The New Labour Codes are an important part of the legislation designed to ease the concerns associated with wage provisions in India. Despite the New Labour Codes being enacted, there are still misconceptions primarily related to the scope of application, definitions of the various types of wages, and the compliance obligations in order to be congruent with the relevant legislation. This article attempts to address the issues of misconceptions and clarify the prevailing issues to assist employers in making informed decisions.

1.Status of the New Labour Codes

Misconception: The Code on Wages, 2019 is in full force and effect throughout India.

Legal Position: The Code has been enacted, but the practical applicability is subject to the notification of Central and State Rules. In the absence of notification of the Rules, the erstwhile wage-related legislation will continue to apply.

2.Applicability of the New Wage Definition

Misconception: The new definition of “wages” applies to all labour legislation by virtue of it being introduced.

Legal Position: The definition of the wage under the Code is only applicable after the Code is operationalized. In the meantime, wages will still be regulated under the existing laws in the country.

3.Mandatory 50% Basic Salary

Misconception: It is mandatory for employers to set the basic salary at an amount which is 50% of the CTC.

Legal Position: The Code does not prescribe a 50% basic salary. It is only the allowances which are in excess of 50% of the total remuneration are added back to wages for the purpose of statutory calculations.

4.Immediate Salary Restructuring

Misconception: All employers are required to make changes to components of salary in a given modified structure.

Legal Position: Only changes on salary structure are required after relevant rules are notified and made effective by the concerned government authority.

5.Effect on Contributions to the Provident Fund

Misconception: Wage Code will result in a calculation of changes to the exemption of contribution to the PF.

Legal Position: PF compliance continues under the existing Circulars and Rules of the EPF. The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 is still not subsumed.

6.Applicability of ESI Contributions

Misconception: The wage definition under the Code must govern the coverage of the ESI.

Legal Position: Coverage by the ESI must be governed by the Employees’ State Insurance Act, 1948 until the rules under the Code on Social Security, 2020, are notified.

7.Impact on Calculation of Gratuity

Misconception: The liability for Gratuity has already increased as a result of the Wage Code work.

Legal Position: The Payment of Gratuity Act, 1972 continues to govern the calculation of Gratuity to the Code on Wage rules, which are still to be implemented.

8.Treatment of Allowances

Misconception: All allowances must be provisioned as wages.

Legal Position: Only certain exclusions are permissible. Where the excess of 50% of total remuneration is concerned, those amounts are treated as wages.

9.Applicability of Contract and Temporary Workers

Misconception: The Wage Code is not concerned to apply to non-permanent employees.

Legal Implication: Within the range of the Code's jurisdiction, all employees, including—contract, temporary, daily-rated, and fixed-term employees—will be covered and, thus, be subject to the Code as soon as it is employed.

10.Minimum Wages Uniformity Across India

Misconception: Minimum rates of wages would be standardized all over the country.

Legal Implication: The Code sets an initial minimum or floor wage, while State Governments still have the authority to determine and prescribe higher rates of minimum wages depending on the circumstances of the locality.

11.Immediate Repeal of Existing Wage Laws

Misconception: Existing wage regulations and policies have no greater effect.

Legal Implication: Existing Acts still have legal effect until such time as they are repealed in a formal manner, and such act does not happen until after the Wage Code is in effect.

12.Impact on Bonus Eligibility

Misconception: The bonus regulations and policies automatically have changed.

Legal Implication: The Bonus that is provided for by the Act of 1965 still holds effect until that is displaced with some other regulations provided for by the Code.

13.Penal Provisions for Non-Compliance

Misconception: The Code is more punitive in terms of the penalties.

Legal Implication: The Code focuses more on the consolidation of offenses, lesser terms of imprisonment, and more lenient in terms of the compliance of such offenses, especially when it comes to first timers.

14.Applicability Based on Establishment Size

Misconception: Smaller establishments are more likely to be exempt.

Legal Implication: The Code applies without limitation to any prescribed size of the establishment unless such a specific exemption has been provided.

15. Misconception on Inspection and Enforcement Mechanism

Misconception: There are not a lot of inspections that should be necessary.

Legal Position: Inspections will proceed using a web-based, risk-based system providing transparency and less room for discretion.

Conclusion

Employers should not proceed based on speculation, informal guidance, or guidance that may be incomplete. Any compliance strategy should be based on what has been enacted and what published and enforceable statutes exist.

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Frequently Asked Questions (FAQ) :

1.When will the new Code on Wages be applicable?

Answer: The Code on Wages, 2019 can only be applicable after the Central and State Governments notify the corresponding rules. Otherwise, existing laws on wages will continue to apply.

2.Are all employers obliged to adjust their compensation right away?

Answer: No. Changes to salary compensation are only necessary when the corresponding provisions in the Code become official and the government implements them. There is no need to rush.

3.Does the Wage Code include employees on contracts and those the get hired for a short period?

Answer: Yes. The Code on Wages, 2019 addresses all worker groups which include those who are permanent, on contracts, or those who are hired short term, on a daily rate, or on a fixed term basis as the Code gets implemented.

4.The Code requires that salary should constitute 50% of basic pay.

Answer: No. The Code does not state that. What is only incorporated in a basic pay are those allowances that are more than 50% of total compensation and are used for statutory computations like the PF and gratuity.

5.Is there uniformity in minimum wage across the nation with the new Code?

Answer: No. The Code has indicated a floor wage, however State Governments have the authority to establish lower minimum wage rate with respect to the prevailing circumstances.

6.What is the impact of the new Code on PF contribution?

Answer: PF obligations are to be maintained under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 until there are new social security provisions in the Code. There is no need to alter anything for the time being.

7.How does the new Code affect ESI contributions?

Answer: ESI coverage remains under the Employees’ State Insurance Act, 1948 until the Code on Social Security rules are notified and come into force. Employers should continue existing ESI compliance.

8.How is gratuity calculated under the new Code?

Answer: Gratuity still is and will continue to be calculated as per the Payment of Gratuity Act, 1972, until rules under the Code on Wages are notified.

9.Are all allowances excluded from wages?

Answer: No, only certain exclusions are allowed, and if the total excluded allowances are more than 50% of the total remuneration, the excess is deemed to be part of the wages, if any.

10.Are small establishments excluded from the Code on Wages?

Answer: No, the Code does not discriminate size of establishments, that is, if there is no specific exemption that has been notified by the government.

11.Will new Code result in no inspections?

Answer: No, Inspections will still occur. There will be, however, a web-based Risk-based Inspection System, that will provide transparency and lower discretion in enforcement.

12.Do penalties under the new Code increase?

Answer: Not necessarily. The Code does shift emphasis to compounding of offences, lower imprisonment, and is more compliance friendly, especially so for first time defaulters.

13.Have bonus eligibility rules changed automatically?

Answer: No. The Payment of Bonus Act, 1965 continues to apply until replaced by notified provisions under the new Code.

New Labour Codes in India: Common Misconceptions and the Legal Position

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