Protection of Workers’ Wages in India: An Analysis of the Labour Code on Wages, 2019

The recent Labour Code on Wages Act enacted in August 2019 consolidates and codifies previous wage regulations under one act. However, in a country with a significant casual and informal workforce, how effective would the Wage Code be?

The landmark Labour Code on Wages Act (henceforth referred to as the Wage Code), enacted in August 2019, has been celebrated for codifying India’s four wage related laws, namely the Minimum Wages Act, 1948; the Payment of Wages Act, 1936; the Equal Remuneration Act, 1976; and the Payment of Bonus Act, 1965. However, a closer examination of the Wage Code reveals that it has omitted or diluted critical provisions of previous legislations. As India grapples with a wage crisis, which affects the lives and livelihoods of its significant informal labour population, the ability of the Wage Code to protect wages warrants an urgent discussion. 

Of the country’s 400 million strong workforce, 49% are dependent on wages for the sustenance of their households (National Sample Survey Office (NSSO) 2010). However, both urban and rural wage growth rates have declined dramatically in recent years, falling to single digits from a high of 20.5% in 201011 and 27.7% in 201314, respectively (Mohanty 2019). At the same time, labour share in profits has fallen, such that the wages paid to workers have not risen in proportion to the increase in labour productivity (ILO 2018). Furthermore, the Economic Survey 2018-19 has revealed that 1 in 3 wage workers are not protected by the minimum wage laws due to a faulty enforcement mechanism (Department of Economic Affairs 2019). Of these waged workers, two-thirds are casual workers and represent the poorest and most vulnerable sections of the country (NSSO 2010; NCEUS 2008). It is in this context that the wage code will be analysed.

The Wage Code is backed by the central government’s claim that it will address the wage crisis by simplifying the multiplicity of definitions and authorities involved. This would improve compliance and expand the coverage of previous laws to make them inclusive of the vast unorganised sector (Mahajan 2019). Its actual provisions, however, inhibit these ambitious goals from being met. The Wage Code has, in fact, made definitions unclear by leaving much to the discretion of government authorities or to the interpretation of judicial bodies. For instance, no attempt has been made to define and outline the methodology for setting minimum wages, leaving the procedure to be formulated by the centre as seen fit. Additionally, it is important to note that previous legislations were not inapplicable to the unorganised sector. The minimum wage law was meant to cover sectors that suffered from weak collective bargaining power, especially those with a high concentration of casual labour. Instead, the major challenge facing the coverage of wage laws is poor regulatory oversight and faulty implementation of laws. However, on this note, the Wage Code dismantles existing enforcement mechanisms without replacing it with viable alternates. This makes any attempt at improving coverage impossible. 

It appears that far from establishing a legislative framework for the protection of workers’ wages, the Wage Code does the very opposite. It undoes the existing legislative framework that intends on checking the unrestrained exploitation of workers and legitimising the cheapening of the workforce for facilitating economic growth. This neatly fits into the state’s agenda of improving the “ease of doing business” in order to attract investments into the country. 

The Ambiguous Minimum Wage Rate

Apart from restating components of minimum wage from the previous legislation (that is, it includes a basic cost and cost of living allowance), the Wage Code does not define or outline the methodology for fixing an adequate minimum wage. It completely ignores the formula, which was unanimously recommended by the Indian Labour Conference (ILC) in 1957 and reiterated in the 44 and 46 ILCs in 2012 and 2015, respectively. The formula formed the basis of the Supreme Court ruling in the Raptakos Brett case of 1992, where it laid down a needs-based criteria for fixing minimum wages. This criteria takes into account expenses on adequate levels of nutrition, clothing, fuel and lighting, education and healthcare, old age provision, as well as social costs such as marriages, festivals and recreation for three consumption units per worker in order to take into account the needs of the entire household of the worker. This methodology prioritised the needs of the workers, rather than viewing them merely as factors of production.  

On the contrary, the Wage Code leaves the setting of minimum wages to the discretion of administrators, disregarding the rights of workers to wages that are adequate for leading a dignified life (Sundar and Sapkal 2018). Moreover, there is no clarity on the particular authority designated for setting the minimum wages, or the procedure which is to be followed. The Wage Code merely states that a floor minimum wage may be set by the central government either at the national level or regional levels, and that state governments may set minimum wages at the state level. The danger of using ambiguous language for establishing minimum wages was revealed in the government’s recent announcement, which set the national floor for the minimum wage under the Wage Code, at a mere Rs 178. The amount has been referred to as the “starvation wage,” and it is only Rs 2 higher than the previous national minimum wage, which was set two years ago (Varma 2019). While it is not clear whether this would indeed become the national minimum wage, this instance highlights how lack of procedural clarity could lead to minimum wage estimates that are less than ideal.  

Additionally, the setting of different state-level minimum wages is now in the hands of respective state governments, so long as they do not place their minimum wages below the floor set by the central government for that state or region. This, though, might lead to a race to the bottom between states that are competing with one another to lower wage rates and bring in greater investments. The consequence of this competitive federalism, based on labour cheapening between states, would be repressed wages throughout the country (PUDR 2017) as well as a violation of the spirit of the constitutional provision establishing "labour" as a concurrent subject. For instance, this was seen in the case of the Okhla Industrial Area in Delhi, wherein businesses shifted out from Okhla to Haryana and Uttar Pradesh (UP) to take advantage of lower minimum wage rates in the latter (WPC 2019). 

The Wage Code states that the minimum wage will be determined according to the skill of the employee, the arduousness involved in the work performed by the employee, the geographical location of the place of work, or other factors as the government might deem important. Taking into account such specific factors that are difficult to measure to decide wages strengthens the discretionary power of administrators. Such discretion in the hands of bureaucracy can result in lobbying, and could ultimately lead to adverse effects. This was previously experienced in the goods and services tax council where many industries lobbied successfully for lower tax rates. Such a case of lobbying could extend to lowering wages as well (Puri and Manur 2017). 

The provisions for the central or state-level advisory boards, whose functions include maintaining checks and balances, and ensuring representation of all stakeholders, have also been disappointing. The Wage Code has legislated that the recommendations of the advisory boards would not be binding on state governments. The composition of the board has been altered and the number of employees has been limited to three members, all of whom would be nominated by the government. The representation of women among the nominated employees has been reduced from 50% (as under previous legislations) to one-third. This move has undone years of work spent strengthening the robustness of these bodies in order to make the government accountable to stakeholders. 

In order to extend coverage to all workers, the Wage Code removes the schedule of employments, which documents the specific industries that would be covered by existing minimum wage legislations. The logic of having a Schedule of Employments was to ensure that workers in industries where unionisation and collective bargaining strength was weak, would still be able to access minimum wages. The industry-level minimum wage has now been replaced by a standardised minimum wage based on either time-based or piece work, which is applicable to all sectors. There is no clarity on whether the minimum wages will be set at the same level for all industries. This means that without the schedule, the minimum wage rates set at the state-level might be based on the wages paid to the poorest workers, thereby bringing down wages in all sectors. While the schedule was exclusionary and there is a strong need to protect the wages of workers in all industries, such as domestic workers, the Wage Code might empower employers to repress wages in industries that had higher wages due to protection through the Schedule (Newsclick 2017). 

Many Provisions, No Enforcement Mechanisms

Rather than strengthening implementing mechanisms to realise its provisions, the Wage Code dismantles the inspection systems present in previous legislations, under which labour inspectors could carry out “surprise checks” and “examine persons” (Sundar 2017). There has been a constant vilification of labour inspectors through the narrative of the "inspector raj," highlighting corrupt practices of inspecting officials as the key deterrent to economic growth (Sundar 2017). However, such an analysis is misleading. 

Under the previous wage legislations, few inspections and prosecutions could be carried out due to limited financial and human resources. For example, Maharashtra’s grossly understaffed labour department would take three years to carry out one visit per inspector of the 5,602 sites covered by the previous non-universalised minimum wage systems (Sundar and Sapkal 2018). In such a scenario, an overarching claim paints inspectors with too broad a brush, hiding the inefficiencies of the system that inhibits them from carrying out their work. 

Furthermore, inspectors have now been termed "facilitators," the term itself making a mockery of their regulatory and enforcement authority. The task of facilitators to “supply information and advice to employers and workers concerning the most effective means of complying with the provisions of the code,” takes a more benevolent approach to wage violations by employers. At the same time, they will also be responsible for undertaking inspection based on the directions of the state governments. However, state inspection schemes provide for web-based inspections through an automated centralised system. This means that labour inspectors cannot conduct surprise checks after receiving information about suspected violations, make inquiries about employers or their agents, or enter workplaces as they please, other than when the time of inspection comes every three to five years through the automated system. 

This system allows for a web-based self-certification scheme, where employers can certify themselves as being compliant to the provisions of the code. Such a self-certification scheme assumes that employers are keen to, and will naturally, comply with labour regulations. This is a misinformed position as there are a large number of instances of non-compliance with the existing labour laws. For instance, a study conducted by Aajeevika Bureau (2008) revealed that 68% of surveyed workers in southern Rajasthan had suffered a grave labour law violation in the previous year alone. These provisions for dismantling the inspections system have already been in action in some states for inspecting compliance to several labour laws, following which, violations have allegedly increased (Sundar 2017).

Along with this, the penalties on employers for not complying with wage laws have also been weakened, with penal inspections being replaced by guidance inspections. For instance, under the existing Minimum Wages Act, any payment less than the minimum wages is punishable by imprisonment in the first instance. The Supreme Court had pointed out in Sanjit Roy v State of Rajasthan in 1983, that non-compliance with minimum wages amounts to forced labour, which is constitutionally prohibited (PUDR 2017). While before, employers had criminal liability, under the present Wage Code, they only have a civil liability. Further, employers found to be violating the Wage Code will be given the opportunity to comply with the provisions of the Wage Code or give reasons for violation, and only compounded offences will lead to penalties. 

The Wage Code also takes away the jurisdiction of courts in providing justice to workers who have faced violations with respect to their wages. This means that workers can no longer access courts to contest the wages paid to them by their employers, but can only approach the quasi-judicial body and appellate authority set up under the provisions of the Wage Code. The government is claiming that the setting up of an appellate authority to redress violations regarding workers’ wages will lead to speedy, cheap and effective resolution of wage disputes. However, it gives the appellate authority, whose membership is not defined, the sole power to adjudicate on wage disputes, which are not subject to review by the courts. This is in clear violation of the Civil Procedure Code, Section 9, which mandates that every law or decision made under its authority be subjected to review by the judiciary. A claim can only be filed by an appropriate authority, employee or trade union. This means that undocumented, casual and informal workers, as well as workers who do not belong to a trade union, will find it extremely difficult to file a case, thereby further disempowering them to assert their right to be paid the legally mandated wages. This move is a serious blow to workers’ access to basic rights in a country where 93% of workers have informal livelihoods (NCEUS 2008), more than 80% of workers do not have access to written contracts to prove their employee status (Sundar and Sapkal 2017), and less than 10% of workers are included in trade union membership (Ratnam and Jain 2002).

Pro-employer Regime Based on Labour Cheapening 

While appearing to balance the interests of capital and labour, the Wage Code performs a stealthy function. It removes critical provisions, and deletes and/or adds words and phrases to provisions in previous labour laws that are essential for upholding wage security of workers. 

First, it omits the liability of the principal employer to pay wages to workers if the labour contractor has failed to do so. In India, the majority of workers are contract or daily wage labour, and the most vulnerable, impoverished and migrant workers are often employed in jobs that have multiple layers of subcontracting. They are additionally prone to being cheated out of their wages by employers who intentionally obscure accountability and responsibility through long contracting chains. The ability to hold the principal employer liable for paying wages when contractors disappear or cannot be held accountable is crucial for workers being able to access their wage payments in full. The Wage Code defines the principal employer broadly, to include contractors or anyone who is in charge of the worksite, making it difficult to pin the liability on the actual employer. 

Second, the arbitrary deduction of workers’ wages by the employer has been legitimised, permitting employers to cut wages based upon the performance of the employee or to recover losses. As it does not mention any due process to be followed in these instances, it opens up the possibility of misuse, especially in a situation where the power relations between employers and workers already favour the employer. 

While the Wage Code has set overtime rates at double the normal rate, it makes overtime payments doubly difficult to claim. Even though it empowers governments to set the number of normal working hours, it excludes from its ambit employees engaged in urgent work or in any emergency, which could not have been foreseen or prevented; employees engaged in work that is preparatory or complementary in nature and must necessarily be carried on outside the limits laid down for the general work in the place concerned; employees whose employment is essentially intermittent;  employees engaged in any work which, for technical reasons, has to be completed before the duty is over; and employees engaged in work, which could not be carried on except at times dependent on the irregular action of natural forces. This signals the end of the existing understanding of overtime work as being beyond nine hours per day and 48 hours per week, and instead allows employers to present overtime work as compulsory normal work hours without extra payment. 

Third, the Wage Code expands the definition of new establishments that are exempt from paying bonuses under the previous laws to include “trial running of any factory” and “prospecting stage of any mine” (The Code of Wages 2019). This means that existing establishments can also escape payment of bonuses by being on trial runs or prospecting stages, as there is no time limit specified for either of these activities. 

Reclaiming Workers’ Right to Wage Security 

There is an urgent need to revisit the original intention of labour legislations in the country, which was to balance the interests of labour and capital, and subsequently recognise labour as the less powerful party in the equation (Papola et al 2008). The protection of wages was the means to ensure that the benefits of industrial growth would lead to the economic betterment and social regeneration of the labouring population, further ensuring social justice (Thakur 2007). 

The Wage Code presented an important opportunity to reform wage legislations and address the challenges facing wage security in India. One of these is the high levels of wage inequality, based on labour segmentation along the lines of caste, religion, region and gender (Papola 2013). However, it fails to acknowledge or address these inequalities. Given the context of the wage crisis, the Wage Code should have focused on legislative measures to set minimum wages at an adequate level as laid down by the ILC and the Supreme Court with the representation of workers and their organisations in the process. 

In addition to this, setting up an enabling environment for collective bargaining by workers to push up wage levels over and above the minimum wages is also necessary in order to ensure a fair labour share in profits. Rather than dismantling the inspections system under the charge of corruption, labour departments need to be empowered to ensure compliance through better staffing and resourcing, while establishing accountability mechanisms to check misuse of power by labour inspectors. At the same time, the power of courts and workers’ organisations to ensure grievance redressal to workers in times of violations needs to be restored. 

Previous wage legislations have been the result of historical labour struggles (Agarwala 2011), and have been termed both comprehensive and progressive (Papola et al 2008). Rather than overhauling the existing enforcement mechanism, the implementation of these legislations should be strengthened by enhancing the regulatory authorities’ ability to understand the informal sector. The rhetoric of inclusivity and simplification being utilised to legitimise labour cheapening needs to be questioned, and the concept of wages as fulfilling a socio-economic function, rather than being a mere feature of the market, needs to re-enter the imagination of wage legislations.


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