Deriving The Meaning Of 'Wage': A Comparative Analysis Of The Payment Of Wages Act, 1936 And The Code On Wages, 2019

There were many attempts to revise the labour laws. The Union Government appointed the Second National Commission on Labour Laws, which submitted its report in June 2002. The Commission proposed that the existing set of labour laws should be narrowly divided into four classes and grouped together. The Union Government acting on the recommendations has proposed that four labour codes will be enacted, subsuming 29 legislations on labour laws. The Code on Wages, 2019 is the first of the lot to receive legislative approval and, subsequently, the President of India's assent on August 8, 2019.

The Code on Wages, 2019 (the Code) seeks to amend and consolidate the laws relating to wages and bonus and matters connected therewith or incidental thereto. It amalgamates and subsumes four imperative labour laws - the Payment of Wages Act, 1936; the Minimum Wages Act, 1948; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976.

The Code provides for the universal applicability of the provisions for prompt payment of wages and minimum wages to all workers regardless of the wage ceiling and sector, unlike the Payment of Wages Act, which is applicable to employees receiving wages below the statutory limit, and the Minimum Wages Act, which is applicable to employees engaged in scheduled establishments. The Code has expanded the definition of 'employer' as well as 'employee' after putting together separate prior legislations under a single umbrella, resulting in a wide-ranging applicability of the regulations which is now applicable to workers in both organised and unorganised sectors.

In order to encourage deregulation and promote ease of doing business, several changes were brought in via the Code on Wages, 2019. Additionally, the Code attempts to streamline India's labour law enforcement process by providing a uniform statutory framework for it. The new definition of the term wages under Section 2(y) of the Code is a significant reform implemented by the Code. It marks a departure under the aforementioned Acts from earlier meanings of wages. Thus, to comprehend its import it is imperative to analyse this definition and juxtapose it with that under the Payment of Wages Act, 1936

Wages under Code on Wages, 2019 – How different from that provided in the Payment of Wages Act, 1936

The definition of 'wages' varies across labour legislations in India. The Code on Wages, 2019 endeavours to provide a single uniform definition of wages as applicable to minimum wages, payment of wages and payment of bonus with an intent to minimise disputes and litigations and also reduce compliance cost for employers.

The Payment of Wages Act, 1936 applies to the payment of wages to persons employed in factories and to persons employed in any industrial or other establishment. However, the Code has broadened the scope by extending its applicability to all the establishments.

Section 2(y) of the Code defines Wages as all remuneration whether by way of salaries, allowances or otherwise, expressed in terms of money or capable of being so expressed which would, if the terms of employment, express or implied, were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment. This part of definition is verbatim similar to that of the definition provided under Section 2(vi)^[1] of the Payment of Wages Act, 1936. The Payment of Wages Act, 1936 defined wages very comprehensively and broadly.

Under the Code, there are now three parts to the definition of wages: inclusionary part, exclusionary part and the conditions which limits the effect of exclusions. The following components form the inclusive part of the definition under the Code on Wages –

• basic pay
• dearness allowance
• retaining allowance, if any.

Unlike the definition under the Payment of Wages Act of 1936, the definition under the Code aims to provide a list of items that are not included in this updated concept of wage such as –

• any bonus payable under any law for the time being in force, which does not form part of the remuneration payable under the terms of employment;
• the value of any house-accommodation, or of the supply of light, water, medical attendance or other amenity or of any service excluded from the computation of wages by a general or special order of the appropriate Government;
• any contribution paid by the employer to any pension or provident fund, and the interest which may have accrued thereon;
• any conveyance allowance or the value of any travelling concession;
• any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment;
• house rent allowance;
• remuneration payable under any award or settlement between the parties or order of a court or Tribunal;
• any overtime allowance;
• any commission payable to the employee;
• any gratuity payable on the termination of employment;
• any retrenchment compensation or other retirement benefit payable to the employee or any ex gratia payment made to him on the termination of employment.

The first proviso to Section 2(y) under the Code states the exclusions mentioned must not exceed 50 per cent of all remuneration and, if they are exceeded, the excess sum shall be treated as remuneration and shall be regarded as wages. This is intended to ensure that organizations do not pursue compensation structures that result in a reduction of wages below 50% of overall remuneration. However, it is not wrong to contend that such an approach will be seldom effective.

The second proviso to Section 2(y) under the Code basically provides that for the purposes of equal wages to all genders, the emoluments specifically excluded under clauses (d), (f), (g) and (h) becomes relevant and shall be taken for the computation of wages.

Finally, the explanation offered under the definition of wages in the Code provides that if an employee earns remuneration in kind from his employer, the amount of which does not exceed 15% of the total salary payable to him shall be considered to constitute part of the salary of that employee. This is basically meant to disincentivize employers to pay in kind.

Issues with the new Definition

The inclusionary part of the new definition has only three items, which is two less than that provided under the Payment of Wages Act, 1936. Moreover, the list of exclusions under the Code is much longer than that of the Payment of Wages Act, 1936. What is even more startling in this regard is the fact that some of the inclusionary clauses under Payment of Wages Act, 1936 has now come to be a part of the list of exclusions. The remuneration payable under any award or settlement between the parties or order of a Court which was an inclusionary clause under Section 2(vi) – (a) of the Payment of Wages Act, 1936 is now excluded from the definition of wages by virtue of Section 2(y) – (g) of the Code on Wages, 2019. Similarly, any overtime allowance [2(vi) – (b)], commission payable to employee [2(vi) – (c)], and retrenchment compensation [2(vi) – (d)], which were previously protected have been excluded from the definition of wages and is now a part of the list of exclusions. [Section 2(y) – (h), 2(y) – (i), 2(y) – (k)]

Furthermore, the residuary clause in the veil of Section 2(vi)-(e) of the Payment of Wages Act, 1936 provided an added protection to the employees and working class. It sets forth that wages may include any sum payable to which the person employed is entitled under any scheme framed under any law for the time being in force. No such residuary clause is present in the Code on Wages, 2019.

The plausible explanation behind the new definition is to ensure that employers include the majority of the salary of an employee in the first three components, i.e. basic, dearness allowance and retaining allowance, in order to prevent inclusion of other components in the wages component at a later stage. While this is a move undertaken with good intentions, but since the government actively controls incentives, it may lead to problems, making it impossible for employers to formulate their own wage structures. In particular, this would be troublesome for employees who use variable and deliverable associated performance-based components to earn significant chunks of their wages. In the case of sales managers, for example, who draw different amounts depending on the nature of their travel, performance goals, etc.

Furthermore, the inclusion of gratuity payments and other retirement benefits into the definition of wages through first proviso seems vague as this runs counter to the basic purpose behind such payments and would lead to an unwanted increase in the cost of the employer. Additionally, it would make the whole payroll system complicated and eventually the end results would remain somewhat similar leading to a great deal of confusion.

As already mentioned, the Code excludes 'remuneration payable under any award or settlement between the parties' from the definition of wages without providing any explanation. All salaries are negotiated in a unionised community under agreements between the employer and unionised employees, which mostly last two to three years or more. To suggest that none of these mutually agreed and settled compensation components can be regarded as 'wages' for some purposes is quite pointless. However, the second proviso clarifies that this element along with few others will be included for the purposes of equal wages to all genders, it still does not make the reason for its exclusion for other purposes intelligible.

In order to summarise this new Code, from the point of view of giving a uniform effect to the four major labour laws of this country, it can be said that this Code is of great significance. In addition, the Code has implemented much-needed reforms in the labour sector through which the convergence, rationalisation and simplification of labour-related regulations is now on course.

From the above discussions, it is correct to conclude that in an effort to simplify the law, the Code on Wages, 2019 appears to have created some further chaos and confusion. A simpler approach would have been to address the concept of wages based on core concepts (and if possible, through illustrations and examples, as many other statutes do), instead of a complex definition with plenty of other inclusions, exclusions, provisos and explanations.

Although the intentions behind the introduction of a uniform definition of wages are fairly positive, their impact remains to be seen. The Code endeavours to offer a new meaning to the old labour laws of centuries which were enacted historically at different points in time and to deal with different situations. The combining of asymmetrical laws into a single code is not an easy task and will undoubtedly create a set of new problems. The first and only important thing required for achieving the desired results is to adequately enforce the requirements of the Code in a standardised way which can be done only by improving the standard of regulatory authorities.

Views are personal.