Guide for minimum wages in India

Guide for minimum wages in India

After independence, India has passed the minimum wages act in 1948 for fixing minimum wages but till today a major section of the workforce is still outside the purview of the minimum wage act.

As per the survey, the national mandatory minimum wage is the requirement to improve the relevance of minimum wages in India.

The good news is parliament has passed the Code on Wages Act, 2019. This act has replaced four labor regulations concerning wage and bonus payments and makes the minimum wages universal for workers in India.

In this post, we will discuss the different aspects of minimum wages, latest developments, and some frequently asked questions

Let’s first understand!

What is the minimum wage and why it is required?

As per International Labour Organization (ILO), the minimum wage is defined as the lowest amount of remuneration an employer is required to pay their workers for the work performed during a given period that cannot be reduced either by collective agreement or an individual contract.

Minimum wage is essential for workers to protect them against unduly low pay, to overcome poverty, to ensure the sustainable standard of living, to avoid the exploitation of employers, and promote decent work.

What are the components of minimum wage?

A minimum wage consists of the basic wage and allowances like for shift work and irregular working hours. Overtime payments are not included in the calculation of the minimum wage.

Components of the minimum wage

The minimum wage is based on the gross wage for a normal working week. Gross wage can consist of:

    • The basic rate of wage agreed in your contract
    • Payments related to performance and allowances for shift work, irregular hours, etc.
    • Weekly or monthly fixed payments for the turnover you generate
    • Work-related payments by third parties

Components not included in the minimum wage

Some components are not included in the minimum wage calculation. Those components are

    • Overtime pay
    • Leave allowance
    • Profit shares
    • Special payments
    • Future payments
    • Expense allowances
    • End-of-Year allowance

What are the factors that influence minimum wages in India?

The following factors are considered while fixing the minimum wage in India.

    • Income level
    • Paying capacity
    • Prices of essential commodities
    • Productivity, and
    • Local conditions

These factors vary from state to state, across India, due to this reason state minimum wages vary across the country.

Who fixes the minimum wage in India?

Labor law is a concurrent subject under the Indian Constitution, hence minimum wage rate will be decided by both the central and provincial governments.

For some specific type of employment, the central government is responsible (for example the categories mentioned in the Minimum Wage Act of 1948). Whereas in other areas of employment, it is the respective state government that establishes the minimum wage.

Government fixes or revises the minimum wage as per the following two methods:

1. Committee Method

As the name indicates committees are set by the government to hold inquiries and make recommendations for fixing and revising the minimum wages.

There are five Regional Minimum Wages Advisory Committees in India whose purpose is to bring uniformity in minimum wages of different scheduled employments.

2. Notification Method

In this method, the appropriate government publishes proposals in the official gazette to inform the persons who may be affected.

The notification is sent to persons with a date. The date is at least two months away from the date of the notification. On that date, the proposals sent will be due for consideration. Before publishing these types of notifications, the government consults various committees.

How minimum wage is calculated in India?

Minimum wages are calculated based on workers’ skills and the nature of their work. Workers are categorized as unskilled, semi-skilled, skilled, and highly skilled.

In the year 1957, the Indian labor conference passed a resolution and fixed certain parameters for fixing minimum wages. It should be need-based and ensure the basic minimum needs of the industrial workers. These are as follows:

Minimum 20% of total wage should include for:

    • 3 consumptions units per earner
    • Minimum food requirement of 2700 calories per adult (approximately)
    • Clothing requirements of 66 meters per year per family
    • House rent corresponding to the minimum area provided under the Governments subsidized Industrial Housing Scheme
    • Fuel, lighting and other miscellaneous items

Minimum 25% of total wage should include for:

    • Children’s education
    • Medical requirement
    • Minimum recreation (including festivals and ceremonies)
    • Provision for old age and marriage

The appropriate government has the power to fix the minimum rates of wages. They can fix the minimum rates of wage either:

    • By hour or
    • By day or
    • By month or
    • By such a large wage period as may be prescribed

Rates of minimum wages vary according to the scheduled employment and the class of work within that “schedule” or sector, the age category, the skill, and occupational position and the location of the business.

Minimum Wages for Workers in India: Four Major Urban Cities (2019)
CitiesUnskilledSemi-skilledSkilled
DelhiINR 571 (US$8)INR 629 ($8.8)INR 692 (US$9.7)
MumbaiINR 420 (US$5.9)INR 454 (US$6.4)INR 485 (US$6.8)
BengaluruINR 445 (US$6.25)INR 490 (US$6.9)INR 539 (US$7.6)
KolkataINR 321 (US$4.5)INR 353 (US$5)INR 389 (US$5.5)

Code on Wages Bill, 2019

The government of India has passed the Code on Wages Bill, 2019. This Bill has replaced four laws related to wages and bonus and related matters -the Payment of Wages Act, 1936, Minimum Wages Act, 1948, Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976 into a single code and provides a national minimum wage for all workers.

Key Features of the Code on Wages Bill, 2019

A simplified definition of wage

The new wage code has expelled the assortment of wage definitions by significantly reducing litigation as well as compliance cost for employers. Currently, wages are defined differently by 12 different labor laws which lead to litigation in addition to difficulty in its implementation.

Uniformity in coverage and payment

The Bill permits provisions of minimum wages, as well as on-time payment of wages, to cover all employees in both the organized as well as unorganized sectors. Labor-intensive industries and small businesses are covered under the unorganized sector that employs less than 10 workers in total.

The provisions of the Minimum Wages Act and the Payment of Wages Act used to apply only to workers drawing wages below a particular ceiling and working in scheduled employments only.

Fewer factors to determine the minimum wage

The Bill links minimum wage across the country to the skills of the employee and geographical location. Presently, laws fix minimum wages based on multiple factors, ranging from the skill level to the type of job.

State wages should be higher than the national floor rates

The code, 2019 says that the central government will set the national floor rates for wages, as well as minimum wage in certain sectors like railways and mining. The state government will fix the minimum wage each state, which cannot be lower than the national floor wage set by the central government. However, the central government has the power to set different national minimum wages for different parts of the country.

The Bill also mentions that the minimum wages must be revised every five years, and the overtime rate must be set at twice the standard wage rate across the country.

Non-compliance penalty

The Code on Wages Bill, 2019, provides the government to appoint inspectors-cum-facilitators to carry out inspections to ensure that the companies are compliant with the code.  This has been done with the purpose to remove arbitrariness and malpractices in the inspection. The penalty would depend on the nature of the offense. The penalty includes imprisonment for three months and a fine of up to INR 100,000 (US$1,405) or both.

Why India has no national minimum age

Under the Code on Wages Act, 2019, workers from all industries are qualified for receiving minimum wages fixed by their separate state governments. Matters concerning work and its welfare are classified as both a state and central subject under constitutional law, along these lines coming about in multijurisdictional guidelines.

Earlier workers from specific industries (40 percent of the whole worker’s population) were qualified for getting minimum wages.

Even half a year after passing the wage code, there has been no new advancement in executing a national minimum wage for Indian workers.

In a media report, an administration official was cited saying that executing the minimum wage plan was not a “priorities right now as there are difficulties within reach both at small scale and large scale levels.” The report further explained that the legislature worried that climbing minimum wages as of now would adversely affect the industry in the midst of an economic slowdown.

Just in January this year, labor unions across the country watched a nationwide strike to fight the governments slowing down on proposals in this regard and its inaction on expanding workers’ minimum wages.

However, the report of the expert committee on deciding the procedure for fixing the national minimum wage recently introduced a new formula to calculate the minimum wage.

As per the report distributed in January 2019, it is proposed that the number of consumption units for every family should be changed to 3.6.

It is further proposed to build the national minimum wage of an informal worker from INR 176 (US$2.8) to INR 375 (US$5.3) every month. A housing allowance of INR 1,430 (US$20) every month should be provided to workers in addition to the minimum wage.

As per the International Labor Organization’s report, more than 80 percent of Indian workers are employed in informal jobs, for example, road sellers, skilled workers, and local workers.

The finding of this report is yet to be considered seriously by the administration.

Conclusion

The government of India has taken a very good initiative and brave step by introducing the Code of Wages Bill, 2019. This Bill has a lot of positive elements and makes a decent attempt to replace their obsolete provisions. The unfortunate thing is that bill is still not effective due to vague and lofty goals.