Code on Wages and Its Implication: Employee & Employer Perspective

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The Union Budget 2021 proposed implementing the New Wage Code 2021 with effect from April 2022. The New Wage Code is an attempt by the government of India to simplify various regulations related to wages. The definition of ‘wage’ in the Wage Code Bill 2019 has been altered. According to the new definition, ‘wages’ or an employee’s monthly basic salary cannot be less than 50% of the net CTC (Cost To Company). A discussion.

Mr S Sai Prasad, Advocate

The laws that are being amended and consolidated under this code are:

  1. The payment of wages act, 1936
  2. Minimum wages act, 1948
  3. Payment of bonus act, 1965 and
  4. Equal remuneration act,1976

Subcontractor has been now included under contractor. Contract labour definition has been revised to cover those employed with or without the knowledge of the principal employer including inter-state migrant labour.

Wages include basic pay, DA and retaining allowance. There are many items now excluded from wages and this has created considerable concern. The nature of work will now determine the minimum wages and not the nature of industry, as before. This is a major departure when it comes to minimum wages. The code leads us to the following questions:

  • Should employees restructure their wages?
  • Whether 50% wages would be on gross or on CTC?
  • Whether the companies are entitled to reduce PF contribution as per the new code?
  • What is the effect of minimum wages in the new wage code?

Mr A Soundararajan, State President, CITU:

There will be practical difficulties in implementation. There is no need to fix an upper limit in the employee benefits like PF contribution. From the employee point of view, for the past 40 years, there were certain provisions favourable to employees which the government wanted to remove. Now under the guise of a new code, they have done away with the provisions. An amendment would have attracted lot of protests. They have thus used the codification route.

Many of them are repetitions from other codes. Many of the provisions are pro-management and not favourable to employees. The code in many clauses states the use of the word, may—for example, the State government may. A law should only state ‘shall’ and not use ‘may’ which gives an option to not follow the provision. It will lead to more litigations. There have been many judgments given earlier and even formulas suggested for wages. These have not been incorporated in the new code.

In hilly states, the cost of living is higher. But the code has neglected this aspect. There is a big inequality in income distribution worldwide. Japan has said that they want to double the minimum wages.

There is now flexibility in fixing working hours. This is not good, as more working hours will lead to health problems of workers. However the welcome aspect is that OT wages is fixed as double the normal wages as against 1.5 times now given.

The inspector is now defined as inspector cum facilitator. This is a dilution. Inspector raj has been removed, they claim. If there is a law, there must be an enforcing authority. The management and union should work together.

Mr Amaladoss Mariasusai, Director HR, Tempel

Supervisors who are earning less than Rs 15K will now be treated as workers. This is a challenge.

There is a catch 22 situation in the wages calculation now. Wages include basic, DA and retaining allowance. There are other exclusions. The grand total is arrived at, by adding wages and other exclusions. If other exclusions exceed 50% of grand total, the difference in amount should be added to the wages. This will lead to a vicious cycle. Impact areas:

  1. Increase in gratuity contributions –applicable for past service periods will impact P&L account.
  2. Requirement to pay higher gratuity will impact take home pay of employees in future.
  3. Mandatory requirement to cover employees from ESI/statutory bonus perspective will lead to more employees falling under the net and hence, additional commitment to the management.
  4. Higher contribution to PF for employees with wages not exceeding INR 15K pm is a challenge.
  5. Maternity: Earlier, during maternity, full salary was paid. Now the new requirement is payment of only 50% of wages. Female employees will be impacted and attracting them for employment will be a challenge. Though they have increased the leave from 12 to 26 weeks, they have reduced the salary by 50%
  6. OT is now double the wages, not double the total remuneration. In effect, OT will come down. This will impact employees and it will be difficult to convince employees to do OT.
  7. Bonus provision will increase the present disbursement by 25 to 30%. This will impact employers.

Dr Vijay Deshpande, HR Advisor – Global Business, JK Tyre & Industries Ltd

The labour code is built on three premises:

  1. To enhance, strengthen the employer-employee relations. It must be harmonious and productive.
  2. To enhance the welfare of the labour workforce, particularly the blue collar workers.
  3. To enable ease of doing business.

There are both good and grey areas. Let us look at the good areas. Our PM asked why we should talk of Industrial Disputes Act. Why not have a dialogue?

Unions

An important aspect of the code is unions. We have had problems of multiple unions. The labour code now talks that the union that is to be recognised as the negotiating agent or chief bargaining agency will have minimum 51 percent membership. Any union that has 51% membership automatically becomes the negotiating agency on part of the labour. That is a good thing. Now, in case, no one is able to have 51 percent, then it says that minimum 20% membership is required and each union that has 20% membership, will have one representative on the negotiating council. This is important in companies in certain states where there is multiplicity of unions. Luckily Tamil Nadu does not have so much of multiple unions. But, as the head of HR in JK Tyres, I have faced 27 unions in one of my plants in Uttarakhand. We have 3,000 workers and 27 unions. When you negotiate with them and if each union is allowed to bring two of their members, then I will be talking to minimum 54 people at the negotiating table. This is very difficult. The code, to an extent simplifies that. This is a welcome sign. But the only thing is that the recognition of 51% membership is left to the management to decide.  I don’t know how managements are going to see this. There are still certain states, like Maharashtra, which has Maharashtra Recognition of Trade Union Act, where you prove your membership and then the court grants you recognition. What is applicable for long-term agreement is also applicable for the standing orders. Only the negotiating union will be able to participate in the long-term agreement, as well as in the framing of the standing orders.

Less Politics

There is one particular provision, which I have carefully read in the labour code. It says no member of the Council of ministers shall be on the executive committee of the Union. The idea seems to be less politicisation of the Unions. There are states where the ministers are the Chairman or the President of the Union.  It is very difficult for a manager to negotiate with a Minister. I don’t know how this is going to happen or how it will be implemented.

Welfare

Now, let me come to welfare. Some companies have an intent to avoid PF on the larger basic and the PF commissioner always said that allowances must be considered for PF and there used to be litigation. Now, they have tried to come to 50-50.  But if you look at the spirit of the law, you will see that the law says, ‘don’t try to evade the PF.’ Obviously, it is going to be very difficult.

Let me come to one another aspect of welfare. A large number of unorganized labour is going to be the part of the Social Security measures. There are gig workers (eg: Zomato), home-based workers and platform workers.  The raw material may be supplied by the so-called employer and the work may happen at home something like in beedi or pappad.

There is going to be National Security Council consisting of ministers, political leaders, the union leaders and the management, whenever that gets formed. The intent is good.

Ease of Doing Business

Let’s come to the ease of doing business. There’s something called FTE -Fixed Term Employees. The company can now appoint fixed term employees for a specific purpose. Supposing you have an expansion project in your plant, you can have FTEs for four, six or eight months. The term has to be very clear. The appointment letter has to be very clear and must be given to the FTEs.

In case of FTEs, the gratuity is payable even for service, which is just about one year. So that’s another welfare measure. The FTE probably creates some ease of doing business. Legally speaking, can a company have all FTEs? A leading lawyer said yes and no. Yes, going by the plain definition of FTE.  But then, there are going to be rules. The rules will specify when you can you have FTEs, under what circumstances you can have FTE and under what circumstances, you cannot have FTEs.

It also says that FTE composition must be equal to the permanent workers composition, going by the skill. So FTE seems to be a reasonably good provision.

There is going to be facilitation and not inspection. There is one more provision that there will be one window for registration of industries. You don’t have to run to 20 different windows for licenses.  For any new unit, you will be able to go to one window and get your registration. This is the intent of the law.

Finally, in wages, the 50%-50% provision is going to be an issue; hopefully, it gets resolved. The industrial relations will depend upon the intent and the spirit of collective bargaining and cooperation. I have always seen the mature leaders, balanced leaders and considerate leaders, who see both the sides.

If you have maturity and consideration on the part of both the labour and the management, then ease of doing business will automatically come in. The industrial relations will be stronger and welfare will definitely happen. The law cannot replace the spirit of collaboration, cooperation and collective bargaining. It can only create a framework where supposing you are not able to resolve the issues, when you come to loggerheads, it tells you what can happen and what you can do. The best part is to have a dialogue and resolve the issues.