Minimum wages have become widely recognised as a vital tool for reducing poverty and restoring economic stability around the world. A mandatory national minimum wage has numerous effects on the economy. It contributes to raising wage levels and closing wage gaps, making it a key step toward achieving inclusive growth. The extent to which the minimum wage set is both fair and economically valid will determine its success. The implementation of the minimum wage on the ground has the potential to considerably assist wage earners, particularly those in the unorganised segment of the market.
Minimum wages are the absolute minimum, not the highest or even the current average salary. In India, the goal of minimum wage legislation is to establish a basic income that adequately protects the most vulnerable workers. As a result, states set minimum salaries in order to offer a monetary value that is similar to the workers’ and their families’ minimal consumption demands. And because this monetary value ignores the workers’ age and years of experience, minimum wages are both entry level and exit level salaries for all intents and purposes. Simply put, minimum wage is the lowest salary that a business may give to their employees, as set by law.
The Indian economy is characterised by dualism, or the existence of a centrally organised sector alongside a decentralised sector with a huge population of self-employed people. The phrase ‘labour’ is contained in the Constitution’s ‘concurrent list,’ which allows both the federal and state governments to enact labour legislation. State government’s police labour regulations for the majority of workers in the informal sector, while the federal government regulates contractors and casual workers in enterprises. Wage levels and structures in the informal sector are influenced by all labour legislation enacted by the central government, whether directly or indirectly.
The International Labour Organization (ILO) defines minimum wage as the declared level of remuneration that cannot be reduced further, either by mutual agreement or compulsion by the employer, for labour performed during a defined period by wage earners. Various countries, including ILO members, have established minimum wages based on their labour markets. Basic pay, annual bonuses, tips, in-kind benefits, productivity and performance pay; allowances and premiums for non-standard work hours or dangerous labour are all possible components of minimum wage.
Minimum wage systems can only be effective if they are clear about which components of the wage are to be counted in the minimum, how much payment-in-kind is permissible, and whether the computation is for an hourly/weekly rate, among other things. A three-factor analysis can be used to assess the effectiveness of minimum wages:
- Coverage: Is the scheme open to all wage earners, including women, youth, and migrants? Its implementation in both commercial and public sectors must be consistent.
- Level: The pay must be set at a level that meets the workers’ and their families’ fundamental needs while also taking into account the most important economic issues.
- Compliance: The theoretical aspect alone is insufficient to ensure that the minimum wage system achieves its intended goal. Employers must effectively comply with minimum wage requirements.
The history of minimum wage legislation may be traced back to 1894 in New Zealand, when the first national minimum wage regulations were implemented. The Industrial Conciliation and Arbitration Act was enacted. It made salary negotiations with labour unions subject to mandatory arbitration. The Harvester judgement was made in Australia in 1907. It created a “living wage” for a man, his wife, and their two children in order for them to “live in economical comfort.” A significant development in this regard was the inclusion of a reference to minimum wages in the Federal Constitution of Mexico adopted in 1917. Article 123, VI, of that instrument, states that “The minimum wage to be received by a worker shall be that which is considered sufficient, according to the conditions of each region, to satisfy the normal needs of his living, education and honest pleasures, considering him as head of the family”. This constitutional provision, which was the first of its type anywhere to recognise the government’s obligation for providing minimal living standards, led to the establishment of the National Minimum Wage Board in 1933, which set general minimum pay for all workers across the country. The International Labor Organization (ILO) passed the Minimum Wage Fixing Machinery Convention in 1928, which had a global impact.
Closer to home, the British did not want to repeat these worldwide developments for Indian labourers because it was not in their economic interests. However, Article 43 of the Indian Constitution recognises the state’s responsibility to build an economic order in which every citizen finds work and earns a “fair wage.” In 1943, the Indian Labour Conference and the Standing Labour Committee formed a Labor Investigation Committee to look into issues such as working conditions and minimum salaries. The Standing Labour Committee proposed specific legislation dedicated solely to the problem of minimum wages in 1946. A tripartite body known as the Fair Pay Committee was formed with the goal of establishing a “fair wages” policy. The Committee was made up of employers, employees, and government officials. It established three separate salary levels:
- Living Wage
- Fair Wage
- Minimum Wage
Indian legislation on minimum wage
Minimum wage was established to assist people to not only support themselves, but also to meet other essential requirements such as education, health care, shelter, and other necessities. The Minimum Wages Act of 1948 was enacted as a result of this. The Act spelled out the steps for determining and establishing minimum wages in specific businesses. Wages were to be set by appropriate governments (at both the central and state levels) for various scheduled employments (based on skilled and unskilled labour, agricultural and nonagricultural employments, and minimum wages determined for various industries across various Indian states) under their jurisdiction for a set period of time. Once the minimum wage rates have been established according to the legal system, it is the employer’s responsibility to pay those wages regardless of the employer’s ability to pay.
The National Floor Level Commission proposed a National Floor Level Minimum Wage in 1991, with the goal of reducing wage disparities between minimum and average wage levels across the country. It’s worth noting that the National Floor Level Minimum Wage isn’t a legal requirement. This means that the state is not obligated to raise the minimum wage in accordance with this body’s recommendations, which instead serve as a persuasive tool for raising minimum wages. The Minimum Wages Act, as well as other wage-related legislation such as the Payment of Wages Act, 1936; the Minimum Wages Act, 1948; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976, were repealed in August 2019.
The Code of Wages, 2019
On August 8, the President signed the 2019 Wage Code, which had previously been passed by Parliament. The Code strives to govern pay and bonuses for all workers employed by any industry, trade, business, or factory, and supersede four laws: the Payment of Wages Act, 1936; the Minimum Wages Act, 1948; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976. Santosh Kumar Gangwar, the then-Minister of Law and Justice, established the Wages Code in 2019 in an attempt to fix legal gaps in prior legislation that had been utilised to exploit workers. This was done in order to ensure consistency in the application of legislative regulations controlling wage payment. Because only by making laws universal can timely payment of wages to workers and employees be guaranteed without any discrepancies. It applies to both organised and unorganised industries.
The Code recognises that the goal of setting the floor wage is to ensure “basic living standards” for workers, and the draught guidelines reflect criteria established by the Supreme Court in a landmark decision in 1992, as well as recommendations made by the 15th Indian Labour Conference. The net calorific needs of a working-class family (defined as the earning worker, spouse, and two children or the equivalent of three adult consumption units) are set at 2,700 calories per day per consumption unit, their annual clothing requirements are set at 66 metres per family, house rent expenses are assumed to be 10% of food and clothing expenditure, and expenses for children’s education, medical needs, recreation, and contingencies are all assumed to be 10% of food and clothing expenditure.
Major Highlights of the Code
Definition of wages: The Code specifies a single standard definition of the term wages for the purposes of minimum wages, wage payment, and bonus payment. Previously, the meaning varied according to the country’s diverse labour laws. Now there are three elements to the unified definition: inclusion, exclusion, and restrictions that limit the number of exclusions.
Minimum Wages: The Code also codifies the concept of a “floor wage,” a long-awaited goal. It is the minimum wage set by the federal government after taking into account the geographic necessities for a basic quality of living. No state government can pay less than this. Furthermore, a government with a minimum wage that is higher than the authorised floor wage is prohibited from lowering it. Employees must be paid at least twice as much for overtime as they are paid for regular work. To keep up with market changes, this salary level will be revised every five years at the most.
Payment of wages: The Code specifically allows for the determination of the wage period, whether daily, weekly, or monthly. Now, the employer must pay the wages for each wage period according to the time period specified. The settlement period for the preceding month’s work, for example, is on the 7th day of each month. Wages must reach workers within two working days if the employer resigns or is dismissed from the position for whatever reason. The time limit for filing a claim for minimum wage or equal remuneration used to be anything from 6 months to 2 years, but it has now been extended to 3 years.
What issues challenge the implementation of policy?
Implementation: In India, enforcing the minimum wage is challenging due to the large informal sector. According to a research, in 2009-2010, around 35% of total wage workers did not receive any benefit from this scheme. The intention of combining labour rules into one Code was to promote compliance, but how this shift of more and more workers being paid the minimum wage can be enforced remains a question.
Consumption: Because food is a basic human requirement, calorie intake is one of the most important elements in determining the minimum wage. The energy need is 2700 kilocalories, according to the Code. A working-class family traditionally consists of the wage earner, his or her spouse, and two children, and their consumption units are calculated as follows:
1 unit for the wage worker (often a male), 0.8 unit for the spouse (typically a woman), and 0.6 unit for each child, for a total of 3 consumption units. Many experts believe that, aside from being biased, this estimate may not be sufficient for developing youngsters. They propose dividing 1+1 + 0.75 + 0.75 into 3.5 consumption units, which is the current calorie need of a typical family. There’s also the issue of non-food consumption, which is given far less weight than it should be in light of current trends.
Representation: The Code also proposes the formation of a technical committee, whose members will be chosen from the three groups of stakeholders: government, employers, and employees. However, there is no element of productivity in the portrayal. The National Productivity Council should have been included because salaries are inextricably tied to productivity, just as they are to social justice.
Dynamic concept: The concept of minimum wage is dynamic because it is based on various elements that change throughout time. Inflation, which reduces purchasing power, is the most dreadful of them all. Real wages must be changed on a regular basis to guarantee that they remain at a level that allows for a particular amount of spending. Although there are mechanisms for adjusting Dearness Allowance, the fundamental component is not susceptible to such modification, making the minimum wage inefficient in terms of changing purchasing habits over time.
Work hours: The Code indicated that the total hours of work in a day were 9, rather than the customary 8 hours. This is strange in a time when developed countries are attempting to minimise working hours. Furthermore, the maximum number of hours worked, including rest periods, is 12. If any of the businesses use it to reduce shifts from three to two, this might be hazardous to employees. The exploitative nature of the Indian labour market is nothing new, and spoon-feeding a provision that plays out in the employer’s advantage at the expense of misuse could be a step backward.
The 2019 Wage Code has spurred controversy and discussion about the minimum wage. As previously stated, the umbrella legislation tries to eliminate the multi-jurisdictional model of wage fixing by establishing a floor rate. When used correctly, it has the potential to benefit all of the primary stakeholders. Despite the fact that labour activists have expressed several grounds of concern, there cannot be a direct comparison between India and other affluent countries. In developing nations like India, there is a scarcity of research on the impact of minimum wage on employment levels. This is a significant barrier to the government determining a wage level that is equitable to all wage earners. The monopolistic nature of the Indian economy’s domestic and construction sectors further obstructs the minimum wage’s goal.
By – Jashanpreet Kaur