Context: Minimum Wages in India and its challenges
- The Code on Wages, 2019 was introduced in Lok Sabha on July 23, 2019. It seeks to regulate wage and bonus payments in all employments where any industry, trade, business, or manufacture is carried out.
- The Code replaces the following four laws: (I) the Payment of Wages Act, 1936, (II) the Minimum Wages Act, 1948, (III) the Payment of Bonus Act, 1965, and (IV) the Equal Remuneration Act, 1976.
Provisions of Wages bill 2019:
- Coverage: The Code will apply to all employees. The central government will make wage-related decisions for employments such as railways, mines, and oil fields, among others. State governments will make decisions for all other employments.
- Floor wage: According to the Code, the central government will fix a floor wage, taking into account living standards of workers. Further, it may set different floor wages for different geographical areas. Before fixing the floor wage, the central government may obtain the advice of the Central Advisory Board and may consult with state governments.
- Fixing the minimum wage: The Code prohibits employers from paying wages less than the minimum wages. Minimum wages will be notified by the central or state governments. This will be based on time, or number of pieces produced.
- The minimum wages will be revised and reviewed by the central or state governments at an interval of not more than five years. While fixing minimum wages, the central or state governments may take into account factors such as: (I) skill of workers, and (II) difficulty of work.
- Overtime: The central or state government may fix the number of hours that constitute a normal working day. In case employees work in excess of a normal working day, they will be entitled to overtime wage, which must be at least twice the normal rate of wages.
- Gender discrimination: The Code prohibits gender discrimination in matters related to wages and recruitment of employees for the same work or work of similar nature. Work of similar nature is defined as work for which the skill, effort, experience, and responsibility required are the same.
- Advisory boards: The central and state governments will constitute advisory boards. The Central Advisory Board will consist of: (I) employers, (II) employees (in equal number as employers), (III) independent persons, and (IV) five representatives of state governments. State Advisory Boards will consist of employers, employees, and independent persons.
- Further, one-third of the total members on both the central and state Boards will be women. The Boards will advise the respective governments on various issues including: (I) fixation of minimum wages, and (II) increasing employment opportunities for women.
Challenges to code on Wages bill:
- Low minimum wage: The Code on Wages Bill, 2019 mandating a minimum wage across the country, law mandates a universal minimum payment of ₹178 a day. The wage prescribed is less than half the ₹375 a day recommended by a high-powered labor ministry panel. It is also miles away from the ₹700 fair wage that the 7th Central Pay Commission had arrived at.
- Compliance problems: In India, small and unorganized businesses employ more than 90% of the workforce, an estimated 500 million people. The new law seeks to cover all employees. This is where the major problem with compliance will come up, leading to the threat of harassment from labor officials.
- Self employed: The second quirk of what’s about to unfold is that 50% of the workforce is self-employed. Nearly 30% work on a causal basis, approaching the labor market in bursts and spurts. The new code therefore will actually only work for 20% of the total workforce.
- Even within this, more than half belong to very small enterprises that hire between one and five people. Making these tiny enterprises comply with new laws is, in any case, a tall order.
- Complexity: the newly proposed code will result in the setting up of more industries, and the creation of more jobs, but a centralized code is extremely unlikely to reduce complexity and almost certainly is counterproductive to bringing transparency or accountability into the system.
- More goals: The new code seeks to achieve a large number of objectives. The basic premise in public policy setting is that an instrument must have one clear goal. If it has more than one, it would not achieve any.
- Lack of clarity: We still don’t know what the primary objective of code is. If we want to increase minimum wages and creating employment. The conflict here is built in: one comes at the cost of the other. It is clearly a lurking danger that higher wages will almost necessarily result in fewer jobs.
- The code is unfortunately being seen as a silver bullet for a slew of challenges faced by labor. It will increase disposable income, say some, while others argue that humane working conditions will emerge and employers will also implement regulated working hours, pay for overtime, and will result in reducing worker exploitation.
- Another major selling point of this code has been that it will also ensure the end to gender discrimination in wage payments. Again, it is the GST that this code reminds us of. A well-intentioned and brave step but rendered ineffective through multiple, vague, and lofty goals.