Financial Effect Due to New Wages Definition

THE HIGH-FLYING FINANCIAL EFFECT UPON THE ESTABLISHMENTS, PARTICULARLY UPON ECOMMERCE COMPANIES DUE TO NEW DEFINITION OF ‘WAGES’ DEFINED UNIFORMLY UNDER THE NEW 4 LABOUR CODES. 

By : S K Gupta, Advocate, Supreme Court

011-22625485, 

skpfdelhi@gmail.com 

www.makeinindialawfirm.com

The subject of the Labour legislation matters are enumerated in List-III in the 7th Schedule of the Constitution of India ( Article 246, 7th Schedule, List –III – Concurrent List, Item 22 to 24 ). Therefore, as per Article 246 of the Constitution of India, the Central Government, as well as State Government, is empowered to legislate labour legislation but there is a rider that the enactment of the State Labour laws should be aligned with the Central ones. Therefore, the Ministry of Labour and Employment, Union of India , had already instructed all the Chief Secretaries of all States and union territories to expedite the Rule making process for implementation of the following four Labour Codes. 

1.The Code on Wages, 2019, 

2.The Code on Social Security,2020, 

3.The Industrial Relations Code,2020, 

4.The Occupational Safety, Health, and Working Conditions Code,2020, 

STATUTORY SALARY STRUCTURE ( 3 S )

The provisions of these codes, particularly the definition of “wages”, legislated uniformly in all four Codes. As and when these codes are implemented, would take a new shape of “ Statutory Salary Structure” ( 3 S ) of all categories of employees ( Top to bottom). Therefore, statutory coverage under the provisions of the Social Security Code,2020 will be increased incalculably, resulting in more financial liabilities upon the employers with respect to statutory compliance of the Provident Fund Contribution , the ESI Contribution , payment of bonus , payment of gratuity, payment of earned leave etc. Therefore, to understand the correct interpretation of the definition of “wages” which is legislated in all 4 Codes uniformly as under: 

DEFINITION OF WAGES UNDER 4 LABOUR CODES : 

"wages" means all remuneration whether, by way of salaries, allowances or otherwise, expressed in terms of money or capable of being so expressed which would, if the terms of employment, express or implied, were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment, and includes, — 

1. basic pay;
2. dearness allowance; and
3. retaining allowance, if any,

but does not include–– 

a. any bonus payable under any law for the time being in force, which does not form part of the remuneration payable under the terms of employment;

b. the value of any house accommodation, or of the supply of light, water, medical attendance or other amenity or any service excluded from the computation of wages by a general or special order of the appropriate Government;

c. any contribution paid by the employer to any pension or provident the fund, and the interest which may have accrued thereon;

d. any conveyance allowance or the value of any traveling concession;

e. any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment; f. house rent allowance;

g. remuneration payable under any award or settlement between the parties or order of a court or Tribunal;

h. any overtime allowance;

i. any commission payable to the employee;

j. any gratuity payable on the termination of employment; k. any retrenchment compensation or other retirement benefit payable to the employee or any ex gratia payment made to him on the termination of employment:

Provided that, for calculating the wages under this clause, if payments made by the employer to the employee under clauses (a) to (i) exceeds one-half or such other percent. as may be notified by the Central Government, of all remuneration calculated under this clause, the amount which exceeds such one-half, or the percent. so notified, shall be deemed as remuneration and shall be accordingly added in wages under this clause: 

Provided further that for the purpose of equal wages to all genders and for the purpose of payment of wages, the emoluments specified in clauses (d), (f), (g), and (h) shall be taken for computation of wage. 

Explanation: Where an employee is given in lieu of the whole or part of the wages payable to him, any remuneration in kind by his employer, the value of such remuneration in kind which does not exceed fifteen percent of the total wages payable to him, shall be deemed to form part of the wages of such employees. 

INTERPRETATION /VIEWS OF THE WRITER:

If employer makes wages /remuneration as enumerated under clause (a) to (i) (supra), except Tribunal’s award amount, and which exceeds one-half or such higher % of wages, will be deemed as remuneration, and shall be , accordingly added in ‘wages’ for statutory compliance under the provisions of the Social Security Code,2020 as well as to the other Codes also. Therefore, 3S , ( Statutory Salary Structure ) of the employees should be more than 51% of their gross wages or cost to the company (CTC),and the rest components of the allowances can be fixed by the employer, not more than 49% as enumerated in the exclusion clause of wages definition. According to the new definition of wages, the bifurcation of the minimum wages cannot be allowed because minimum wages is also notified in two components i.e. basic + DA , and both components are coming under definition of wages.

PROACTIVE APPROACH & ACTION PLAN OF THE HR PROFESSIONALS

How does new definition of ‘Wages’ (supra) effect upon the balance sheet of the establishments /companies /E-commerce companies from the Financial Year (FY) 2022-23?

(i) Social Security benefits viz. Statutory payment of the PF Contribution and ESI Contribution will be increased with respect to the Coverage of the employees in numbers, and followed by the more statutory liability of the PF & ESI thereof.

(ii) Gratuity liability of the old employees will extraordinarily be increased because of the new definition of wages (50% concept) and last drawn wages concept too ;

(iii) Payment of bonus liability may also increase due to the new definition of wages and that too, there is no salary rider fixed by the Central Government in the new Code. 

(iv) Encashment of earned leave liabilities because of the new definition of wages as well as the new rider has been legislated under the provision of OHS Code,2020 for payment of unused earned leave. 

(v) The Minimum Wages which is going to be notified in two-component i.e. Floor Wages ( Basic Wages) and DA and both components of the minimum wages will qualify the definition of “Wages” as defined under the four Labour Codes. Therefore, the outsourcing establishment i.e. contractors will not be allowed to bifurcate the minimum wages into different components to reduce statutory liabilities. However , the principal employers have to check on this point to reduce their future statutory liability including litigation etc.

(vi) Additional liabilities will also come upon Aggregators’ Company/ ECommerce business i.e. Ola, Uber, Jio-mart, Amazon, Courier Companies, etc. Now, these E-companies are liable to ensure the social security of their employees i.e. Gig Workers, Platform Workers, Delivery boy etc., and these Aggregator Companies (specified under IIIrd Schedule of Social Security Code,2020 ) will have to contribute at such rate not exceeding 2% but not less than 1% of the annual turnover of every the Aggregator Company or 5% amount paid salary or payable by an aggregator to the Gig Workers / Platform Workers.

Presently, due to the concept of “Cost to Company”(CTC), mostly private companies have already fixed statutory salary structure (3S) of their employees at lower side , and allowances portion at higher sides to reduce the statutory liabilities. Now , the companies / establishments have to change the “ Statutory Salary Structure” (3S) of their employees when these 4 Labour Codes will be notified for implementation.