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Nishith Desai Associates analyses on Code on Wagers 2019

Only time will tell if it withstands the test of time!


Only time will tell if it withstands the test of time!



India has consolidated and codified its labour laws “The Code on Wages, 2019” that would provide equal remuneration (anti-discrimination), wages, minimum wage rates and bonus payments to almost 500 million workers/employees across the country.

The Code on Wages, 2019 has been passed by both Houses of the Parliament and is currently awaiting Presidential assent and publication in the Official Gazette, a formality.

This is the first in the series of four labour codes that have been proposed by the government and is expected to pave way for the other labour codes including the code on employee health and safety and social security.

Nishith Desai Associates analyses:

The Code on Wages is likely to be seen as one of the important policy decisions of the Indian government during this term and has the potential to impact almost 500 million workers across the country.

It has been a long-standing agenda of the government to codify and consolidate labour laws in order to promote ease of doing business in India.

With almost 45 federal level laws and close to 100 state level laws dealing with labour and employment aspects, it was the need of the hour to consolidate, amalgamate, simplify, rationalize and codify these laws.

While some of the draft codes were being discussed and deliberated upon for the several years including by the previous governments, it is only now that the Code on Wages was put up and approved by the Parliament.

Although the Code on Occupation Health, Safety and Working Conditions 2019 was also simultaneously introduced in the Parliament, it is yet to be passed.

Amongst several benefits, the codification of labour laws shall remove the multiplicity of definitions and authorities, without compromising on the basic concepts of employee welfare and benefits.

In a way, it would be ‘make it easier’ for employers to understand and thereby comply, and for the labour authorities to enforce the laws.

Including the unroganised sector under the ambit of the Code on Wages and implementing a national level floor wage for minimum wages could end up becoming path breaking for a labour-intensive country like India.

Encouraging digitization through introduction of web-based inspection scheme, calling of information electronically for inspection, composition of offences etc. may also become a model for other ministries when it comes to enforcement.

The ease of compliance is also expected to promote setting up of more enterprises catalyzing the creation of more employment opportunities.

Thanks to the Code on Wages and other continuing efforts of the government, please expect a higher ranking for India in the next World Bank survey on Ease of Doing Business!

While the government may have succeeded in combining laws relating to the same subject matter under one umbrella, on the flipside, most of the substantive provisions of those laws continue to exist under the Code on Wages.

To that extent, the exercise may be viewed largely as a consolidation of laws rather than truly a reform.

For example, should the Code on Wages apply consistently to all kinds of establishments – small sized, medium sized and large sized?

Can the definition of ‘wages’ be further simplified to reduce or hopefully eliminate any litigation surrounding a complex definition?

Are ‘dearness allowance’ and ‘retaining allowance’ necessary in the context of wages?

Should bonus be paid to all employees merely on the basis of a salary threshold irrespective of their individual performance and/or contract??

Or for that matter, should the categories for protection from discrimination include factors such as age, marital status, sexual preference, etc.?

In a way, this may be seen as a lost opportunity for the government to take a hard look on the need or necessity of several of the archaic provisions and whether they are relevant based on today’s realities of doing business in India and the changing nature of the employer-employee relationship.

Simply creating one law by merging four labour laws and reducing compliances is unlikely to address the larger problems such as growing unemployment, the skill shortage in India or the never-ending litigation.

Only time will tell if the Code on Wages will withstand the test of time!


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