Whom does the law apply to?

The Code applies to all employees and employers in establishments, i.e., workplaces carrying on any industry, trade, business, manufacture or occupation, including Government offices1. However, the provisions on payment of wages and bonus do not apply to Government establishments unless the concerned Government makes them applicable through a notification.

Employee2

An employee is anyone who an establishment employs and pays wages to do work for hire or reward (this includes Government employees). It does not matter whether the terms of employment are clearly stated (like in a contract) or just implied.

The nature of the work could be:

  • Skilled
  • Semi-skilled or unskilled
  • Manual
  • Operational
  • Supervisory
  • Managerial
  • Administrative
  • Technical
  • Clerical

The following people are not considered employees:

  • Members of the Indian Armed Forces
  • Apprentice engaged under the Apprentices Act, 1961
  • People hired on a retainership basis

Employer3

An employer is someone who employs at least one employee in their establishment. It does not matter whether they employ the person directly or through anyone else, or employ someone on behalf of another person.

 

Type of establishment/work Employer
State or Central Government Department Authority specified by the head of the department. If not specified, it is the concerned chief executive of the department
Factory Occupier or manager of the factory
Any other establishment Person or authority having ultimate control over the establishment, such as a manager or managing director
Contract labour Contractor

 

A legal representative of a deceased employer is also an employer.

  1. Section 2(m), Code on Wages, 2019.[]
  2. Section 2(k), Code on Wages, 2019.[]
  3. Section 2(l), Code on Wages, 2019.[]

What are Wages?

Wages refer to all monetary payments in the form of salaries, allowances, etc. that an employer pays to a person for their work or employment, including:

  • Basic Pay
  • Dearness Allowance
  • Retaining Allowance (if any)

There are some monetary payments that are not included in wages:

  • Any legally required bonus not included under the employment agreement. For example, the annual bonus an employer is required to give employees in addition to wages.
  • Amenities like house accommodation, electricity, water, medical attendance, etc. which the Government has excluded from wages
  • Employer’s contributions paid to pension or provident fund, and the resulting interest
  • Conveyance allowance or travelling concession
  • House rent allowance
  • Overtime allowance
  • Commission
  • Payment for special expenses depending upon the nature of the employment. For example, if a glassworker requires a specific tool to carry out their work, this could be a special expense paid for by the employer.
  • Gratuity, retrenchment compensation, or other retirement benefits.

Payment of a legal award or settlement made between parties by the order of the court1.

  1. Section 2(y), Code on Wages, 2019.[]

What is the minimum wage rate?

Employers must pay every employee at least the minimum rate of wages fixed and notified by the concerned Government1, which will fix a minimum wage rate for:

  • Time work (wage rate can be fixed on an hourly, daily or monthly basis).
  • Piece work (for employees engaged in piece work, the Government can fix a minimum wage rate on a time work basis).

If an employee does two or more types of work having different minimum rates of wages, the employer will pay them the appropriate minimum wages for the time spent in each class of work2. For example, consider that the minimum wage for one type of work is Rupees twenty per hour, and Rupees ten per hour for the other type. If the employee spends 2 hours on each type, they will get (20*2) + (10*2) = ₹60 for 4 hours3.
The concerned Government will review or revise the minimum wage rate usually every five years4.

  1. Section 5, Code on Wages, 2019.[]
  2. Section 11, Code on Wages, 2019.[]
  3. Section 11, The Code on Wages, 2019.[]
  4. Section 8, Code on Wages, 2019.[]

What if an employee works less or more than the minimum number of hours?

If a daily wage employee works for less than the minimum number of hours because the employer did not give enough work, they still have the right to get wages for a full working day. However, if they failed to work for the  minimum number of hours because they were unwilling to work, they cannot claim this right1.
If an employee works for more than the minimum number of hours, the employer has to pay them for every extra hour that they work, at an overtime rate of at least twice the normal rate of wages2.

  1. Section 10, Code on Wages, 2019.[]
  2. Section 14, Code on Wages, 2019.[]

When does the employer have to pay a bonus?

An employer should pay an annual minimum bonus to their employee if:

  • Their establishment has at least twenty employees
  • The employer has worked for at least thirty days in an accounting year (starting from 1st April)
  • The employee does not earn more than a specified amount in a month.

However, for the five accounting years immediately following the year in which the employer starts selling goods or giving services, they need to pay the bonus only for years in which they make a profit1.

Calculating the bonus

The bonus is eight and one-third percent of the employee’s wages, or Rupees one hundred, whichever is higher. It does not matter whether or not the employer has any allocable surplus during the previous accounting year2.

If the allocable surplus is more than the amount of minimum bonus payable to employees, the employer must pay every employee a bonus proportionate to their wages for that accounting year (not more than twenty percent of their wages). However, if an employee has not worked for all the working days in an accounting year, they can proportionately reduce the excess bonus.

The employer should pay the bonus by crediting it in the employee’s bank account within eight months of the accounting year’s end. If the employer requests, the concerned Government can extend this by a maximum of two years.

Employees not eligible for bonus

An employee is not eligible for bonus if they have been dismissed from employment due to:

  • Fraud
  • Violent behaviour at the workplace
  • Theft or property damage
  • Conviction for sexual harassment3.

Provisions for the bonus do not apply to4:

  • Employees of the Life Insurance Corporation of India;
  • Seamen;
  • Employees registered or listed under any scheme made under the Dock Workers (Regulation of Employment) Act, 1948;
  • Public sector employees;
  • Employees of the Indian Red Cross Society or any other similar institution;
  • Employees of Universities and other educational institutions;
  • Employees of institutions including hospitals, chambers of commerce and not-for-profit social welfare institutions;
  • Employees of the Reserve Bank of India;
  • Employees of inland water transport establishments operating on routes passing through any other country.
  1. Section 26(6), Code on Wages, 2019.[]
  2. Section 26, Code on Wages, 2019[]
  3. Section 29, The Code on Wages, 2019.[]
  4. Section 41, Code on Wages, 2019.[]

What can employers deduct from employees’ wages?

Employers can make only authorised deductions from employees’ wages.

Payment that is due from an employee to the employer or their agent is a deduction. However, if an employee has a loss of wages for good reasons, such as the employer withholding a promotion or increment, demoting or suspending an employee, etc. that is not a deduction1.

Some of the major permitted deductions are related to2:

  • Fines imposed on the employee: An employer can fine an employee (not below fifteen years) up to three percent in any wage period for doing or failing to do certain acts. Before imposing the fine, the employer must first give the employee a chance to explain themselves.  The employer must recover the fine within ninety days of the employee’s violation. The employer must keep a record of the fines in a register and use them for the benefit of the employees3.
  • Absence from duty: An employer can deduct wages if the employee is absent from their designated workplace (this does not include leaves).  This includes an employee being present but refusing to work due to a stay-in strike or any unacceptable reason4.
  • Damage or loss of goods: An employer can deduct wages if an employee damages or loses goods entrusted to them, or loses money accountable to them. The damage or loss should be directly due to their neglect or default. The deduction should not be more than the amount of damage or loss, and the employer must first give the employee a chance to explain themselves. The employer must keep a record of such deductions5.
  • Facilities and services given by the employer: The employer can deduct wages if they have given employees house-accommodation, or services other than what is required for employment. The deduction should not exceed the value of the facilities and services. The employer cannot make this deduction unless the employee has accepted the facility or service as a term of employment6.
  • Recovery of advances: The employer can deduct wages to recover any advances (including travelling allowance) given to the employee along with the associated interest, or for adjusting an overpayment of wages. If the employer gave the advance before the employee started employment, they can recover the money from the first payment of wages, but cannot recover advances given for travelling expenses7.
  • Recovery of loans: The employer can deduct wages from employees for recovering loans made from labour funds or loans given for building houses, etc. along with the associated interest8.
  • Other deductions: Employers can deduct wages for subscribing to social security funds like provident or pension funds, for paying an employee’s membership fees to Trade Unions, deductions for income-tax purposes, etc

The total amount of deductions cannot be more than fifty percent of the wages, and the employee can recover any excess deduction.9

  1. Section 18(1), Code on Wages, 2019.[]
  2. Section 18(2), Code on Wages, 2019.[]
  3. Section 19, Code on Wages, 2019.[]
  4. Section 20, Code on Wages, 2019.[]
  5. Section 21, Code on Wages, 2019.[]
  6. Section 22, Code on Wages, 2019.[]
  7. Section 23, Code on Wages, 2019.[]
  8. Section 24, Code on Wages, 2019.[]
  9. Section 18(4), Code on Wages, 2019.[]

How should employers pay wages?

Employers can pay wages in any of the following ways: 1

  • Current coin or currency notes
  • Cheque
  • Crediting wages in the employee’s bank account
  • Electronic mode

However, the concerned Government might specify industrial or other establishments where employers should pay the wages only by cheque or by crediting wages in the bank account.

  1. Section 15, Code on Wages, 2019[]

When should employers pay wages?

Employers can fix the wage period for employees as daily, weekly, fortnightly or monthly (no wage period can be more than a month).

 

Employees engaged on: When the wages are paid((Section 17, Code on Wages, 2019.)):
Daily basis At the end of the shift
Weekly basis Last working day of the week
Fortnightly (14 days) basis Before the end of the second day after the end of the fortnight
Monthly basis Before the end of the seventh day of the following month

 

If an employee is removed, retrenched, or has resigned from service, or became unemployed, the employer will pay their wages within two working days.

Who are the authorities under the law?

Advisory Board

The Government will constitute the Advisory Boards at the Central and State level to advise them on matters like:

  • Fixing or revising minimum wages
  • Providing increasing employment opportunities for women and the extent to which establishments can employ women1.

Inspector-cum-facilitator

The concerned Government might appoint Inspector-cum-faciltators to:

  • Advice employers and workers relating to compliance with the provisions of this Code.
  • Inspect establishments2.

Gazetted Officer

The concerned Government might appoint one or more authorities, not below the rank of a Gazetted Officer, to hear and determine the claims under the Code. The authority will try to resolve the issue within three months, and can additionally order the employer to pay compensation up to ten times of the claim.

If the employer does not pay the claim and compensation, the authority will issue a certificate of recovery to the Collector or District Magistrate of the area where the establishment is located, to recover the amount as arrears of land revenue. They will  give the recovered amount to the authority to pay the concerned employee3.
If a person is not satisfied with the authority’s decision, they can appeal to the appellate authority within ninety days4.

  1. Section 42, Code on Wages, 2019.[]
  2. Section 51, Code on Wages, 2019.[]
  3. Section 45, Code on Wages, 2019.[]
  4. Section 49, Code on Wages, 2019.[]

What are the offences and punishments under the law?

Crime Punishment
Paying an employee less than the due amount First offence – Fine of up to Rupees fifty thousand
Subsequent offence within five years – Jail time up to three months and/or fine up to Rupees one lakh
Violating the Code in any other way First offence – Fine of up to Rupees twenty thousand
Similar subsequent offences within five years – Jail time up to one month and/or fine up to Rupees forty thousand
Not maintaining proper records in the establishment Fine up to Rupees ten thousand

 

Under this law, Courts will only take up complaints made by:

  • Government
  • Employee
  • Registered Trade Union
  • Inspector-cum-Facilitator