Code On Wages: Impact On Indian Workforce And Other Questions


The COVID-19 pandemic, apart from creating a national health emergency, had severely impacted the Indian workforce, leading to a mass exodus of migrant workers. These workers had to fend for themselves as they began their journey back to their hometowns on foot.

Millions of people lost jobs and got pushed into poverty as a result of the COVID-19-induced lockdown which ravaged several industries.

As per an October 2020 Brookings Institution report titled ‘The Impact of COVID-19 on Global Extreme Poverty’ by Homi Kharas, India will record the largest number of people slipping into poverty.

In India, 85 million people will be pushed into poverty as a result of the pandemic, the report noted.

The spotlight is therefore back on the debate of minimum wage for a decent standard of living.

With less than a month to go for the implementation of the  Code on Wages, 2019, Moneycontrol explains the previous recommendations of the Labour Committees on national floor wages, why were those rejected by the government and how the incoming code may finally affect the fate of millions of workers in India.

What is a  floor wage? 

A floor wage is a minimum wage established by law. It functions as a benchmark for wages in order to ensure that the wages do not fall below the set limit.

Why India needs a floor wage

The Economic Survey 2021 says that the Labour code should also lay down a floor of substantive labour rights or standards such as minimum wages. It further says that a National Policy on Minimum Wages be evolved to reduce inter-state variations.

Even the Economic Survey 2019 had said that a better national wage ceiling will alleviate disparity and poverty in India.

As per an International Labour Organisation (ILO) report published in March 2020, there are 400 million unorganised workers in India.

How has India been fixing the minimum wages till date?

India has been setting a benchmark on the minimum wages from 1948, when The Minimum Wages Act, 1948 was passed.

The Indian Constitution defines the ‘living wage’ for a worker. The term ‘living wage’ ensures a basic standard of living, which includes good health, dignity, comfort, and education.

The states kept setting different minimum wages for different categories of jobs and workers (unskilled, semi-skilled, skilled and highly skilled) leading to a wide disparity in the minimum wages across regions.

In order to have a uniform wage structure and to reduce the disparity in minimum wages across the country, the government in 1996, introduced the National Floor Level Minimum Wage on the recommendations of the National Commission on Rural Labour (NCRL), 1991.

The National Floor Level Minimum Wage was fixed at Rs.35 per day in 1996 which was revised periodically thereafter.

After subsequent revisions, the national floor minimum wage was fixed at Rs 100 in 2009, Rs 176 in 2017. However, these were not legally binding for the states.

What were the recommendations of the expert committee of 2019?

In January 2019, an expert committee appointed by the Labour Ministry came out with a report titled, ‘Determining the Methodology for Fixing the National Minimum Wage.’

In its report, the expert committee recommended that the government should increase the national minimum wage to Rs 375 per day. The report said, “setting the single value of the NMW (National Minimum Wage) for India at Rs 375 per day (or Rs 9,750 per month) irrespective of sectors, skills, occupations and rural-urban locations.

It had further called for introducing an additional house rent allowance (city compensatory allowance), averaging up to Rs 55 per day i.e., Rs 1,430 per month for urban workers over and above the NMW.

Did the government accept the expert committee’s recommendations?

The government did not accept the recommendations of its own committee, as the benchmark of Rs 375 was too high and in sharp contrast to the existing rate of Rs 176 per day.

Instead, the government in July 2019, proposed a hike of Rs 2 in the national minimum wage from Rs 176 per day to Rs 178 per day just a few months after the committee’s recommendation.

What is Code on Wages, 2019?

The Parliament, in the monsoon session of 2019,  passed the Code on Wages, 2019. It was passed in August 2019. It makes provisions for minimum and timely payment of wages to all the workers in India.

It subsumes four laws relating to wages and bonus, namely – Payment of Wages Act, 1936, Minimum Wages Act, 1948, Payment of Bonus Act, 1965 and Equal Remuneration Act, 1976.

The Code introduces the concept of floor wages wherein the rates will be fixed by the central government by taking into account the minimum living standards of the workers. Once the code is enacted, the minimum rates of wages fixed by a State government cannot be less than floor wages as determined by the Central government.

The Code applies to all the establishments irrespective of the number of employees working in the establishment. It also applies to all the employees employed in both the organised and the unorganised sector.

The Code extends the implementation of the minimum wages to all the sectors.

At present, minimum wages are fixed for employment covering mining sector, plantation, dock workers, building and construction workers, watch and ward, sweeping and cleaning and manufacturing sector, etc. The extension will take place in the entire service sector (IT, hospitality, transportation etc.), domestic workers, unorganised workers, teachers, etc.

The draft rules on the Code on Wages were floated by the government in July 2020.

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