Proposed wage code bill: Significance & issues


The Union Cabinet has approved the new wage code bill. The Code on Wages, 2017 was introduced in Lok Sabha by the Minister of Labour and it is recently cleared by Cabinet. The Code would ensure universal minimum wage for all industries and workers. It will also cover those workers who are getting monthly pay of higher than Rs 18,000. Labour reforms is one of the long pending decision and the minimum wage is the basic solution for poverty alleviation, if not Universal Basic Income.


The Wage code Bill seeks to consolidate laws relating to wages by replacing: (i) the Payment of Wages Act, 1936, (ii) the Minimum Wages Act, 1949, (iii) the Payment of Bonus Act, 1965, and (iv) the Equal Remuneration Act, 1976 and will ensure uniformity of minimum wage across geographical regions and all sectors. If passed it is expected to benefit over 4 crore employees across the country. At present, every state decides the minimum wage for different industries and labour classifications .The bill seeks to empower the Centre to set a minimum wage across all sectors in the country and the states will have to maintain that.

Indian labour market has a sharp divide between organised and unorganised sector.The small proportion of organised labour enjoys an advantage with stringent laws and rules and regulations enabling them to fight for their rights. The major chunk however consists of unorganised labour with almost no job or social security. With India poised to have the largest workforce in the world by 2025 it is imperative that labour issues are given the attention and the importance that they deserve.

According to ILO, Social and economic outlook trends 2016 ‘Poor quality  job remains a pressing issue worldwide’ and 12 per cent of workforce in developed countries and 42 per cent in developing countries are in informal employment.

Key features of the Legislation

    1. The bill defines Wages as it includes salary, allowance, or any other component expressed in monetary terms.  This will not include bonus payable to employees or any travelling allowance, among other.

Minimum Wage

    1. National minimum wage:  The central government may notify a national minimum wage for the country.  It may fix different national minimum wage for different states or geographical areas.
    2. Fixing the minimum wage: The Code requires employers to pay at least the minimum wages to employees as specified by central or state government as National minimum wage. The Code specifies that the central or state governments will review or revise the minimum wage every five years.
    3. Working hours: The central or state governments will fix the number of hours that will constitute a working day. Further a day of rest for employees every week.  The amount of overtime will be at least twice the normal wage of the employee.

Payment of Wages

    1. Wages will be paid in (i) coins, (ii) currency notes, (iii) by cheque, or (iv) through digital or electronic mode.  The wage period will be fixed by the employer as either: (i) daily, (ii) weekly, (iii) fortnightly, or (iv) monthly.
    2. Deductions:  Under the Code, an employee’s wages may be deducted on certain grounds including: (i) fines, (ii) absence from duty, (iii) accommodation given by the employer, or (iv) recovery of advances given to the employee, among others.  These deductions should not exceed 50% of the employee’s total wage.

Payment of Bonus

    1. Determination of bonus:  The employer will pay each employee an annual bonus of at least: (i) 8.33% of his wages, or (ii) Rs 100, whichever is higher. In addition, the employer will distribute a part of the gross profits amongst the employees in proportion to the wages earned by employees.
    2. Maximum bonus:  An employee can receive a maximum bonus of 20% of his wages.

Advisory Board:

  1. The central and state governments will constitute their respective advisory boards.  These boards will have representation from: (i) employees, (ii) employers, and (iii) independent persons. 
  2. Further, one-third of the total members will be women. 
  3. The boards will advise the respective governments on aspects including: (i) fixation of minimum wages, and (ii) increasing employment opportunities for women.


 The Code specifies penalties for offences committed by an employer, such as

(i) paying less than the due wages, or

(ii) for contravening any provision of the Code.  Penalties vary depending on the nature of offence, with the maximum penalty being imprisonment for three months along with a fine of up to one lakh rupees.

Merits of the Legislation

  1. Will ensure decent  Minimum wage for all which will result into increase in disposable incomes in turn help in eradicating Poverty, hunger to achieve SDGs.
  2. Uniformity in coverage. At present, the minimum wages fixed by the Centre and states are applicable to workers getting up to Rs 18,000 pay monthly and does not cover workers getting a monthly wage of more than Rs 18,000. If the bill is approved in the Parliament, workers getting a monthly pay of higher than Rs 18,000 would also be legally entitled to a minimum wage.
  3. Multiplicity of definitions will be removed through this change.
  4. The wage conditions of unskilled workers will improve.
  5. This bill is expected to treat contract labour on par with regular employee to have dignified life.
  6. It Will ensure humane working conditions through minimum working hours,overtime etc. and  prevent exploitation of labour.
  7. Formalisation of economy.
  8. Also help in reduce regionalism by reducing wage disparity across different regions.

Demerits of the Legislation

  1. The Economic survey highlights 78% of indian firms employ under 50 worker and just 10% employ more than 500 comparable of china are 15 and 20% respectively. Further strengthening  of labour laws will worsen the situation.
  2. According to Noble prize winner economist George Stigler, the minimum wages doesn’t satisfies original intentions i.e. elimination of poverty and it tends to reduce employment and  family income.
  3. Labour comes under concurrent list and different states having different criteria in deciding minimum wages so there is possibility some states may raise concern.
  4. Will facilitate ease of doing business but affect competitiveness of trade and industry, especially states capacity to attract FDI.
  5. Economic theory and its evidences suggest that any price control leads to creation and expansion of black market. Similarly in this case companies will prefer contractual workers or keep majority of workforce in informal sector.
  6.  Negative impact on hiring in tier II and tier III markets.
  7. Implementation would be difficult and it may lead to inspector raj.

Way Forward/Conclusion

    1. Bringing four legislations into one is a major step towards labour reforms.
    2. Looking at the larger picture, the new wage code is one part of the reforms needed to modernize the archaic labour laws in India, and hence a step in the right direction. But to make the new code into reality Government will have to,
  • Generate political consensus; 
  • Work on creating an infrastructure to ensure implementation; and 
  •  Talk to state governments about the nuances of the new wage structure. It is a long process. Until then, the four crore employees will have to keep their fingers crosses.


Model Questions

Q.) What is the significance of the proposed Wage code in India? Explain the challenges that competitiveness in trade and industry will face?

Q.)List out recent labour reforms? How they will have impact on meeting Global standards and achieving economic growth?


PRS India Website

Big Picture Discussion

The Hindu News, The Mint , Financial Express

Ministry of Labour

Yojana on Labour reforms

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