Explained: Who fixes floor wages? Could the appointment of a new committee defer the rollout of the Wage Code?

A labourer carries a sack filled with pulses at a wholesale pulses market in Kolkata (Representative Image)

The Ministry of Labour and Employment on June 3 constituted an expert group led by Prof Ajit Mishra, Director, Institute of Economic Growth, to provide technical inputs and recommendations on fixation of Minimum Wages and National Floor Minimum Wages.

The group has been constituted for a period of three years. It is the second such expert committee formed by the government.

The COVID-19 pandemic has not just created a national health emergency, but also severely affected the workforce, leading to a mass exodus of migrant workers.

As per an October 2020 report by the Brookings Institution titled 'The Impact of COVID-19 on Global Extreme Poverty,' India will record the largest number of people slipping into poverty.

It therefore puts the spotlight on the debate of minimum wage for a decent standard of living.

Moneycontrol explains what floor wage is, why India needs a fresh national floor wage, recommendations of the previous committee on national floor wages, what the Labour Code says and why a new committee has been set up.

What is a floor wage? 

A floor wage is a minimum wage established by law. It functions as a benchmark for wages to ensure that the wages do not fall below the set limit.

What is minimum wage? 

As per International Labour Organisation (ILO), minimum wages have been defined as the minimum remuneration that an employer is required to pay wage earners for the work performed during a given period. It cannot be less than the floor wage established by the law. It varies across different categories of workers.

Why does India need a national floor wage?

As per the Economic Survey of 2019, a national wage ceiling would alleviate disparity and poverty in India. It says that Labour Codes should also lay down a benchmark of substantive labour rights or standards such as minimum wages.

What does the Code on Wages, 2019, envisage?

The Parliament passed the Code on Wages, 2019. It makes provisions for minimum and timely payment of wages to all workers in India. It subsumes four laws relating to wages and bonus.

The Code introduced the concept of floor wages wherein the rates would be fixed by the central government by considering the minimum living standards of the workers. Once the Code is enacted, the minimum rates of wages fixed by a state government cannot be less than floor wages, as determined by the central government.

The Code extends the implementation of the minimum wages to all the sectors. It would apply to all the staff employed in both the organised and the unorganised sector.

The Code was expected to be rolled out on April 1, 2021. However, it got deferred because of the delay on the part of the states in finalising the rules.

How has India been determining minimum wages?

India set a benchmark on minimum wages a year after her independence when The Minimum Wages Act, 1948, was passed. However, several states kept fixing different minimum wages for different categories of jobs and workers, thereby leading to wide disparity in minimum wages across geographical regions.

Therefore, to have a uniform wage structure and to also reduce disparity in minimum wages, the government in 1996, introduced the National Floor Level Minimum Wage on the recommendations of the National Commission on Rural Labour (NCRL), 1991.

The National Floor Level Minimum Wage was fixed at Rs 35 per day in 1996, which was revised periodically thereafter. After subsequent revisions, it was fixed at Rs 100 in 2009 and Rs 176 in 2017. However, it was not legally binding on the states.

What were the recommendations of the previous expert committee?

In January 2019, the Satpathy Committee appointed by the government released its recommendations. In its report, it proposed that the government should increase the national minimum wage to Rs 375 per day. The report said, it was "setting the single value of the NMW (National Minimum Wage) for India at Rs 375 per day.’’ It also suggested introducing an additional house rent allowance of Rs 1,430 per month for urban workers over and above the NMW.

Were those recommendations accepted by the government?

The government did not accept the recommendations of the committee, as the benchmark of Rs 375 was too high and in sharp contrast to the existing rate of Rs 176 per day. Instead, in July 2019, it proposed a hike of Rs 2 in the national minimum wage from Rs 176 per day to Rs 178.

Could the appointment of a new committee for three years defer the rollout of the already delayed Wage Code?

According to several labour experts and lawyers in the employment domain, the appointment of a fresh committee brings forth ambiguity in its regard to the Codes.

Said an expert, speaking on condition of anonymity: "While it appears that the committee has been framed to present the recommendation of the wages as envisaged in the Codes, the notification issued on the committee remains silent on the Code. It therefore makes it a grey area. So, in that case it should not affect its implementation."

Some experts also noted that the committee has been set up in respect to the Wage Code. They, however, noted the tenure of the committee and said that its submission of the recommendations may not defer the rollout as Section 69 of the Wage Code, which deals with the repealing of the existing laws, says that the government may continue to enforce certain provisions of the existing laws.