Minimum Wages for Labour

Introduction

The goal of minimum wages is to protect workers from unfairly low pay. They contribute to ensuring a just and equitable share of the fruits of progress for all, as well as a minimum living wage for all employed and in need of such protection. Minimum wages can also be part of a policy to combat poverty and reduce inequality, including inequality between men and women.

79 percent of workers were employed in establishments with fewer than ten employees. The central challenge of labour regulation is to provide adequate rights to workers while also creating an enabling environment that can facilitate firm output and growth, ultimately leading to job creation. Firms should be able to easily adapt to changing business environments and adjust their output (and employment) levels accordingly. At the same time, workers require guaranteed minimum wages, social security, job insecurity reduction, health and safety standards, and a mechanism to ensure collective bargaining rights.

Labour Code on Wages

It aims to regulate wage and bonus payments in all jobs that involve any industry, trade, business, or manufacturing. The Code repeals four laws:

• The Payment of Wages Act of 1936

• The Minimum Wage Act of 1948

• The Payment of Bonus Act of 1965

• The Equal Remuneration Act of 1976.

All employees will be covered by the Code. Wage decisions will be made by the central government for jobs in industries such as railways, mines, and oil fields, among others. All other employment decisions will be made by state governments.

Wages include a salary, an allowance, or any other monetary component. This excludes, among other things, any employee bonus or travel allowance.

According to the Code, the central government will set a floor wage that takes into account workers' living standards. It may also establish different floor wages for different geographical areas. Before establishing the minimum wage, the central government may seek advice from the Central Advisory Board and consult with state governments.

The minimum wages decided by the central or state governments must be higher than the floor wage. In case the existing minimum wages fixed by the central or state governments are higher than the floor wage, they cannot reduce the minimum wages.

The Code forbids employers from paying wages that are less than the minimum wage. The central or state governments will announce the minimum wage. This will be determined by the amount of time or the number of pieces produced. The minimum wage will be revised and reviewed at least every five years by the central or state governments. When determining minimum wages, the federal or state governments may consider factors such as worker skill and work difficulty.

The number of hours that constitute a normal working day may be set by the federal or state governments. Employees who work more than a normal working day are entitled to overtime pay, which must be at least twice the regular rate of pay.

Wages will be paid in coins, currency notes, by cheque, by crediting the bank account, or electronically. The employer will determine whether the wage period is daily, weekly, fortnightly, or monthly.

Under the Code, an employee's wages may be deducted for a variety of reasons, including fines, absence, employer-provided accommodation, or recovery of advances made to the employee, among others. These deductions should not be more than 50% of the employee's total wage.

All employees whose wages do not exceed a certain monthly amount, as determined by the central or state government, will be eligible for an annual bonus. The bonus will be at least 8.33 percent of his base salary or Rs 100, whichever is greater. Furthermore, the employer will distribute a portion of the gross profits to the employees. This will be distributed in proportion to an employee's annual salary. A bonus of up to 20% of an employee's annual salary is permissible.

The Code forbids gender discrimination in wage matters and in the hiring of employees for the same or similar work. Work of a similar nature is defined as work that requires the same skill, effort, experience, and responsibility.

Advisory boards will be formed by the federal and state governments. The Central Advisory Board will constitute:

• employers

• employees (equal in number to employers),

• independent individuals, and

• five state government representatives.

Employers, employees, and independent individuals will serve on State Advisory Boards. Furthermore, women will make up one-third of the total membership on both the central and state boards. The Boards will advise their respective governments on a variety of issues, including I establishing minimum wages and (ii) expanding employment opportunities for women.

The Code specifies penalties for employers who commit offences such as paying less than the due wages or (ii) violating any provision of the Code. Penalties vary depending on the nature of the offence, with the maximum penalty being three months in prison and a fine of up to one lakh rupees.

Significance

Many countries have strengthened their minimum wage systems in recent years in order to lift workers out of poverty and reduce levels of inequality. The renewed interest in the minimum wage stems from recent literature and evidence indicating that, if wages are set at an adequate level, minimum wages can promote social justice without having a significant negative impact on employment.

Despite India's exceptional growth over the last two decades, low pay and wage inequality remain significant barriers to achieving inclusive growth. An effective minimum wage policy that targets the most vulnerable wage earners can help boost aggregate demand while also building and strengthening the middle class, kicking off a period of sustainable and inclusive growth.

Enforcement

There is a need for stringent enforcement and overseeing mechanisms, here are some of the examples of the other countries:

• In UAE, all enterprises have been legally required to pay wages for both national and migrant workers through banks and other financial service providers. This system allows the Ministry of Labour to have a comprehensive wage database and an electronic wage payment monitoring mechanism for enterprises within the country.

• In South Africa a system, called ‘Impimpi Alive’, enables workers to send anonymous SMS messages to the Department of Labour (DOL) after which an inspector is dispatched to the employer’s place of business within 48 hours.

• In U.S. an app, The Wage & Hour Guide for Employers App, puts federal and state wage and hour laws at the fingertips of employers as well as law makers for better transparency.

• U.S. also has an app, GovDocs Minimum Wage app that provides the most up-to-date minimum wage rate data for all company locations.

There should be an easy-to-remember toll-free number where anyone can register a complaint about non-payment of the statutory minimum wage. This number should be widely publicised in order to raise awareness of this avenue for grievance redressal.

Swift action should be taken against the offenders and this action should be flashed on the dashboard without going into specific details. The impression of action being taken would act as a deterrent to employers to flout the statute.

Key takeaways

• Minimum wages are legal floors set by governments—not living wages—and vary widely across countries and regions.
• Empirical evidence, especially since the 1990s, suggests moderate minimum wage increases reduce poverty without significantly harming employment.
• Enforcement and coverage gaps are major challenges: nearly 60% of the global workforce lacks formal wage protections.
• Criticisms focus on potential job losses, automation, and inefficiency in targeting the poorest, prompting calls for complementary tools like tax credits.
• Context matters: a wage sufficient in a rural area may be inadequate in a high-cost urban centre, challenging one-size-fits-all policies.

Test yourself

What is the difference between a minimum wage and a living wage?

A minimum wage is the legal minimum employers must pay; a living wage is the income needed to afford basic needs in a specific location and is usually higher.

Which country was the first to enact a national minimum wage?

New Zealand in 1894.

What major study challenged the prediction that minimum wages reduce jobs?

The 1994 Card and Krueger study comparing New Jersey and Pennsylvania fast-food employment after a minimum wage hike.