A Critique Of The Draft Code On Wages (Central) Rules, 2020

On 7^th July 2020, in the exercise of its powers under section 67 of the Code, the central government published the Draft Code on Wages (Central) Rules, 2020 in the Official Gazette and placed it the public domain on 10^th July 2020 inviting objections and suggestions, if any, within a period of 45 days. This article discusses the provisions in the Rules that need to be reviewed and changed in order to ensure that the wages fixed under the Code would at least suffice to meet the bare minimum needs of the workers covered by the Code and their families and prevent them from being exploited and sliding into poverty and indebtedness.

Fixation of minimum wage

The Rules provide for the fixation of the minimum wage keeping in view the standard working class family which consists of an earning worker, his or her spouse and two children, the equivalent of 3 adult consumption units. Rule 3 indicates that the minimum wage should be fixed based on the estimate of expenses incurred by a standard working class family towards food, clothing, shelter, fuel, electricity, children's education and medical requirements, and also expenses on contingencies and miscellaneous items of expenditure. The food requirement is estimated to be a net intake of 2700 calories per day per consumption unit and the clothing requirement at 66 metres of cloth per year per standard working class family. The housing rent expenditure will be factored at 10 percent of the expenditure on food and clothing; the expenditure on fuel, electricity and other miscellaneous items of expenditure at 20 percent of the minimum wage and the expenditure for children's education, medical requirement and recreation and contingencies at 25 percent of minimum wage.

The aforesaid norms are largely based on the recommendations of the 15^th Indian Labour Conference held in July 1957 and the judgment of the Supreme Court of India in Workmen represented by Secretary v. Management of Reptakos Brett and Co. Ltd. and another reported in AIR 1992 SC 504. Thus, the criteria prescribed for the fixation of the minimum wage is based on norms that were evolved decades ago. As a result, all the expenses incurred to meet the minimum needs of a family in the present day have not been taken into consideration. For instance, the expenses incurred towards transport, mobile phone bills and internet connection bills that constitute a significant portion of a family's monthly expenses have not been considered at all.

Secondly, the very assumption that a standard working class family consists just of 3 adult consumption units is liable to be questioned. This number has been arrived at by reckoning the male worker as 1 consumption unit, his wife as 0.8 consumption unit and two children as 0.6 consumption units each. Such an assumption about the food requirements of the members of a family seems flawed. Even assuming that a standard working class family consists of just 4 members, each of them should be considered as 1 consumption unit. Furthermore, taking into consideration the fact that families also consist of dependent elders the obligation to maintain whom is reinforced by the Maintenance and Welfare of Parents and Senior Citizens Act, 2007, a standard working class family ought to comprise at least 6 adult consumption units. Last year, the Expert Committee on Determining the Methodology for Fixing the National Minimum Wage had on the basis of the estimate of the NSS consumer expenditure survey 2011-2012 estimated that an average household consists of 4.4 persons which amounts to 3.6 consumption units and recommended reckoning a worker's family to consist of 3.6 adult consumption units. Even going by this computation, rounding off the figure, a standard working class family should be taken to consist of at least 4 adult consumption units and not 3. Therefore, clearly, there is a need to increase the number of consumption units in a standard working class family for the purpose of computing the minimum wage.

Thirdly, the estimates in respect of the clothing and housing requirements of a family are not in keeping with the realities of the present day. Estimating the clothing requirements of a family at just 66 metres of cloth a year is unrealistically low. It also does not take into consideration the additional clothing requirements of people in cold regions. In respect of housing, while the 15^th Indian Labour Conference had recommended the consideration of the rent corresponding to the minimum area provided under the Government's Industrial Housing Scheme, the Rules provide for the computation of the housing rent expenditure at the rate of 10 percent of the food and clothing expenditure. Factoring the expense on housing at just 10 percent of the expenditure on food and clothing is unrealistic considering that the rent towards decent housing for a family in and around metropolitan areas will amount to at least Rs.5000/- each month. It would therefore be obvious that the criteria for fixation of the minimum wage under Rule 3 needs to be revised by holding consultations with representative organizations of workers and employers.

Furthermore, Rule 3 provides for the fixation of minimum wages on a day basis. Trade union leaders have opined that fixation of wages on a day basis could disadvantage workers when compared to the fixation of minimum wages on a monthly basis. Taking this factor into consideration, Rule 3 ought to provide for fixation of wages on a monthly basis.

Fixation of floor wage

The Code on Wages, 2020 introduces the concept of a floor wage. The floor wage is a baseline wage below which minimum wages cannot be fixed by state governments. Section 9 of the Code on Wages empowers the central government to fix floor wages taking into account the minimum living standards of workers. It permits the fixation of different floor level wages for different geographical areas. The possibility of fixation of different floor level wages for different geographical areas has given rise to the fear of flight of capital from areas where the wage is higher to areas where the wage is lower. It has also led to the apprehension that it will lead to fixation of low wages by state governments in a bid to attract greater investments thus depressing the minimum wage.

Rule 11 indicates that the floor wage shall be fixed taking into consideration the expenditure towards food, clothing and housing of the standard working class family and "any factors considered appropriate." For the purpose of the fixation of the floor wage also, there is a need to review the number of consumption units in a standard working class family as well as the criteria for estimation of the expenses towards their clothing and housing requirements. It is also necessary to spell out the other factors that would be taken into consideration for the fixation of the floor wage. This is important because the fixation of minimum wages by state governments will be based on the fixation of the floor wage in respect of the concerned region by the central government. Moreover, when minimum wages are not specifically fixed in respect of any sector or category of workers, by default, in practice, it is the floor wage fixed in respect of the concerned region by the central government that will come into play.

Revision of floor wage

While sub-section (4) of section 8 of the Code on Wages provides for review or revision of the minimum wage 'ordinarily at an interval not exceeding five years,' there is no such corresponding provision in the Code in respect of the revision of the floor wage. Rule 11 (4) gives the central government the discretion to revise the floor wage periodically every five years. Unlike section 8(4) which makes the exercise of periodic review and revision of the minimum wage mandatory by using the word 'shall,' Rule 11(4) uses only the word 'may' in the context of revision of the floor wage. Considering the importance of the floor wage, the exercise of periodic revision of the floor wage should be made mandatory and not discretionary. This is particularly necessary because as per section 8 of the Code on Wages, the minimum wages fixed by the appropriate government may or may not consist of a cost of living allowance in addition to a basic rate of wages. In the light of this fact and the rapid and steep increase in cost of living, there is also a need to consider reducing the period for revision of the floor wage from five years to two years. Likewise, there is a need to consider amending the Code on Wages by reducing the period for revision of the minimum wage.

Categorization on the basis of skill

Sub-clause (a) of sub-section (6) of section 6 of the Code on Wages provides that for the purpose of fixation of the minimum wage, the appropriate government shall take into consideration the skill of workers by classifying them into the categories of unskilled, semi-skilled, skilled and highly skilled or the geographical area where they work or both. As per Rule 4(1), on the basis of the location of the workers, different minimum wages may be paid for workers in metropolitan, non-metropolitan and rural areas.

For the purpose of advising the central government in respect of the skill categorization of workers, Rule 4(2) provides for the constitution of a technical committee headed by the Chief Labour Commissioner (Central) consisting of four other officials of the central government and two technical experts in wage determination nominated by the central government. There is no representation for either members of representative workers' organizations or employers' organizations on the committee. There is also no representation for women on the committee. Respecting the principle of tripartism and gender parity, the committee should provide for representation by all the tripartite constituents and also women.

Schedule E to the Rules classifies jobs into the categories of unskilled, semi-skilled, skilled and highly skilled. It lists 123 jobs classified as unskilled, 127 as semi-skilled, 320 as skilled, and 111 as highly skilled. Certain jobs such as that of domestic worker and gardener do not seem to find place in the lists at all. As the lists contained in Schedule E appear to have been drawn up without effective consultations with representative workers' and employers' organizations, there is a need for reviewing the lists and making the classification, if necessary, after such consultation.

Computation of the cost of living allowance

Rule 5 provides that an 'endeavour' shall be made to so that the cost of living allowance is computed before 1^st April and 1^st October every year in order to revise the dearness allowance payable to employees on the minimum wages. Considering the very purpose of payment of dearness allowance, the provision should make it mandatory for the cost of living allowance to be computed twice a year to accordingly revise the dearness allowance.

Number of hours of work

Rule 3 provides for the fixation of minimum rate of wages on a day basis. As per Rule 6(1), a normal working day shall consist of eight hours of work and inclusive of the intervals of rest, the length of the working day shall not exceed nine hours. However, Rule 6(2) permits the spread over of the working day to extend to maximum of twelve hours a day. The length of the normal working day specified under the Rules is not in conformity with the Hours of Work (Industry) Convention of the ILO (Convention No.1) ratified by India. The daily hours of work should be fixed at 8 hours in line with the Convention No.1 and the spread over of the work day should not be more than 10.5 hours as provided under section 56 of the Factories Act, 1948. This is essential in order to prevent exploitation of workers to earn just the bare minimum wage.

Inspection

Section 51 of the Code provides for the appointment of Inspectors cum Facilitators to enforce the provisions of the Code. It empowers the central and state governments to frame inspection schemes which may provide for web-based inspection and randomized selection of units for inspection. A web-based randomized system of inspection may not lead to effective inspection. Moreover, the qualifications for appointment as an Inspector cum Facilitator has not spelt out in the Code. The power to examine the employer or any person involved in the management of an establishment is not specified amongst the powers of the Inspector cum Facilitator spelt out under sub-sections (5) and (6) of section 51. The system of inspection envisaged under the Code therefore does not appear to be in conformity with that prescribed under the Labour Inspection (Industry) Convention of the ILO (Convention No.81) that India has ratified.

Rule 58 merely empowers the Chief Labour Commissioner (Central) to frame an inspection scheme with the approval of the Central Government. It does not spell out any details of the scheme. Unless such a scheme is framed and approved, the provisions of the Code cannot be enforced. It would be ideal if the details of the scheme are incorporated in the Rules and not left to be prescribed by notification. Moreover, it should not be left to the Chief Labour Commissioner (Central) alone to frame the inspection scheme. The inspection scheme should be framed after holding tripartite consultations.

Minimum wages are an important tool for achieving social justice and it is therefore imperative that Rules pertaining to the fixation of the minimum wage and floor wage are framed taking into consideration the realities of the present day. Considering the fact that it is the Rules that govern the practical application of the law, it is necessary that the Rules framed under the Code of Wages further the goal of effective implementation of the law. The Rules in their present form do not do that. The Rules suffer from several shortcomings. It is hoped that the shortcomings will be remedied based on the suggestions made by stakeholders, in particular, workers' organizations. It is also hoped that while undertaking this exercise, keeping in mind the goal of universal coverage of the Code on Wages, gig workers, digital platform workers, anganwadi workers, scheme workers and other excluded sections of workers will also brought under its scope by making suitable amendments to the Code.

Views are personal only.

(The author is an Advocate practising in the Madras High Court. The author wishes to acknowledge the fact that some of the views expressed in this article have been shaped by discussions that she has had with the leaders of various trade union organizations.)