Comments on the Code on Wages, 2019 and Draft Wages Code Rules, 2020

In this post, we examine some questions with respect to India’s minimum wage laws, in light of the Code on Wages, 2019 [“the Code”] and the Draft Wages Code Rules, 2020 [“the Rules”].

Code on Wages, 2019

The Code was passed in 2019 and replaces the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976. Unlike the Minimum Wages Act, 1948, the Code extends the protection of minimum wage to all classes of employment (S. 6). Further, the Code provides that the “Central Government shall fix floor wage taking into account minimum living standards of a worker in such manner as may be prescribed” in s. 9. The minimum wage fixed by the appropriate government cannot fall below this floor level wage.

As Dvara Research and Nivedita Jayaram have noted previously, the Code does not expressly identify the minimum consumption needs of individuals. Rather, s. 6(6)(a) of the Code provides that the appropriate government “shall primarily take into account the skill of workers required for working … or geographical area or both.” While s. 9 provides that “minimum living standards” will be considered in fixing the floor-level minimum wages, the specific content of these minimum living standards is left to the discretion of the Central Government. We also note that in its report on the Code, the Parliamentary Standing Committee on Labour had noted that there was perhaps a need to include a right to sustenance within the text of the Code. While this was not expressly included in the text of the legislation, we submit that the inclusion of a consumption-based standard for minimum wages is an important first step.

However, the following provisions of the Code may require further consideration:

• S. 41(2) provides that it only applies to establishments with 20 workers or more, and s. 66 excludes MGNREGA from the ambit of the Wages Code. These are important exclusions that could leave large numbers of workers outside the protection of minimum wage law.

• S. 8(4) provides that the minimum wages must be revised at an interval not exceeding five years. We note that this is a significant length of time – the ILO notes that most jurisdictions revise wages once every 6 to 24 months. We suggest that the period mentioned in s. 8(4) be shortened and wages revised every 2 years instead.

• The proviso to s. 9(1) provides that the Central Government may fix a different floor wage for different geographical regions. The Ministry of Labour Expert Committee on Wages in 2019 noted that there are significant differences in the cost of living by region. We, therefore, note that this must be factored in while fixing the floor level wage.  

Draft Wages Code Rules, 2020 [“the Rules”]

The following are some of the important provisions made in the Rules: 

• R. 3 provides for fixing the minimum wage based on the following criteria:

  1. the standard working class family which includes a spouse and two children apart from the earning worker; an equivalent of three adult consumption units;

  2. a net intake of 2700 calories per day per consumption unit;

  3. 66 meters cloth per year per standard working class family

  4. housing rent expenditure to constitute 10 per cent of food and clothing expenditure;

  5. fuel, electricity and other miscellaneous items of expenditure to constitute 20 percent of minimum wage; and

  6. expenditure for children education, medical requirement, recreation and expenditure on contingencies to constitute 25 percent of minimum wages;

These criteria are based on the decision in Raptakos Brett’s case, which in turn identified basic consumption requirements based on the recommendations of the 15^th Indian Labour Conference, 1957. These were reiterated in the Expert Committee report cited above.

• R. 4 provides that the Central Government shall categorise workers into unskilled, semi-skilled, skilled and highly skilled workers. The rules do not specify the criteria by which these skill levels are determined; however, an illustrative list of occupations is provided in Schedule E to the Rules.

• R. 5 provides that “endeavour shall be made” to account for cost of living allowance by revising dearness allowance each year. We submit that this provision ought to be phrased in mandatory, rather than directory, terms.

• R.11 provides that the Central Government must fix the national floor level minimum wage based on the “minimum living standards” for 3 adult consumption units. These minimum living standards must be calculated in terms of the consumption requirements set out in R. 3 above. We note that the Ministry of Labour Expert Committee noted that the test of 3 units was perhaps inadequate, in today’s time and context and recommended that this be increased to 3.6 consumption units. ^[1] R. 11 states that the National Floor Level Minimum Wage shall be set based on the criteria in R. 3(1) above.

We welcome the decision to elaborate on the minimum consumption requirements used to calculate the minimum wage. We note that international guidance on fixing minimum wage refers specifically to minimum standards of living. Article 3 of the ILO Minimum Wage Fixing Convention, 1970 (C131) provides that the minimum wage should be formulated based on “the needs of workers and their families, taking into account the general level of wages in the country, the cost of living, social security benefits, and the relative living standards of other social groups” as well as other economic factors.^[2] The words of Article 3 allow a more open interpretation of the minimum standards of living.  These criteria are reiterated in the ILO Minimum Wage Fixing Recommendation, 1970 (R135), which also states that “the fundamental purpose of minimum wage fixing should be to give wage earners necessary social protection as regards minimum permissible levels of wages.”

However, we submit that there is a need for a closer examination of the minimum consumption requirements identified in the Rules. As Ramapriya Gopalakrishnan and the ILO have noted, this does not include other requirements of modern living, such as mobile phones, rent in metropolitan areas or even warm clothing in colder regions. We suggest that such a flexible approach, which takes needs beyond caloric consumption, food and clothing into account, must be adopted here.

We also note that the Code and Rules provide for separate minimum wages for unskilled, semi-skilled, skilled and highly skilled workers. This is a departure from the Minimum Wages Act, 1948, which provided for determining minimum wage based on whether an occupation fell within the categories of scheduled employment. However, based on the words of R. 4, it is uncertain which minimum wage will apply to any other type of employment before the Technical Committee can assess the skill levels needed for it. This is problematic, as it may leave many classes of workers outside the protection of a minimum wage until this determination is made. One option here is to include a proviso that under no circumstances shall a worker be paid less than the National Floor Level Minimum Wage.

Conclusion

There is a need for more robust protections for wages, which take a holistic view of consumption expenditure and other forms of social protection. The most urgent reforms in this regard pertain to the amendment of the Code on Wages, 2019 to provide statutory backing to a consumption-based minimum wage, as well as to include all establishments, include MGNREGA work within its scope. Unless these are made, the Draft Rules will have very limited success in protecting Indian workers.

Our comments submitted to Ministry of Labour and Employment is available here.

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[1] This was based on household size and the caloric requirements of men, women and children in India.

[2] India has not ratified the Minimum Wages Convention, 1970. The Ministry of Labour Expert Committee Report cited above notes that one reason for this was that India would then be required to amend the Minimum Wages Act, 1948.