History of Minimum Wages Legislation: Looking at India and the Code on Wages
Minimum wage is quite simply, the lowest remuneration that an employer may pay to their workers, as regulated by the law. The history of legislation around minimum wages takes us back to New Zealand in 1894, where the first national minimum wage laws were enacted. This was the Industrial Conciliation and Arbitration Act. It introduced compulsory arbitration with trade unions for the negotiation of wages. In 1907, the Harvester decision was handed down in Australia. It established a ‘living wage’ for a man, his wife and two children to “live in frugal 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, the first of its kind anywhere to recognize explicitly the responsibility of State for ensuring minimum standards of living, eventually led to the creation in 1933 of National Minimum Wage Board for the fixing of general minimum wages applicable to all workers throughout the country. Another development which has global influence was the Minimum Wage Fixing Machinery Convention passed by the ILO in 1928.
Closer to home, in India, it was not in the economic interests of the British to replicate these global developments for Indian workers. However, the Indian Constitution, specifically, Article 43, accepts the responsibility of the State to create an economic order in which every citizen finds employment and receives a ‘fair wage’. In 1943 the Standing Labour Committee and the Indian Labour Conference set up a Labour Investigation committee so as to inquire into the matters relating to working conditions and minimum wages. In 1946 the Standing Labour Committee suggested specific legislation exclusively dedicated to the issue of minimum wages. A tripartite committee also known as the Fair Wages Committee was established which aimed to set a policy for “fair wages”. The Committee consisted of representatives of employers, employees and the Government. It defined three different levels of wages:
1. Living wage
2. Fair Wage
3. Minimum Wage
Minimum wage wasn’t just to allow the person to sustain their life, but also allow them to address other needs like education, health-care, shelter and other basic needs. The led to the enactment of the Minimum Wages Act 1948. The Act laid down detailed procedures for setting and listing minimum wages in various industries. The fixation of wages was to be made by appropriate governments (Central and State levels), for different scheduled employments (based on skilled and unskilled labour, agricultural and nonagricultural employments, and minimum wages determined for different industries across various States in India) under their domain for a specific time period. Once the minimum rates of wages are fixed according to the procedure prescribed by law, it is the obligation of the employer to pay the said wages irrespective of the capacity to pay. The National Floor Level Commission introduced in 1991 the idea of a National Floor Level Minimum Wage aiming to reduce the disparity between minimum and more generally different levels of average wage across the country. It is to be noted that the National Floor Level Minimum Wage is not a statutory measure. This means that the State does not have an obligation to increase the minimum wage in accordance with advice emitted from this body, which works instead as more of a persuasive means for uplifting the minimum wages. In August 2019, the Code on Wages was enacted, which replaces the Minimum Wages Act, as well as other wage-related legislation like Payment of Wages Act, 1936; the Minimum Wages Act, 1948; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976. Let’s understand what the code changes in comparison to the previous law on minimum wages.
The Minimum Wages Act was only applicable to employees engaged in establishments which were included in the schedule under the Act, but the Code on Wages ensures universal applicability of provisions related to minimum wages to all employees irrespective of the sector they are working in. The code has given a uniform definition of wages, which includes basic pay, dearness allowance and retaining allowance. It excludes certain components such as HRA, bonus, gratuity etc. However, if the specified exclusions exceed 50% of the total remuneration, then the excess amount over 50% will be included in the definition of wages. The central government will set the national floor rate for wages after taking into account the minimum living standards of workers varying across geographical areas; where existing minimum wages are higher than the floor wages, the same shall be retained. State governments will fix the minimum wages for their region which cannot be lower than the national floor rate for wages. The code also provides that there would be a review/ revision of minimum wages at intervals not exceeding five years. For fixing the minimum wage, the government shall take into account the skill of workers and the difficulty of work. Earlier, the type of employment was also a consideration, which has been done away with, which means the number of different levels of minimum wages will reduce substantially.
The main role played the code is to consolidate different laws related to payment of wages and create uniformity and consistency. The Code allows states to make rules for implementation, like providing for the calculation of wages and the manner of excess deductions. Only once the rules are out, can there be a definite appraisal of the impact of the Code on Wages.
