Disha Mohanty & Satvik Mishra

What is Minimum Wage?

Minimum wage can be defined as the least remuneration that is paid by the employer to the people employed by him, which cannot be altered by any form of contract. The various means of fixing minimum wages include statutes, decisions of a competent authority, industrial / labour courts or tribunals, and having a wage board or a wage council. Another method of doing this can be through giving legal authority to provisions of collective agreements.

The aim behind having minimum wages is to prevent exploitation of workers by protecting them from unreasonably low payments and to ensure that workers are given equal and fair treatment. Ensuring equal remuneration for equal work done and minimum wages would help in eliminating poverty and reducing income inequality.

Need and Scope of the Code on Wages, 2019

The Code on Wages was first introduced in the Lok Sabha in 2017. However, this bill lapsed upon the dissolution of the Sixteenth Lok Sabha session. The code was then scrutinized by the Standing Labour Committee and reintroduced in July 2019, after incorporating the recommendations of the Committee. The Second National Commission on Labour in 2002 had recommended for the unification of the multiple labour codes, industrial codes, etc to ease the process of setting up industries and doing business in the country.

Before the introduction of this legislation, there existed a minimum of 40 central and state laws which governed the functioning of industries and labour organizations. This led to confusions and complexities in processes. Therefore, the main objective of the Code of Wages, 2019 is to streamline and simplify the complex procedures, terms, etc mentioned in the previous laws. And as per the government, this piece of legislation affects more than 150 million workers.

To make universal provisions of minimum wages for workers in both sectors (organised and unorganised), the Central Government came up with the Code on Wages in 2019. The Code combines four labour laws, on the various matter of wages into one. The four laws are – the Payment of Wages Act of 1936, the Minimum Wages Act of 1948, Payment of Bonus Act of 1965, and the Equal Remuneration Act of 1976.

All elements essential to making decisions on wages, remunerations, their timely payment, and any bonus that may be included are all present in the Code. The new Code sets a floor wage with an aim to set ‘minimum living standard’ for the working class by incorporating the recommendations put forward by the 15th Indian Labour Conference. The rules cover a range of wage-related topics such as how many hours of work would a normal working day consist of, overtime benefits, deduction criterion, etc. To maintain healthy employer-employee relations, the legislation suggests that the minimum wage should be inclusive of basic wage rate, living expenditure allowance, concessions, fine, etc amongst others. This floor wage shall be fixed by a tripartite committee consisting of trade union representatives, employers, and the governments of the respective states after taking into consideration the skills and interests of the workers, the geographical location, and any other factor that might influence it. For deductions, the Code has specifically mentioned that the same cannot be more than 50% of the employee’s wage. Along with all this, the minimum wages should be revised once in five years.

Concerning payment of wages, the Act stresses on digitalizing the modes of payment or use of cheques for payment. As the subject of ‘labour’ comes under the ambit of power of both the State and Central governments, they are both empowered to fix the minimum wages in their necessary spheres, under the revised law.

Another significant improvement is the decriminalization of offences. The new legislation amends the previous clauses and has decriminalized all offences unless it is the same offence which is repeated in 5 years. Instead, to deal with the offences, it has prescribed a greater amount of fine that is payable for non-compliance to any of the rules which are laid down.

The code suggests that the respective state governments lay down their set of ‘inspection codes’ and grant the facility of web-based inspection to help the organizations from suffering the ordeal of physical inspections. Further, to keep a check on any kind of malpractices and arbitrariness, the law appoints Inspectors-cum-Facilitators in place of Inspectors. This change was incorporated as a result of objections made by the Parliamentary panel that by simply replacing the Inspector with a Facilitator might lead to dilution of implementation of the mechanism. Other than all these, the legislation brings in a very progressive and important clause of gender-neutral equal remuneration which expands the pre-existing scope of the law which only protected women from being discriminated against unequal wage payment.

The ‘Unclear’ Code

Even though the legislation is a very well-intended attempt to unify the pre-existing laws, this new law has failed on various fronts to satisfy the demands of its target market.

This new code amalgamates the pre-existing 4 definitions of wage and aims to simplify it for the sake of convenience of employers and employees likewise. Instead, the 42-lines long definition of ‘wage’ has added to the existing confusion which the legislation aimed to solve. For example, under the Minimum wages Act, House Rent Allowance (HRA) should be included under the definition of wage. However, the new code excludes HRA from the ambit of wage even after stating that it is inclusive of “all allowances”. This particular ambiguity places the employer in a difficult position who will have to remunerate his/her employee twice if the confusion isn’t cleared. Furthermore, the wage code doesn’t even justify why “remuneration payable under settlement” will not be taken into consideration while payment of wages or bonus or both. This means that all wage settlements, which are made between an employer and employee for two/three years are ineffective and wouldn’t be considered as ‘wage’ under certain specific circumstances. Additionally, the lawmakers have not even provided any reason behind this amendment. It should be duly noted that this increased ambiguity and confusion will only lead to an increase in lawsuits and litigations. Therefore, it is the responsibility on the part of the authorities to clear out this confusion and provide a simpler, reasonable definition.

Next, the discrimination between ‘workers’ and ‘employees’ is highly uncalled for and creates a very obvious loophole that can be utilized to exploit either category. The overlapping of Clauses 5, 6, 6(6) and 14 create confusion over who an employee is, whether the government would fix the minimum wage for the management-level employees and other confusions regarding even the payment of overtime wages. This has been done despite clear recommendations provided by the Parliamentary Panel to have a common and comprehensive definition for workers and employees to avoid discrimination.

Another significant problem to note is the vagueness of wage rate that’ll be fixed by the norms prescribed by the government based on the worker’s expertise, skill, nature of the work, location, etc. It completely ignores the formula which was suggested by the Indian Labour Conference (ILC) and by the Hon’ble Supreme Court in the Raptakos Brett case in 1992 which was reiterated by the 44th and 46th Indian Labour Conferences in 2012 and 2015 respectively. It laid down the grounds for deciding the minimum wage of any labourer based on their prioritised needs such as nutritional needs, social needs, old age security, etc. instead of simply viewing them as production elements.

Apart from these three major criticisms, there were many other fronts on which the bill was criticised. These include the payroll deductions, guaranteed bonuses, and the claim handling procedure, amongst others. According to the new code, the employers cannot deduct the payroll of the employees based on the latter’s financial situation, economic background etc. The Code, indirectly states that every employee of the organization should receive a bonus, irrespective of their performance. This adds to the cost burden of the organization and also promotes mediocracy amongst the employees. Further, it also allows a single application to be filed on behalf of numerous employees of the organization i.e., class action suits and places the onus of proof on the employer, irrespective of the facts of the case.


The unjust and confusing economic situation in the country makes it imperative that the minimum wage is fixed for all workers, across all fields. The Code on Wages, 2019 has come right in time to help the government fix the situation. It is a step forward in protecting the rights of both employers and employees belonging to different fields. The pre-existing definitions of wage created an ambiguous situation, ultimately leading to a scenario where none of the labour legislation could be implemented effectively. This new piece of legislation is an attempt to bring about uniformity amongst the pre-existing, multifarious labour legislations.

It is recommended that the government should make attempts to revise the highly ambiguous and criticized sections of this legislation if it aims to make some substantial amount of progress in the field of labour reforms. An important point to note is that most of the future decisions would depend on the final minimum wage that will be put forward by the government.

Also, as mentioned before, the labour ministry has decided to concise the laws into four codes and the same are said to be interdependent. While the first one is on wages, the others would be on Social Security, Industrial Security and Industrial Relations respectively. And the true impact of any of the four can only be estimated once all the four codes are made functional. Apart from the aforementioned analysis of the code, a lot would depend on the implementation of the same by different industries.

Disha Mohanty student at National Law University and Judicial Academy, Assam & Satvik Mishra student at Rajiv Gandhi National University of Law, Punjab

Picture Credits: Apparel Resources

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