On August 8, 2019, the Ministry of Law and Justice of the Government of India
notified the Code on Wages, 2019 (the "Code"), which seeks to amend and
consolidate the laws relating to wages and bonuses, as well as matters related
to or customary to them, and incorporates the provisions of the Payment of Wages
Act, 1936 ("Payment of Wages Act"), the Minimum Wages Act, 1948 ("Minimum Wages
Act"), the Payment of Bonus Act, 1965 ("Payment of Bonus Act ("Equal
However unlike Payment of Wages Act, which applies to
employees earning less than the statutory minimum wage, and the Minimum Wages
Act, which applies to employees working in scheduled establishments, the Code
envisions the provisions of timely payment of wages and minimum wages being
applied uniformly to all employees, regardless of wage ceiling or sector.
Chapter II of the Code on Wages Act talks about Minimum Wages.
Minimum wage is the wage set that employer must pay his worker as per law. In
every state minimum wage is different. Minimum wage is set by appropriate
Minimum wage was not defined in Minimum Wages Act, 1948. It is defined in
code of wages act, 2019 under section 2 (s) as wage fixed under section 6 of the
act. It is not defined in clear terms, it is only said that it is defined under
section 6 of the act.
Section 6 says that appropriate government will set minimum wages.
- Paying minimum wages is non-negotiable. If any employer does not pay
minimum wages, then he is charged with penalty of Rs. 50,000. And even after
this subsequently he has committed the same thing again, then he is charged with
penalty of upto Rs. 1 Lakh or 3 months of imprisonment. It is a criminal
- Code of Wages is applied to both sectors
As per the Code (i) basic pay, (ii) dearness allowance and (iii) retaining
allowance have been included as components of wages.
Further, the Code excludes the following components from the definition of
- Bonus payments;
- value of the house-accommodation, supply of light, water, medical
attendance or other amenity or of any service excluded from the computation
of wages by an order of the appropriate Government;
- Employer contributions to any pension or provident fund;
- Conveyance allowances;
- Sums paid to the employee to defray special expenses on him by the
nature of his employment;
- House rent allowance;
- Remuneration payable under award or settlement between the parties or
order of court or tribunal
- Overtime allowance;
- Commission payable to employee;
- Gratuity payments; and,
- Retrenchment compensation or other retirement benefit payable to the
employee or any ex-gratia payment made to the employee on the termination of his
Employers exploited the notion of basic wage as a loophole to reduce EPF
payments, hence contradicting the objective of the EPF Act. The Supreme Court
addressed this issue in the case of The Regional Provident Fund Commissioner
(II) West Bengal Versus Vivekananda Vidyamandir And Others, holding that all
allowances that are universally, uniformly, necessarily, and ordinarily paid to
all employees would form a part of the basic wage, which would be used for
provident fund contribution.
When an allowance is shown to be either a variable,
or was linked to any incentive for production resulting in a higher output, or
the allowance in question is not paid across the board, or paid especially to
those who take advantage of the opportunity, the allowance can be excluded from
the basic wage.
Any action taken under the repealed enactments, including any notification,
nomination, appointment, order or direction made there under, or any amount of
wages paid, shall be deemed to have been done, taken, or provided for such
purpose under the corresponding provisions of the Code to the extent that they
are not contrary to the provisions of the Code and until they are repealed under
the corresponding provisions of the Code.
Need Of Minimum Wage In India
Despite the large number of employees in the unorganised sector and their
significant contribution to the national economy, they are among India's poorest
citizens. As a result, it is critical that immediate action be done to
ameliorate their situation. Minimum wages in India have a history of infrequent
changes and insufficient cost-of-living increases. The minimum wage rates, which
are set in a few states, are insufficient to cover even two meals a day, let
alone the basic demands of health, education, and shelter.
Workers are poor and
illiterate. Most of the workers belong to unorganised sector. So, workers are
exploited. To protect the interests of workers, mainly in unorganised sector.
Because organised sectors at least have Trade Union to protect the workers'
rights. In particular, the issues and problems of wage policy in both the
organised and unorganised sectors concern elements such as a need-based minimum
wage, real wage protection through compensation for rising costs of living,
incentives for increased productivity, allowances for occupational hazards, wage
differentials for skills, and so on.
Constitutionality Of Minimum Wage In India
- Bijoy Cotton Mills Ltd. V. State of Ajmer, 1953
In this case, the provisions of the act were challenged claiming that they were
violating the freedom of trade or business guaranteed under Article 19
(g) of the Constitution. Some of the employers claimed that they did not
have the financial capacity to pay minimum wages and if they do not pay the
minimum wages, they are charged with penalty and ultimately due to financial
issues, they would have to shut their industries. Thus, their fundamental right
to practise any profession, or to carry on any occupation, trade or
businessunder article 19 (g) is being infringed.
The Court held that every
Fundamental Right is not absolute in nature. It has its own reasonable
restrictions. Minimum wage act is passed in the favour of general public. Also, DPSP (Article 43) allows the state to come up with certain measures for public
welfare in order to improve living standards, maintain health and decency. Thus,
it is not at all violating Article 19(g) and this restriction is reasonable
and in interest of general public.
- PUDR V. Union of India, 1983
In this case, it was held that if an employer pays less than the minimum wage
then it amounts to "forced labour". The right to a minimum wage was incorporated
in the right against forced labour, according to the Court. Migrant and contract
workers frequently have "little option but to take any employment that comes
way, even if the pay given... is less than the minimum wage," according to the
report. As a result, the Court determined that "the necessity of economic
condition which leaves a person in need with no option but to supply labour or
service" was no less a kind of forced labour than any other, and that the only
remedy was a constitutional guarantee of the minimum wage.
- M/S Crown Aluminium Work v. Their Workmen
In this case, it was held that if a particular industry cannot pay minimum wage,
then it has no right to exist. The states the motivation of the legislature for
enactment of the minimum wages Act, 1948, in the following words, "In developing
country like ours which faces the problem of unemployment on a very large scale,
it is not unlikely that labour may offer to work even on starvation wages. The
policy of the Act, therefore, is to prevent employment of sweated labour in
general interest and, so in prescribing the minimum wage rates, the capacity of
the employer need not be considered as the state assumes that every employer
must pay minimum wages for the employee's labour".
Important Definitions In The Code
The preamble of the code says that the code applies to establishment. The
previous act was only applicable on scheduled employments. Scheduled employments
are those employments that are stated in the act itself. Now, all the
establishments are covered. Establishment is defined under section 2(m) of the
act. "establishment" means any place where any industry, trade, business,
manufacture or occupation is carried on and includes Government establishment".
All the establishments have to provide minimum wages. Establishments also
include unorganised sectors. Government Establishments are also defined under
Code on Wages act, it is said that any local authority or any place/ department
carried out under local authority is a Government Establishment.
- Appropriate government
Appropriate Government is defined under section 2(d) of the Act.
"appropriate Government" means:
- In relation to, an establishment carried on by or under the authority of
the Central Government or the establishment of railways, mines, oil field,
major ports, air transport service, telecommunication, banking and insurance
company or a corporation or other authority established by a Central Act or
a central public sector undertaking or subsidiary companies set up by
central public sector undertakings or autonomous bodies owned or controlled
by the Central Government, including establishment of contractors for the
purposes of such establishment, corporation or other authority, central
public sector undertakings, subsidiary companies or autonomous bodies, as
the case may be, the Central Government;
- In relation to any other establishment, the State Government;
If any establishment is under the direct control of Central Government, then the
appropriate government is Central government and if any establishment is under
the direct control of State Government, then the appropriate government is State
Government. For Private Establishments/ Companies, the appropriate government is
It is defined under Section 2(l) of the Act. ""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 where
the establishment is carried on by any department of the Central Government
or the State Government, the authority specified, by the head of such
department, in this behalf or where no authority, is so specified the head
of the department and in relation to an establishment carried on by a local
authority, the chief executive of that authority, and includes:
Any person is an employer who employs directly or indirectly (through another
person) 1 or more employees. If the establishment is any department of a Central
or State Government, then the employer will be the head of the Department. A
Contractor can be also considered as an Employer. If the employer dies, then his
deceased/ representative will be considered as Employer.
- in relation to an establishment which is a factory, the occupier of the
factory as defined in clause (n) of section 2 of the Factories Act, 1948
and, where a person has been named as a manager of the factory under clause
(f) of sub-section (1) of section 7 of the said Act, the person so named;
- in relation to any other establishment, the person who, or the authority
which, has ultimate control over the affairs of the establishment and where
the said affairs is entrusted to a manager or managing director, such
manager or managing director;
- contractor; and
- legal representative of a deceased employer;
Section 2(k) defines employee as ""employee" means, any person (other than an
apprentice engaged under the Apprentices Act, 1961), employed on wages by an
establishment to do any skilled, semi-skilled or unskilled, manual, operational,
supervisory, managerial, administrative, technical or clerical work for hire or
reward, whether the terms of employment be express or implied, and also includes
a person declared to be an employee by the appropriate Government, but does not
include any member of the Armed Forces of the Union;
Section 2(z) defines worker as ""worker" means any person (except an apprentice
as defined under clause (aa) of section 2 of the Apprentices Act, 1961) employed
in any industry to do any manual, unskilled, skilled, technical,
operational, clerical or supervisory work for hire or reward, whether the
terms of employment be express or implied, and includes:
- working journalists as defined in clause (f) of section 2 of the Working
Journalists and other Newspaper Employees (Conditions of Service) and
Miscellaneous Provisions Act, 1955; and
- sales promotion employees as defined in clause (d) of section 2 of the
Sales Promotion Employees (Conditions of Service) Act, 1976, and for the
purposes of any proceeding under this Code in relation to an industrial
dispute, includes any such person who has been dismissed, discharged or
retrenched or otherwise terminated in connection with, or as a consequence
of, that dispute, or whose dismissal, discharge or retrenchment has led to
that dispute, but does not include any such person:
- who is subject to the Air Force Act, 1950, or the Army Act, 1950, or the
Navy Act, 1957; or
- who is employed in the police service or as an officer or other employee
of a prison; or
- who is employed mainly in a managerial or administrative capacity; or
- who is employed in a supervisory capacity drawing wage of exceeding
fifteen thousand rupees per month or an amount as may be notified by the
Central Government from time to time.
- A worker does not include a person with supervisory, administrative or
managerial capacity or a person who is semi-skilled.
- A worker does not include aperson with supervisory authority with wage
exceeding 15,000 rupees per month.
- If a semi- skilled employee, supervisory, administrative or managerial
employee cannot be considered a worker.
- A worker does not include a personwho is subject to the Air Force Act,
1950, or the Army Act, 1950, or the Navy Act, 1957
- A worker does not include a personwho is employed in the police service
or as an officer or other employee of a prison
Procedure And Fixation Of Minimum Wages
Under Section 6 of the code, the appropriate government (central or state) shall
fix a minimum rate of wages based on time work or piece work. While fixing the
minimum wages, the governments may take into account factors such as, skill of
workers, and difficulty of work. Also by Section 8 of the code, the minimum
wages shall be revised and reviewed by the central or state governments at
intervals of not more than five years.
The Government shall determine the
minimum rates of wages payable to employees in the course of employment,
according to Section 6 of the Code on Wages 2019. It directs the appropriate
authority to fix the following, taking into account all relevant factors in the
design of policies that are Minimum piece rate, Minimum time rate, Overtime
rate, System of guaranteed time rates.
According to Section 7 the government may
evaluate and amend the minimum wage rate which may consist of a basic salary
rate and an allowance that will be adjusted at such intervals and in such a
manner as the appropriate government may prescribe to correspond as closely as
possible to the variation in the cost of living index number applicable to such
workers a base pay with or without a cost-of-living allowance, and the monetary
value of concessions in respect of deliveries of necessary commodities at
concession prices, if such concessions are authorized.
[Section 8(1)(a)] First Method Committee Method
The competent government may appoint as many committees and subcommittees as it
deems necessary to conduct investigations and advise it on any necessary fixes
or revisions. The competent Government shall determine or adjust the minimum
wage rates by announcement in the Official Gazette after considering the advice
of the committee or committees. The wage rates will become effective on the date
mentioned in the notification. If no date is stated, wage rates will take effect
three months after the notification is issued.
In Edward Mills Co. v. State of Ajmer
, it was determined that the chosen committee is just an advisory body, and
that the government is not obligated to follow its recommendations. Section 9 of
the Act stipulates that the Committee shall be composed of persons nominated by
the appropriate Government to represent employers and employees in the scheduled
employment, who shall be equal in number and independent persons not exceeding
1/3rd of its total membership. The appropriate government will choose one of
these independent individuals as the Committee's Chairman.
[Section 8(1)(b)] Second Method - Notification Method
When determining minimum wages under Section 8(1)(b), the appropriate Government
shall publish its proposals in the Official Gazette by notification for the
information of persons who are likely to be affected, and specify a date not
less than 2 months from the date of notification on which the proposals will be
The competent government will take into account the comments received. It will
also contact the Advisory Board established under Section 7 before fixing or
revising the minimum wage rates through announcement in the Official Gazette.
The revised wage rates will be effective as of the date mentioned in the
notification. If no date is indicated, the notification will take effect three
months after it is sent. Revisions to minimum wage rates can be made
The Code includes rules forbidding discrimination on the basis of gender I in
pay by employers, (ii) in same job or work of a similar type done by workers,
and (ii) in recruitment of employees for same work or work of a similar nature.
Furthermore, the definition of payment under the Equal Remuneration Act was
broad, including a basic wage or salary, as well as any extra emoluments
provided in cash or kind to a person engaged in relation of employment or labour
performed. The Code, on the other hand, specifies the components that shall form
earnings for the purpose of equitable recompense regardless of gender, leaving
minimal space for interpretation.
Changes Bought By The Code For Wages
National Floor Wage (Section 9):
- As per Code of Wages, in every 5 years, Revision has to be done of the
Minimum Wage. It is Mandatory. This was not given in the previous act.
- Fixing of National floor wage is made mandatory under this code.
It is the Uniform minimum wage for the nation.
Minimum wage cannot be less than the National Floor Wage. National Floor Wage is
provided to all the states by the Central Government and then the appropriate government has to fix their minimum wage which must be above the National Floor
Wage. In the year 1996, the first National floor wage was set which was Rupees
35 per day. However, it was not mandatory. In 2017, the National floor wage was
increased. Yet, it was not mandatory. It was made mandatory in the section 9 of
the COW. And an advisory committee is also made which decides that what should
be the National floor wage.
Section 9 Priviso says that Provided that different floor wage may be fixed for
different geographical areas. (2) The minimum rates of wages fixed by the
appropriate Government under section 6 shall not be less than the floor wage and
if the minimum rates of wages fixed by the appropriate Government earlier is
more than the floor wage, then, the appropriate Government shall not reduce such
minimum rates of wages fixed by it earlier.
It empowers the central government to set the regional level floor wage on the
basis of geographical level.Analysis
The Code tries to harmonise the meaning of 'wages,' which is a step in the right
direction. However, the Code's establishment of different definitions for
'worker' and 'employee,' as well as their usage, creates ambiguity. Furthermore,
the Code aims to transform the notion of the 'Inspector Raj' in connection to
the government's labour regulation by introducing inspectors-cum-facilitators
rather than just inspectors.
In terms of offences and sanctions, the Code has ushered in a sea change. The
punitive provisions show significant rationalisation and proportionality, with
the goal of assisting rather than hindering economic action.
The goal of minimum wages is to safeguard workers from receiving inequitably low
compensation. They contribute to ensuring that everyone receives a fair and
equal share of the benefits of progress, as well as a minimum living wage for
those who are working and in need of such protection. Minimum wages can also be
part of a policy to combat poverty and eliminate inequality, particularly
between men and women, by advocating the right to equal pay for equal work.
Minimum wages are described as the bare minimum of remuneration that an employer
is compelled to pay wage earners for labour completed during a certain period,
which cannot be reduced by collective bargaining or individual contracts. Its
purpose is to protect workers against exploitation due to disproportionality of
the payment to the amount and character of the work done. Minimum wages are a
key element of any government's wage policy and generally operate to find a
balance between socio-economic objectives and industrial growth.
In addition to the prevention of exploitation, a minimum wage policy should also
aim to regularize employment and shift unorganized classes of the workforce into
more formal modes of employment. The recently enacted Code on Wages replaced the
Minimum Wages Act of 1948 and established a uniform, complete definition of
'wages,' which is divided into three sections: inclusions, specific exclusions,
and conditions that limit the number of exclusions.
A basic rate of wages and a cost of living allowance, or a basic rate of wages
with/without the cost of living allowance and the cash value of concessions in
respect of supplies of essential commodities, or an all-inclusive rate
consisting of the basic rate, the cost of living allowance, and the cash value
of concessions, are the components of the Code's minimum wage rate.End-Notes:
- Civil Appeal No(s) 6221 of 2011
- Clause 69(2) of the Code on Wages, 2019
- (1955) AIR 33
- Art. 19 (1)(g)- to practise any profession, or to carry on any
occupation, trade or business
- AIR 1982 SC 1473
- AIR 1958 SC 30
- Clause 3 of Code on Wages, 2019