Do you know that your barbers, workers of your club, etc, must be paid a salary above the minimum wages (MW)? And if it goes up, your bill will go up? If you are a worker in a company or a factory, do you know that your salary is linked to the MW determined by the government? If you are an employer and if you don’t comply with this New Code on Wages (CoW) Bill, you can face prosecution? Read on about a new Bill that can affect us all –– as employee, employer or customer.
On August 10, 2017, Minister of State for Labour Bandaru Dattatreya introduced a historic Bill — CoW Bill 2017 in the Lok Sabha. It is still a draft since Parliament is yet to pass this Bill. The Bill consolidates Minimum Wages Act 1948, Payment of Wages Act 1936, Payment of Bonus Act 1965, and Equal Remuneration Act 1976, into a single statute.
This is the first of the four major labour reforms being planned as part of the ‘ease of doing business’ agenda. The Ministry is also condensing 44 labour laws into four codes — wages, industrial relations, social security and safety, health and working conditions.
The Bill has created a media frenzy – by claiming that it will set a new single National Floor Wage (NFW) of Rs 18,000 per month (or Rs 693 per day assuming 26 days of earning per month), which means that the MW across all sectors, all States, would be above Rs 693 per day. This means almost doubling the current MW. While the employers welcome many aspects of the Bill, it faces stiff resistance on both the single NFW and its monthly value of Rs 18,000.
Employers believe this will prevent market forces from determining wages, thereby impacting competitiveness, profitability and even survival of enterprises, especially the MSMEs. The Retailers Association of India challenged the Rs 18,000 per month NFW incorrectly, because the government is yet to determine the amount.
In my view this controversy has taken the debate away from the core issue – the current MW regime is not working and we need to desperately correct it through a centrally-driven MW regime.
MW and NFW
The MW is a global practice to prevent exploitation of labour through payment of low wages and is championed by the International Labour Organisation. In India, the concept was first introduced through the Minimum Wages Act 1948.
The Labour Ministers Conference, 40 years later, in 1988 resulted in an addition of Variable Dearness Allowance (VDA) to the MW to address the issue of inflation. So there are two components to the minimum wage – a basic rate of wages and a special allowance or VDA. Some States announce these two components separately or merge it into one.
The MW are arrived on the basis of the following: first, arrive at a Living wage. Living wage is the level of income for a worker and his family of four (including two children), which will ensure a basic standard of living covering good health, comfort, education and contingency.
Second, arrive at the Fair wage. Fair wage is that level of wage that not just maintains a level of employment, but also seeks to increase the employment by keeping in perspective the industry’s capacity to pay.
Lastly, arrive at the MW. Normally, the MW are between the Fair wage and the Living wage. There is a trade-off between what the worker needs and what the employer can afford to pay. It is my view that this trade-off has been against the worker.
MW set in two-stages
First, the Union Labour Ministry stipulates the draft MW for various sectors like agriculture and industry periodically (in three to five years), based on recommendations of the National Advisory Board and seeks objections and recommendations of the public and finally publishes the MW.
In the second stage, each State’s labour department (as per recommendations of a State-level committee) is expected to translate these floor level wages and announce a minimum wage for each of the industries in the State, in each geographical zone, based on local conditions and as per guidelines specified in the Act.
In all these processes, the MW for unskilled is arrived at first and then extrapolated to semi-skilled and skilled categories based on the skill level and the arduousness required for the assigned job. Similarly the MW for various zones are extrapolated from the lowest cost zone. The real challenge has been both in determination and extrapolation of the MW at the State level and its poor implementation.
No Truth in Rs 18,000
The media focuses on the validity of a single NFW and why this amount of Rs 18,000 per month is too high. My detailed examination of the draft Bill, discussions with experts and Ministry officials confirm that there is no basis for these alarmist stories.
Firstly, there is no proposal for a single NFW across India. Clause 9(1) of the CoW draft reads, ‘The Central government may, by notification, fix the national minimum wage provided that different national minimum wages may be fixed for different States or different geographical areas’. There is no reference to the single NFW of Rs 18,000 anywhere in the draft Bill. In fact, clause 9(3) clearly states, ‘Central government, before fixing the national minimum wage may obtain the advice of the Central Advisory Board’.
This Board comprises employers, trade unions and independent members, who review data and recommend the national MW. This Board, which has 15 employer representatives, is yet to submit its recommendations. Hence, there is no basis for the Rs 18,000 per month NFW.
Based on the recommendation of National Commission for Rural Labour in 1991, the Government of India announced the national MW for agricultural/rural labour at Rs 35 per day, which was revised to Rs 100 per day in 2009, Rs 160 per day in 2015, and to Rs 176 per day from June 1, 2017 (for central sphere). However, these floor wages are non-statutory and advisory in nature and are not binding on the State governments. This is one of the root causes for the current state of affairs
What is new in CoW
Broadly three things. First, currently the applicability of the MW Act is restricted to a list of industries notified by the Central and State governments. This restriction is being removed. So every employee is covered except Apprentices and Armed Forces.
Second, currently employees with wages over Rs 18,000 per month are not covered. This restriction is also being removed. Every employee irrespective of salary will be covered.
Third, this Act will have statutory powers to align the State MW to the central stipulations and also give teeth to the implementation.
So, the focus should be on the following key questions – How are the MW implemented currently and what is its impact on wage determination? Is the employer focus on wages or productivity? Has the management passed on labour productivity increases as wage increases? Why do we need to overhaul the whole wage system?
We will deal with these questions in the concluding part of this article tomorrow.
(The author is Chairman, TMI Group, and Independent Journalist)