50 hours (under the Factories Act) to 125 hours (in new labour codes) in a quarter across
industries. This would give headroom to companies to adopt the 4-day work week and

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employ workers on the weekend, if necessary.
The 4-day work week can act as a dual-edged sword, as on one hand, the workers would
benefit from elongated period of rest, but on the other hand, it entails longer working hours
during the weekdays, which may result in deterioration of workers' health.

Similarly, the increase in the overtime limit may result in additional earnings in the hands of
workers but at the expense of longer working hours or probably working on weekends as
well.
The 4-day work week can act as a dual-edged sword, as on one hand, the workers would
benefit from elongated period of rest, but on the other hand, it entails longer working hours
during the weekdays, which may result in deterioration of workers' health.

Similarly, the increase in the overtime limit may result in additional earnings in the hands of
workers but at the expense of longer working hours or probably working on weekends as
well.

Impact on Annual leave

Apart from the working hours, the government has also aimed to rationalize -
(i) the leave a worker can avail during the course of his/her employment,
(ii) carry forward of leave to succeeding year, and
(iii) encashment of leave during the tenure of employment.

The new Labour Codes have reduced the eligibility requirement for leaves from 240 days of
work to 180 days of work in a year. This would mean that as per existing laws, when a new

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employee joins, he/she needs to work 240 days to be eligible to take a leave. However, the
new labour codes have reduced the number of days of work for a new employee to 180 days
to be eligible for leave

However, the quantum of leave earned will remain unchanged, i.e., 1 day of leave earned for
every 20 days of work. Similarly, no change has been proposed in the limit on carry of
forward of leaves which remain at 30 days. Although, the provisions regarding leave, barring
eligibility criteria, have not changed, yet it is a welcome move, considering that the
provisions of leave which were only applicable to manufacturing units have now been made
mandatory for every sector under the new Labour Codes

On one hand the government has made an attempt to universally enforce the provisions of
leave on all sectors, on the other hand it has made leave encashment mandatory on part of the
employer under the new labour codes, wherein the leave of the worker are more than the
maximum permissible limits of carry forward at the end of the year.
For instance, assuming an employee has 45 days of leave at the end of the calendar year, then
in such a scenario, an employer will be required to pay leave encashment of 15 days to a
worker and balance 30 days of leave will be carried forward to the next calendar year.
The existing Shops and Establishment Act, it usually provides for leave encashment
only at the end of the employment period (i.e., at the time of resignation or retirement).
All-in-all, it can be said that the new Labour Codes are welfare legislation which make an
attempt to balance the welfare of the workers and the cost of workers to a company.,
However, it is yet to be seen whether state governments would play along and make
necessary changes in their respective Shops and Establishment Acts to clarify the existing
doubts. .

Above all, Work from Home (WFH) which is a prevalent market practice across sectors
specially after the outbreak of the covid-19 pandemic, has been recognized by the central
government in the draft model standing order applicable to the service industry.

However detailed guidelines would help the industry to formulate the parameters for the
same, including regulation of working hours, overtime, leave, etc. Companies may also need
to have some guiding principles regarding Work from Home in order to ensure work-life

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balance of the employees.

Bibliography

 https://prsindia.org/billtrack/the-code-on-wages-2019

 https://www.studocu.com/in/document/gujarat-national-law-university/
international-humanitarian-law/labour-project-code-on-wages-2019/10424353

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 https://economictimes.indiatimes.com/wealth/tax/how-new-wage-definition-in-
labour-codes-could-impact-your-income-tax-outgo/articleshow/92511011.cms

 https://economictimes.indiatimes.com/wealth/earn/new-labour-codes-will-bring-
new-appointment-letters-with-aadhaar-job-growth-path-for-all-employees/
articleshow/92405630.cms

 https://economictimes.indiatimes.com/wealth/earn/how-employees-working-
hours-annual-leave-will-change-under-the-new-labour-laws/articleshow/
91982663.cms

 https://economictimes.indiatimes.com/wealth/earn/how-employees-working-
hours-annual-leave-will-change-under-the-new-labour-laws/articleshow/
91982663.cms

Conclusion
The Code replaces the following four laws: (i) the Payment of Wages Act, 1936, (ii) the
Minimum Wages Act, 1948, (iii) the Payment of Bonus Act, 1965, and (iv) the Equal
Remuneration Act, 1976.

The new laws are in tune with the changing labour market trends and at the same time
accommodate the minimum wage requirement and welfare needs of the unorganized sector

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workers, including the self-employed and migrant workers, within the framework of
legislation. When four laws get subsumed into one, the government tends to squeeze and
condense the result to streamline the significant yet common elements. So, the mandate for
the NDA government was to simplify through unification. Nevertheless, in squeezing and
condensing, if the agenda were to universalize, standardize, and uniformize, besides
facilitating easier compliance and reducing litigation and compliance cost, one can afford to
forgo the details. Unfortunately, the NDA government seems to have failed in achieving it.
Either we can call the exercise of codification of wage laws a patchwork or sheer
amalgamation that has created more confusion than simplification of wage laws. The
government staged the Wage Code as one legislation that has enlarged the coverage and
applicability of wage laws in the country by having all-encompassing definitions of
employee, worker, and establishment. “One nation one wage” was emphasized and enforcing
the floor wage rate as the threshold was overstated. But, while analyzing the Wage Code
thoroughly, we came across several fallacies from having two different sets of beneficiaries,
two meanings of the term wage, different benefits applicable to different sets of beneficiaries,
retaining thresholds for eligibility, and criteria for determining wages. Above all, there is no

“One Code for All”, no “One nation one wage”, and no “national minimum wage”. There are
two rates at which minimum wage is proposed to get determined – the floor wage that is a
threshold and the minimum wage that is enforceable.

The Code on Wages is a measure put forth to ease the burden on the employers as well as
employees. After the enactment of the Code, the three Acts were sublimed. The Code has
eloquently expanded the definition of the employer as well as an employee so as to cover
within its ambit both the organized as well as unorganized sector. Considering the
development of an economy as a whole, both organized and unorganized sectors should be
developed equally, development of one sector can be detrimental at the cost of another. The
embodiment of Article 43 of the Constitution of India points out that a living wage must be
provided to the workers so that it will open the doors of socio-economic development for the
workers, and if a worker is full with content, he would play a significant role in the
development of a particular industry, therefore, for a socialist society, the industrial
democracy stands as a pre-requisite. The scanty maintenance of a laboring poor is evidence
of the fact that things are at standstill or possibly going backward. In furtherance to this, the
Act has an effective contribution to the Digital India campaign as the role of technology in

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the present times cannot be undermined. In this particular context, the Code on wages Act
seems to have some positive impact.

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